Ethereum & Co - Universal Blockchains
25.11.2021 • Просмотров:

Ethereum & Co – Universal Blockchains

By Decimal

Bitcoin is a blockchain, but blockchain is not Bitcoin. Today, according to there are hundreds of autonomous blockchain systems, but the most powerful, besides Bitcoin, is Ethereum. As the first general-purpose blockchain, it goes far beyond the BTC as a ready-to-use as a payment system, and can show what are the additional benefits of general-purpose blockchains for business and society.

Differences in blockchain projects

Bitcoin and Ethereum, as the two largest blockchain projects, are fundamentally different from each other, although their BTC and ETH tokens are still developing in the market in parallel.

Bitcoin is usually equated with blockchain, and that’s right. Since the advent of a secure (decentralized) peer-to-peer payment system based on a publicly available block chain, in January 2009, the foundation of blockchain technology, as well as the cryptocurrency itself, was laid, and its triumphant march was announced. Today, after more than eleven years, there are thousands of independent blockchain projects besides Bitcoin.

The most common blockchain platform, besides Bitcoin, is Ethereum. “Ethereum is a global open source platform for decentralized applications … On Ethereum, you can write code that manages digital values, and that runs exactly as programmed, and that is accessible from anywhere in the world”.

The network described in Vitalik Buterin’s official document at the end of 2013 has been operating since July 2015, and is the number 2 cryptocurrency in the world by market capitalization, after Bitcoin, but already ranks first in terms of the number of users represented.

According to their network tokens – BTC and ETH, it is noticeable that they develop almost in parallel, that is, they correlate, and it is reasonable to assume that investors equally assess the purpose and advantages of two different networks. The truth is that both systems are considered avant-garde blockchain platforms, and the best cryptocurrencies. But, as the first, so-called universal blockchain, or blockchain of smart contracts, Ethereum is fundamentally different from Bitcoin.

What connects Bitcoin and Ethereum

Bitcoin is the first digital currency that can be safely transferred between completely unknown people in a completely decentralized manner, that is, in an unreliable environment. This has created a digital payment system that operates without central units such as banks and payment service providers, meaning it can actually contribute to the disintermediation of the financial sector.

It promises simplicity, security, speed and a lower transaction fee compared to conventional payment systems. Socio-political upheavals were also initiated, as the examples from El Salvador show, whose government recently introduced Bitcoin as a state alternative currency, as a payment solution for the population without bank accounts.

Bitcoin is a blockchain: from a technical point of view, it is a public registry in which all transactions of the BTC are stored, performed in chronological order and in blocks. It can be viewed and used by everyone, it is stored and updated in a decentralized manner on thousands of computers (hence DLT for distributed registry technology) in a peer-to-peer network (“P2P”).

The cryptographic algorithm uses a complex calculation process (the so-called proof of work or POW for short) to obtain proof that the payment was made correctly, and thus eliminates the risk that Bitcoin was issued twice or forged (the so-called “Double Spending”).

Bitcoin is not only a blockchain-based payment network, but also a virtual means of payment, a medium of exchange represented by a BTC coin, and made available for trading through the Bitcoin blockchain.

Like Bitcoin, Ethereum also provides decentralized use of digital money using its own public blockchain, public key infrastructure, POW consensus procedure and its own ETH token.

The aforementioned high correlation between the two courses is at least understandable so far. The possible uses of Ethereum go far beyond the use of Bitcoin.

Ethereum is the first general purpose Blockchain

Unlike the BTC, Ethereum is a blockchain platform that can be programmed using smart contracts, and with the help of which decentralized computer applications are created, the so-called “dApps”. It was designed as a shared global infrastructure, and is ideally suited as the basis for a large number of financial and non-financial protocols. Ethereum can be used to represent ownership and transition to digital technologies, assets, but also to create applications of any type in which data cannot be stolen or censored, in short, with the help of Ethereum, a decentralized, globally accessible and used blockchain operating system was created for the secure transmission of reliable information.

Thus, Ethereum is the first general purpose blockchain that provides the following scheme:

Scheme of the Ethereum ecosystem

Scheme of the Ethereum ecosystem

Innovative ecosystem solutions

DeFi (decentralized finance), means financial applications of interchangeable, i.e. exchangeable values, NFT (non-interchangeable tokens) for semi-financial applications and DAO (decentralized autonomous organizations), for non-financial applications that are managed with limited human intervention, for example online coordination or decentralized management structures.

Let’s look at two examples that describe the universality of the Ethereum platform, one from DeFi, the other from the NFT universe. Both of them are from Switzerland, where the Ethereum Foundation is located, and which is known as the nation of blockchains, with an appropriate ecosystem and a reliable legislative basis for the technology.

DeFi describes an ecosystem that offers financial services based on cryptography, such as lending, trading, asset management and payments. The Defi Liquidity platform offers, among other things, loans received in the form of its own stable Liquidity coin (LUSD) secured via Ether.

This De-Fi product can be compared to a pawnshop loan in a bank, through which short-term funds are provided to the bank’s client in exchange for the pledge of his securities and the payment of interest on the loan. To become a customer of the bank, the interested party must first fulfill the requirements of “Know Your Customer” (KYC), and to obtain a pawn loan, among other formalities, conclude (by hand) a written commitment – agreement. Thus, a person has to go through lengthy processes involving a cascade of questions and forms, often still in paper form.

In the case of DeFi, all processes are performed online and without delay. Defi is increasingly regulated, but online KYC issues are being resolved quickly. To get a credit line in the form of a stable coin, it is enough to write ETH as collateral with one of the liquidity providers, simply through a crypto wallet and without any additional formalities, and, of course, not handwritten. This not only gives customers efficiency benefits. The liquidity loan is completely interest-free for a one-time commission of 0.5% (!) available – simply revolutionary in the credit market.

Now about NFT, and their big creative lab. NFT is another market created by Ethereum. This is a token that embodies a unique property right that cannot be exchanged, and certifies both the right and authenticity. The token is created for creative work products.

Hashmask uses the same NFT. At the beginning of 2021, as part of this Ethereum project, an art collection of 16,384 unique digital portraits created by 70 artists in tokens on the Ethereum blockchain was tokenized. They were sold at an online auction in record time. These purely digital art objects can now be sold on a specialized OpenSea crypto platform specializing in NFT.

Unlike well-known predecessor projects such as CryptoPunks and CryptoKitties, Hashmask also uses a so-called name change token. The name can also be specified by the consumer and, thus, affect the work itself. Such examples, in particular, illustrate the unlimited number of applications that Ethereum creates as a universal blockchain with smart contracts.

Ethereum as a Universal Blockchain for Business, Society and Trade

  • The Value of Ethereum as a Network

Just now, two examples have shown what the real usefulness of the Ethereum platform is. Simply put, the value of Ethereum depends on the reliable, verified information stored in the block chain, the size and growth of the network created by dApps. As of October 2021, there are already 3,000 of them.

A network between social and economic actors has been created around the Ethereum system – the Ethereum ecosystem, which is constantly growing. Billions of dollars have been invested in the relevant enterprises. According to DeFiPulse, an average of $80 billion was invested in assets in the DeFi sector alone between July and August 2021:

The number of transactions in the Ether already exceeds the number of transactions in Bitcoin, and development is just beginning. The platform’s ability to store almost all information securely and confidentially, decentralize and make it available for trading, opens up new markets for reliable information.

Digital profiles can be created with sensitive personal data, such as health data. The user can regain control of their data, and suddenly there will be alternatives to powerful central platforms such as Amazon, Microsoft or Facebook.

By creating an entire operating system, Ethereum has created a unique trading offer and its own pioneer advantage in the cryptocurrency market. However, the online community cannot calm down: such advantages in the field of technology can quickly disappear: who else remembers MySpace, Netscape or Yahoo?

In order to remain flexible in the market, Ethereum, unlike Bitcoin, has a management structure with a central development team and, thus, can initiate protocol updates. Changes in the blockchain, such as the upcoming change of the POW consensus procedure to Proof of Stake (POS), are now possible, and legacy problems can be solved, and the network can be more scalable, secure and resilient [8].

The value of Ether as a token

Thus, the Ethereum platform creates value through real benefits. Surprisingly, most ETH tokens are treated differently. It is not considered a real carrier of value with intrinsic value. In order for a token to be considered a real asset or a crypto asset, it must have the property as a store of value and thus generate either income or a real utility value. According to the point of view presented here, this is being done.

Native crypto tokens get their value from reliable, verified information about the blockchain. The release of ETH creates the prerequisites to make this information sound, activate it and make it available for trading. Therefore, it is difficult to understand how the Ethereum network can have value, but its coin does not.

The value of ETH is determined directly by the use of the Ethereum network, and therefore is considered a means of saving. In other words, Ether can be considered as a commodity. The token carries reliable information that it contains, and therefore is itself a raw material with real utility. With the introduction of the PoS process and the stacking function, Ether in the future will also correspond to the second characteristic, as a means of saving and income.

But Ethereum will have to try very hard to maintain its trailblazer advantage. There are several serious competitors in the general purpose blockchain market, such as Polkadot, Solana, Algorand and Cardano. Thus, “time is money” will remain the motto of Ethereum.

However, the biggest risk for crypto assets, including ETH, is international regulation. If you are attentive and observant, a cleansing wave is inevitable, which will soon begin in the US (Europe and China are already ahead of everyone, albeit with opposite measures), and it will mainly affect the DeFi and stable coins market. However, after that, the market will be able to develop steadily.

After a little regulatory noise, we can count on further revolutionary innovations through Ethereum, and its decentralized universal blockchain platform.