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The Crypto Series: Ethereum

The Crypto Series: Ethereum

Who likes to be number two? No one really, not fun. For long, that was Ethereum’s doom vs. bitcoin – but, over the last year, the tide has turned, and now things might start to change (especially after bitcoin’s sharp fall the past month)!

Ether (ETH), the native cryptocurrency of the blockchain platform, just recently outperformed bitcoin by a factor of three-to-one, and now has a market cap roughly one-third its size, rising its value from below $200 to above $4,000 in just one year. Plot twist: some believe it could overtake the value of bitcoin – dum, dum, duuuum.

So, in our third and final episode of the digital currencies deep dive series, we’ll explore the second-largest cryptocurrency by market cap and how its blockchain (which is the most actively used) kicked off a truly new community-based digital economy.

The DeFi revolution

Ethereum, a decentralized, open-source platform, was proposed in 2013 by programmer Vitalik Buterin. After successful crowdfunding, the network went live in 2015 with an initial supply of 72m coins.

The blockchain’s underlying technology not only runs ether, a digital currency traded like any other cryptocurrency, but is also used to power applications, create smart contracts, exchange NFTs (remember when we wrote about that?), and contribute to many initial coin offerings (an ICO is basically the crypto world’s equivalent to an IPO).

Also, the platform recently announced that it’ll soon shift its underlying infrastructure to a new model that would slash its carbon emissions, following environmental concerns linked to mining (the process that keeps cryptocurrencies running), which caused so many problems for bitcoin.

Thanks to Ethereum’s greater utility than other coins, the blockchain network is playing an important role in the emerging industry of decentralized finance, or DeFi (which sounds cooler, don’t you think?). DeFi is a fast-growing movement that is building open-source, transparent financial services like trading, borrowing, and lending, without traditional financial intermediaries. By now we know that cryptos don’t like banks. 

Ethereum’s DeFi system never sleeps or discriminates. All you need is an internet connection, and then you can send/ receive/ borrow money, earn interest, and even stream funds anywhere in the world. This led to a booming community-based digital economy where it’s easy to find bold, new ways to earn and spend online.

Ethereum-powered apps

Across Ethereum, there are many programming languages (including old school JavaScript) that allow developers to build and publish decentralized apps on the blockchain (they’re called dApps – yep, these days everything has to have its own cool abbreviation). dApps are transparent and open-source, so if someone coded a brilliant functionality, other members of the community can freely re-use it and interact with it. Also, “decentralized” means that they can be built and run without any downtime, fraud, control, or interference from a third party.

That’s how initial coin offerings (ICOs) started. ICOs are basically token sales to raise funds for a blockchain-based project. Since 2017, billions of dollars have been raised through ICOs for a wide variety of crypto projects. Among them are torrent downloader and broadcaster BitTorrent, online tv Popcorn Time, security provider Maidsafe, and cybersecurity software Tor.

Most recently, Ethereum also became an NFT-factory, following the craze of tokenizing art, music, and even clothes. Thanks to the blockchain’s record of transactions, NFT creators can keep getting royalties from their tokens every time they are re-sold.

Another interesting Ethereum-powered feature is its ability to send transactions over the network as smart contracts or digital protocols that can automatically execute, control, or document actions according to contract terms. However, beware that this is not risk-free! In 2016, a set of smart contracts originating from Ethereum’s software platform called DAO was hacked by a malicious actor who stole over $50m in equivalent worth. Since then, Ethereum was split into a second blockchain, Ethereum Classic, modified to make it safer. You can never be too cautious. 

Relevant ether fans

Wanna jump in the game but running tight on savings? Investors don’t need to buy whole ETHs, they can buy as little as 0.000000000000000001! The ether community keeps growing, including Hollywood actor Ashton Kutcher, NFL footballer Richard Sherman, and the billionaire Winklevoss brothers.

Grayscale, the world’s largest ether asset manager, with around $32b in assets under management, has grown more than 10 times in size over the course of 2020. Recently, financial services giant PayPal (PYPL) has also made some notable investments, marking that the network is being taken more seriously by “traditional” institutions.

One of the biggest projects around the blockchain right now is Microsoft’s (MSFT) partnership with ConsenSys, a Brooklyn-based software company focused on building dApps on the Ethereum platform, which was added as an extension to Visual Studio Code (Microsoft’s popular software used by developers when writing code).

why it matters
With its ongoing price rally (which reached all-high records this year) and recent institutional adoption, Ethereum is becoming more mainstream. This means that Ethereum may even, one day, overtake bitcoin (for real) as well as lead a paradigm shift in the financial industry towards a more robust, open, and transparent decentralized financial infrastructure.