Ethereum | Overview

Introduction to Ethereum

Ethereum is a decentralized open-source platform to run smart contracts using blockchain technology. Its native cryptocurrency is Ether, the second largest cryptocurrency in terms of market cap at the moment of writing this article. This is the shortest way to describe what Ethereum is, but of course we will need to get into details to have a better understanding.

How everything started?

The master mind behind Ethereum is Vitalik Buterin. It all started in 2010 when he was playing his favourite videogame, World of Warcraft, and he realized that Blizzard modified one parameter of his main character, lowering its damage capabilities. This apparently random event triggered in his mind the idea of how horrible centralized services can be and promoted his desire to change the world. In 2013 he described the project in a document called white paper, and in 2015, the Ethereum was launched. Isn't it brilliant? Most of the people, when this kind of event occurs, just complain and keep playing the game, but once in a while, this is not the case and it triggers a very powerful idea in a genius mind and a burning desire to make it happen. This story can inspire many of the readers of this article, since this is applicable not only in videogames, but in many use cases in people's life.

What is Ethereum?

We just saw what caused Vitalik to think in a solution for these horrible experiences with centralized services, but what is this solution about? Let's use the videogame as example of a use case for Ethereum to make it simple:

There is a lot of data around a videogame. To put some examples: the name of your character, his power attack, his power defense, his weapon inventory, his physical aspect, and many more. All this data is owned by the company who is running this videogame, all this data is somewhere stored in the cloud, in servers owned by the company. What's the implication of this? The implication is that you are not really the owner of your character, and__ the company have the power__ to lower your character's power attack if they consider it is appropriate. You are not the owner, since if there is an issue in the server or if the company decides to close the business, your character and all you built during years is gone.

Now let's use this example to explain Ethereum. You can imagine Ethereum as a world computer composed by a network of computers (nodes) interconnected and following a protocol to make decisions together. You can imagine an open network of thousands of computers using a software which allows them to agree on what is executed and what is not. This network is not exclusive, it is not owned by any centralized entity, meaning that it is open for anyone to participate and be part of it.

Now we can go back to the first definition that we made about Ethereum in this article: Ethereum is a decentralized open-source platform to run smart contracts. It is decentralized because there is no entity that can control it. Nobody, absolutely nobody, has the power of changing the rules. Coming back to the example, nobody can change your character's parameters if there is no specific rule where this is allowed. Ethereum is an open-source platform because it is a software which code is public (you can find it in this link). And the last part of the definition refers to smart contracts. Smart contracts are the mechanism used to define the rules of the application you want to build. In our example, we could have a smart contract which defines a voting mechanism where a parameter of a character could be changed if the 60% of the community agree. Feel free to go to the Smart Contracts article to learn more about it.

Use cases

Now that we have a general understanding on its value proposition, we can give an overview of the existing use cases for Ethereum:

• Decentralized Finance: Decentralized Finance or DeFi is an open and global financial system built on top of Internet. Basically, the idea is to build a financial system which is not owned by a central authority where people can do all type of financial operations in a matter of seconds. Find more information in this article.
• Decentralized Autonomous Organizations: Also known as DAOs, are blockchain-based organizations that operate without central authorities. Instead, they are governed by rules coded in smart contracts and administrative decisions are voted upon by the community.
• Gaming: By the example we mentioned before, it is obvious how powerful Ethereum can be in this area. People will have real ownership over all the digital assets a videogame might offer.
• Art: Ethereum allows artists, via Non-Fungible Tokens (NFT), to create any type of digital art and use the benefits that a decentralized platform can offer, such as true ownership, censorship resistance, immutability, and others.
• Social Media: The more people is aware of how they are exposing their data to huge companies who are making billions of dollars with it, the more social media will grow in decentralized environments such as Ethereum.

Of course there are many use cases still to be explored, don't forget that this is an emerging technology.

Adoption

Although most of the people don't even know the existence of this technology, the reality is that the adoption is much higher than it seems to be. Just to put an example of one of the use cases mentioned above, Decentralized Finance, the amount of money locked in the Ethereum network using a DeFi protocol is around $100 Billion. This is not a small amount; it is $100.000.000.000, quite a large amount, don't you think? And this is not the money invested in the native cryptocurrency Ether, this is the money which is locked in smart contracts, for instance, a deposit to allow people to borrow. To give more insights on adoption, the total market cap of the Ethereum native currency, Ether, is around $300 Billion, which is similar to the market cap of a company like Nestle, Walmart, Master Card or Alibaba.

Also, it is important to understand that adoption is growing year after year. To give some data about it, the number of new Ethereum addresses is growing at a rate of 100% per year, which is a faster adoption that the internet. We cannot say that each new address represents a new user; one user can create multiple addresses, but it gives us an indicator on how fast this ecosystem is growing.

To complete this section, we must know that Ethereum is not the only technology in the world with this purpose. There are many other emerging projects which are competing with Ethereum to get part of this cake, and some examples are Cardano, Avalanche or Solana. Ethereum is the major player at the moment of writing this article though, and in this chart we can see how the market share looks like in the Decentralized Finance sector:

Conclusion

Of course there are many topics such as how it technically works, what the current state is and roadmap which we might cover in future, but for now, the idea was to give an overview of what Ethereum is, what problems it targets to address and what are the use cases running in the real world.

Nobody knows if Ethereum will become the world computer, but the potential of this technology is huge, and if it achieves what it is intended to achieve, this can be a complete game changer for the society which will affect the life of most of the people in earth.