A record high on plans to issue a digital bond on Ethereum — renewed attention as the core of a digital financial innovation network

When bitcoin broke below $50,000 in mid-April, Ethereum defended the $2,000 line. For an investor who lived through the crash of 2018, this is the sort of thing from which one might take a hint that this correction is unlikely to lead to a collapse of that kind.

If the cause had been fatigue and pessimism about the blockchain industry as a whole, then coins other than bitcoin — whose value is comparatively stable — should have fallen further, and it would have been natural for bitcoin's share of total value to rise. This time, however, although coin prices crashed across the board, bitcoin's share of total value fell. This was possible because, despite bitcoin's crash, Ethereum and other blockchain tokens acquitted themselves reasonably well. It was a market that taught investors they must strive to understand even the dynamics between bitcoin and other blockchain assets.

This also relates to another reason politicians and bureaucrats find it hard to ban bitcoin outright. Economists of global standing are urging governments to clean up this "free-for-all," in which asset values rise and fall dozens of times over in a single day, as soon as possible. Their real target, of course, is bitcoin, which appears to challenge fiat currency.

You must understand the bitcoin–Ethereum relationship

The April crash had nothing to do with environmental changes directly tied to the coin ecosystem. Moral condemnation of bitcoin and other coins and fears of a bubble had been spreading, and a strong sense of crisis that a policy decision on the matter was imminent played a large role. Yet the moment the financial authorities gave off the air that they might shut down the exchanges at any moment, a counter-wave of moral objections came rushing in. This was starkly revealed in the controversy that erupted in Korea over why the "kimchi premium" had deflated.

The financial authorities' "grown-up" concern about the young generation's misguided investments was branded the anachronism of stubborn old-timers who speak carelessly about what they do not properly understand, and a policy of banning cryptocurrency was attacked as a foolish choice to drop out of new technology and future industries of one's own accord. Fittingly for the two-sidedness of cryptocurrency issuance and blockchain platforms, revulsion at "fake money" and the argument that one must lead in new technology are locked in a tight standoff. The principle the Korean government put forward three years ago was a kind of dichotomy: "block the coins, encourage the blockchain." This principle, which looked persuasive at the time, proved on its own — in the face of the explosive growth of cryptocurrency four years later — to be nothing more than an unworkable slogan.

If bitcoin represents cryptocurrency, Ethereum represents the blockchain platform. For the government's principle to carry any practical meaning, it would need a clever scheme to block bitcoin while promoting Ethereum. But contrary to what people think, bitcoin and Ethereum are hard to separate. To discuss the future of the blockchain ecosystem without understanding the relationship between the two is as foolish as repeating the clumsy rhetoric of three years ago that "coins are not allowed, but blockchain is."

Bitcoin, which has kept itself alive in a hostile environment, was in no position to expect support from mainstream academia or the media. Perhaps because of that origin, bitcoin raises its head and climbs when attention is not on it. But when the media takes notice, it tends to absorb the concentrated fire and shrink back. It is interesting that this crash, too, came right after the Coinbase listing. Ethereum, by contrast, drew attention from the moment it came into the world. The marketing that it was a technology that overcame bitcoin's shortcomings while maximizing its strengths worked. In other words, Ethereum has shown the trait of growing the more media attention it receives.

In fact, if you searched "bitcoin" and "Ethereum" in English on Google during the April crash, the contrast between the two stood out. A bitcoin search turned up the keywords bubble, crash, and government regulation. But a search for Ethereum brought positive news to the fore, such as fee savings and platform improvements. In the 2017 cryptocurrency bull market as well, bitcoin was associated with the tulip bubble, while blockchain came up alongside the fourth industrial revolution.

Bitcoin and Ethereum have grown in competition with each other, but their relationship is not as mutually hostile as the attacks their respective believers launch at one another suggest. As can be seen from the fact that the U.S. Securities and Exchange Commission (SEC), which sued Ripple, explicitly stated that bitcoin and Ethereum are not securities, from a regulator's standpoint these two blockchains have more in common than not. What the SEC treats as important is that both blockchains have achieved decentralization. To that extent, the influence of any single actor is limited, so the object of regulation is not clear-cut. Even if you regulate, the regulation has no practical effect.

That two platforms which look similar to regulators have been imprinted on the public with entirely opposite images is quite convenient for blockchain's defenders. Whenever the fervor for coin investment runs into moral condemnation, Ethereum tends to generate news that expands the ecosystem — and Ethereum's positive image can be held up to make the case for just how anachronistic the regulationists are.

In a crashing market, Ethereum hits a record high

On April 28, when the terror of the crash had not yet lifted from the coin market, Ethereum recorded an all-time high. The cause the press focused on was news of a digital bond issuance by the European Investment Bank (EIB). The news was that the EIB planned to issue 100 million euros (about 134.3 billion won) worth of two-year digital bonds on the Ethereum blockchain network. The EIB is an international financial institution whose shareholders are the member states of the European Union (EU). In early March, Amazon Web Services announced that it would support Ethereum as a blockchain platform. Visa did the same. Visa decided to build a virtual asset payment system on the Ethereum blockchain.

These items matter because, until just a few years ago, the accepted wisdom was that financial firms and Big Tech would each build their own proprietary blockchain platforms. That Big Tech firms like Amazon and financial firms like Visa are treating Ethereum as one of their options can be read as a signal that Ethereum has pulled ahead of the other platforms and occupies a commanding position in the competition to standardize blockchain platforms.

Ethereum is changing the proof-of-work (PoW) method that lies at the core of blockchain, following the mathematical theory that a decentralized collaboration system can be operated without consuming electricity the way bitcoin does. In other words, it has been preparing to step aside from the moral condemnation that mining consumes electricity and aggravates global warming. Ethereum also does not halve its issuance the way bitcoin does, so the near-hostility toward deflationary money held by mainstream economists, led by the monetarists, has nothing to do with Ethereum either. The more such an Ethereum pours out positive news, the more awkward the position of economists who demonize cryptocurrency as such. Politicians, watching the economists hesitate, find themselves unable to make any choice at all.

That said, the expectation that the expansion of the Ethereum ecosystem will immediately translate into a surge in ether (the coin) must be judged in the round, taking ether's inflationary properties into account. And the debate over whether the stake-based proof method Ethereum intends to adopt is suited to protecting an asset whose value increases continuously, as bitcoin's does, is still open.

But these opposing properties of bitcoin and Ethereum are also the grounds on which the two systems can coexist. Because Ethereum's platform has greater scalability than bitcoin's, it is developing into a network for the issuance and trading of digital assets. Ethereum has a considerable chance of taking on one axis of the integration of finance and logistics that blockchain will bring about. Whether it is Ethereum or some other platform that replaces it, it is certain that on such a platform bitcoin will function as the ultimate collateral. Put simply, bitcoin is likely to function as base money on Ethereum, and the Ethereum platform is likely to become the core of a digital financial innovation network.

By analogy with the way the internet was named the information superhighway, such a network is called the trust superhighway. Rather than making the unnatural attempt to view cryptocurrency and blockchain separately, one must adopt the perspective of the emergence and growth of a global trust superhighway — only then will you avoid failing at investment or being left behind by the changes new technology brings.

Oh Tae-min, author of "Bitcoin Was Strong" and "The Genealogy of Bitcoin Wisdom"