Ethereum, the second-biggest cryptocurrency, might soon become the biggest organization in the world, not only surpassing Bitcoin but also any other traditional business (including Apple). The amount of innovation coming out of this blockchain is just mind-boggling, even though Ethereum itself is only 6 years old!
To say that the evolution of Ethereum’s usability is impressive would be an understatement. In this article, I will share with you the 5 most important things you should know about the Ethereum blockchain so you can understand the importance and implication of its further development. Let’s start with the basics.
1. Smart contracts
When Vitalik Buterin (the founder of Ethereum) was not able to convince the Bitcoin community to upgrade the protocol to allow for some more flexibility and usability he decided to create his own blockchain. By developing Ethereum he built the first protocol that allowed the development of complex decentralized applications. This has been achieved by implementing smart contracts.
So what are these famous smart contracts?
Smart contract is code that gets executed if a certain condition(s) is met (this can be basically any program). Smart contract will execute a certain operation upon receiving a given input or trigger.
Each node (you can read more about nodes here) of the Ethereum blockchain has a copy of each smart contract and its state. Because of it, smart contracts cannot be altered. Implementation of this technology has some interesting implications and benefits. Anyone around the world can interact with any smart contract they chose to, without 3rd party involvement (reducing the cost of brokers and intermediaries). What is more, because these programs cannot be altered and are fully transparent, there is no risk of manipulation. The transparency they provide is unparalleled not only because of their open-source nature but also because they are stored on thousands of nodes, meaning that all the data ever recorded on the Ethereum blockchain will never be lost. The combination of all these qualities and features allows for some very interesting use cases, like:
You might think that I am crazy but I strongly believe that within the next 10 years most of the world’s assets will be on the blockchain (not only Ethereum). Tokenization (creating tokens that represent a certain asset) is speeding up and it seems that every month we’re getting a new asset class moved to blockchain. Some of my favorite examples of tokenization platforms include:
- RealT: This platform allows basically anyone in the world to invest in the US real estate market. By leveraging the Ethereum blockchain you can buy tokens representing ownership in different houses and get passive income from the rent payments they produce
- CurioInvest: first blockchain startup (Swiss-based) to tokenize a Ferrari. Did you ever want to own a supercar? Now you can, and you can make money while it appreciates in value!
- The Art Exchange: Art is another big market for tokenization (more about it later).
- Mosaico: Polish-based platform that provides tokenization services for many different industries (including Whisky)
Tokenization will have many benefits including speeding up blockchain mass adoption, access to international markets and investments for anyone in the world, and providing global liquidity access for anyone who decides to tokenize their asset. This brings us to another group of assets that are already quickly evolving because of the Ethereum blockchain
3. DeFi (Decentralized Finance)
DeFi provides financial infrastructure, for example, decentralized exchanges, instant liquidity, and lending or borrowing opportunities with interest rates way more attractive than any bank will ever offer you.. Contrary to regular financial institutions it does that in a decentralized way. Most of the DeFi projects run on the Ethereum network but the whole ecosystem has been growing exponentially (fueled by the spectacular success of Ethereum-based DeFi protocols). Right now it also includes other blockchains like Polygon, KuCoin Community Chain, Avalanche, or Binance Smart Chain (platforms based on BSC are often not considered DeFi as BSC is highly centralized). What’s important is that anyone can take part in these projects by simply connecting their software wallet to one of many DeFi Apps. You don’t need anyone’s permission to interact with these protocols and make money off them. The space of decentralized finance is very young but has already seen a ton of innovation and it is certain that in the future it will reshape and restructure the whole global financial ecosystem. The next use case that has been speeding up blockchain-induced changes in the world are NFTs.
4. NFTs and Layer 2
2021 has been a big year for non-fungible tokens, fueled by many artists and celebrities entering this space and astronomical valuations of some of NFT projects. NFTs allow for blockchain-based art creation and a seamless transfer of ownership rights of unique things like pieces of art, internet domains, in-game accessories, and more. This space has been lately experiencing an explosion of interest as it gets easier to use and has been advertised by many famous personas. It is worth noting that some of NFT platforms have been at the forefront of layer 2 scaling solutions for Ethereum (allowing for cheaper and faster transactions so needed by the whole Ethereum community). Some of the more interesting NFT platforms include:
- AXIE Infinity: Innovative gaming platform that illustrates the potential of blockchain-based games
- SORARE: Fantasy Football Game with collectible cards
- CHILLZ: A platform providing blockchain-based solutions, focusing on sports
- DECENTRALAND: Full virtual world where you can buy land, build and explore
5. ETH 2.0
If you’ve been in the crypto world for a while you already know that Ethereum is not all roses and it has been struggling with high transaction cost and scalability issues for a while. It is still the biggest smart contract-based blockchain with the support of thousands of developers and hundreds of millions of dollars. Soon we will be saying goodbye to one of its building blocks – the proof-of-work mechanism, as Ethereum will be implementing a more environmentally-friendly consensus solution- the proof-of-stake. The switch to ETH 2.0 will have many important implications, including:
- Miners and their hashing power: Ethereum mining has been a very profitable business. It has been so profitable that most of the graphic cards (GPUs) around the world have been scooped from the market by the miners. When we finally move from Pow to PoS all this mining power will have to go towards other protocols creating a huge spillover event in the whole cryptocurrency environment
- Possible liquidity crisis: Even right now, before the implementation of ETH 2.0 the exchange reserves of Ethereum have been at an all-time low. With the change to PoS consensus, a lot of Ethereum will be locked for staking creating even bigger liquidity issues. What does it mean for us? Much higher Ethereum prices
- Huge passive income tool creation: Proof-of-stake blockchains provide one of the best passive income opportunities in the world. Super secure, easy to set up solutions are already available. As Ethereum grows and gets even more expensive this is a no-brainer long-term investment for me. Ethereum might be the biggest retirement fund in the world within the next decade 🙂
I hope that after reading this short article you got a better understanding of how big the smart contracts and Ethereum itself will be. We are watching a whole new ecosystem, based on transparency and efficiency being built around all the most relevant parts of our lives.
Are you well prepared for this paradigm shift?
Will you take full advantage of this tidal wave of innovation?
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