Last updated on November 9th, 2021. Posted in Bitcoin Blockchain And Cryptocurrencies.
What can Ethereum be used for? Well as it turns out, a whole heck of a lot! Trouble is, it can be difficult for us to wrap our heads around...not so much what Ethereum can be used for, but what it all means. So let's jump into all this and see if we can get it all sorted out.
Here are links and resources mentioned in today's video. Enjoy!
So what can Ethereum be used for? Well to start off, just to make sure you and I are on the same page, Ethereum is it’s own decentralized, open-source blockchain that, unlike bitcoin, can handle more than just money’s five characteristics -- characteristics that we've discussed in other videos.
In fact, the name of it’s blockchain is Ethereum. Now this might be a bit confusing because sometimes people refer to Ethereum as Ether or ETH.
But these are different things. As we just learned, Ethereum is the name of the blockchain network itself. Ether or ETH is the name of the cryptocurrency that’s native to the Ethereum blockchain network. So there's a monetary component to Ethereum.
On the functionality side of Ethereum, it serves as a versatile platform that developers, entrepreneurs, and programmers can use to build all sorts of different things with. So Ethereum's also a software platform that can be built on top of. This means that there are many different ways that Ethereum can be used.
Ethereum has reached such a scale and mass adoption that it’s become divided into smaller sub-communities, each focusing on and specializing in a particular area. So next, let’s explore the most popular and practical applications of Ethereum, starting with it’s native cryptocurrency.
First off, and as we know already, there’s a monetary component to Ethereum. Again, the Ethereum blockchain’s native crypto token is called Ether or ETH. Originally, ETH was developed as a way to incentivize the blockchain’s nodes to run and maintain the Ethereum blockchain network. For their effort, nodes are rewarded with ETH.
And just like bitcoin, ETH is a digital money that can serve as a store of value, it can be used to buy things, or it can be sent to anyone anywhere in the world.
So just like bitcoin, folks like you and I can buy, hold, and trade ETH. The ETH we buy and hold can be stored in our crypto exchange account (like Coinbase, Binance, or others), in a software wallet like Exodus, or on a hardware wallet like a Trezor or Ledger.
However, ETH isn’t the only cryptocurrency that makes use of Ethereum’s blockchain network. In fact, a part of Ethereum’s technology is something called ERC-20.
Without delving into the technical weeds, ERC-20 allows for other cryptocurrencies to reside on the Ethereum blockchain. And in fact, almost half of the top one hundred alternative crypto projects (aka: altcoins) run on Ethereum.
Examples include Chainlink (LINK), Aave (AAVE) [Ahh-vay], and Maker (MKR). So therefore, any ERC-20 token doesn’t have it’s own separate blockchain. Instead, it’s built on Ethereum’s.
Next, arguably one of the most groundbreaking developments on the Ethereum blockchain
is the innovation of something called smart contracts. Smart contracts, like traditional contracts, dictate the terms of any kind of an agreement between two or more parties, but they do it electronically.
Smart contracts themselves are simply lines of code that self-execute if certain conditions are met — hence why they’re “smart.” This eliminates the need for an intermediary like a bank, government agency, legal system, brokers, agents, or anyone else.
The implications of smart contracts is crazy-mind-boggling! However, probably the biggest disruption Ethereum will make in the upcoming years is DeFi or
Have you heard of this? DeFi aims to completely replace (obliterate?) traditional, centralized financial services and instruments with completely decentralized ones. This includes pretty much any traditional financial element you could think of, from equities and money markets to exchanges, investment funds, retirement plans, and more.
In this way, DeFi allows access to traditional financial instruments while eliminating the need for traditional financial intermediaries like banks, brokerages, exchanges, and everything in between.
With DeFi, loans, investments, insurance policies, and much more can be built and upheld by Ethereum’s trustless blockchain with no intermediaries or centralized authorities.
This removes friction, unnecessary fees, and redundant middlemen. And just imagine the potential here -- including the ability for crypto users to earn interest on their holdings, borrow against their bitcoin, ETH, and other cryptocurrencies, and a whole lot more.
Okay next, earlier we learned that the Ethereum blockchain really is a software platform. This means of course that developers, programmers, entrepreneurs, and others can build software projects on it’s network.
These software applications are called Dapps, or Decentralized Apps. What are the advantages of Dapps? Certainly decentralization is the biggest one. Dapps connect users directly together and remove central authority and control.
Who’s a current central authority who could be replaced? Uber, Ebay, Airbnb...the list goes on. These centralized services connect buyers and sellers together. Dapps aim to remove them.
Currently, the most popular Dapps are decentralized crypto exchanges (a decentralized exchange is called a DEX). So unlike a regular crypto exchange like Coinbase or Gemini, there’s of course no central authority or governing body with a DEX.
One final use for Ethereum that we’ll look at is NFTs or Non-Fungible Tokens. These
have been in the headlines, so I’ll bet you’ve heard of ‘em...but they can be difficult to understand.
Essentially, an NFT is a smart contract that holds a digital asset. It's ownership of a digital property, and digital goods have value. The first NFTs took the form of digital art — jpegs and things like this. Now it’s easy to quickly disregard NFTs as being stupid or silly. I certainly did.
That was until I started to wrap my head around the concept. And that’s when I started to realize the potential here.
See, the reason why this is so difficult to "get" is because most people think that they can just share and duplicate files...like email attachments and things like this. But that's not how NFTs work.
Can we duplicate gold coins in Super Mario or trophies in Mario Cart? How about armor, achievements, or weapons in Halo or Gears Of War?
No, it's not possible to duplicate these or other digital items because these games are bound by programmatic rules that govern the game, right? Well, it’s the same thing here with NFTs.
NFTs are bound by the Ethereum protocol. So imagine having ownership (or partial ownership) of a digital good. That’s exactly what happens when we buy bitcoin after all, isn’t it?
NFTs take the concept of digital ownership beyond bitcoin and money and apply it to other digital assets, from original digital art, books, sports and music memorabilia, and so on.
Imagine, for example, being able to own -- and being able to prove ownership of -- a song from your favorite band. That's the sort of thing that NFTs can do. And of course, all of this is made possible by Ethereum’s blockchain network.