This Is The Most Important Time For Ethereum

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Is Ethereum More Important Than Bitcoin?

Blockchain technology, the distributed ledger system that underpins the digital currency Bitcoin, is getting a lot of attention from Wall Street lately. With uses ranging from cross-border payments to settlements and clearing of over-the-counter derivatives to streamlining back-office processes, the potential for disruption in the financial industry and elsewhere is growing more real each day. While bitcoin is the most widely used and well-known use case of blockchain, Ethereum may be the killer app that allows for this disruption to finally take place.

The token native to the Ethereum blockchain ,Ether (ETH), currently trades around $200, and the market capitalization of all ether around $20 billion, making it the second most valuable blockchain behind Bitcoin (which represents approximately $185 billion of value). What is Ethereum and why is it interesting?

Key Takeaways

  • Ethereum is a blockchain that was developed to support scripting and the creation of decentralized applications and ‘smart contracts’ through its virtual machine (EVM).
  • Ethereum’s native token, Ether (ETH) is a cryptocurrency used to pay for the processing power of the EVM in order to run smart contracts or other Dapps, in what is called ‘gas’.
  • Smart contracts have been used on Ethereum for a variety of purposes, from issuing ICO tokens to creating entire decentralized autonomous organizations (DAOs).

A Brief Overview of Ethereum

Ethereum was developed to augment and improve on bitcoin, expanding its capabilities. Importantly, it was developed to feature prominently “smart contracts:” decentralized, self-executing agreements coded into the blockchain itself. Ethereum was first proposed by Vitalik Buterin in 2020 and went live with its first beta version in 2020. Its blockchain is built with a turing-complete scripting language that can simultaneously run such smart contracts across all nodes and achieve verifiable consensus without the need for a trusted third party such as a court, judge or legal system. According to its website, Ethereum can be used to “codify, decentralize, secure and trade just about anything.” In late 2020, Ethereum raised over $18 million in bitcoin by way of a crowd sale to fund its development.

The ‘Ethereum Virtual Machine’ (EVM) is capable of running smart contracts that can represent financial agreements such as options contracts, swaps or coupon-paying bonds. It can also be used to execute bets and wagers, to fulfill employment contracts, to act as a trusted escrow for the purchase of high-value items, and to maintain a legitimate decentralized gambling facility. These are just a few examples of what is possible with smart contracts, and the potential to replace all sorts of legal, financial and social agreements is exciting.

Currently, the EVM is in its infancy, and running smart contracts is both “expensive” in terms of ether consumed, as well as limited in its processing power. According to its developers, the system is currently about as powerful as a late 1990s-era mobile phone. This, however, is likely to change as the protocol is developed further. To put this into perspective, the computer on the Apollo 11 lander had less power than a first-generation iPhone; it is certainly plausible that in a few short years, the EVM (or something like it) will be able to handle sophisticated smart contracts in real time.

Within the Ethereum ecosystem, ether exists as the internal cryptocurrency which is used to settle the outcomes of smart contracts executed within the protocol. Ether can be mined for and traded on cryptocurrency exchanges with bitcoin or fiat currencies such as US Dollars, and is also used to pay for computational effort employed by nodes on its blockchain.

Ethereum and Decentralized Autonomous Organizations

Smart contracts could be the building blocks for entire decentralized autonomous organizations (DAO’s) that function like corporations, engaging in economic transactions—buying and selling things, hiring labor, negotiating deals, balancing budgets and maximizing profits—without any human or institutional intervention. If one takes the view that corporations are just a complex web of contracts and obligations of varying size and scope, then such DAO’s could be coded into Ethereum.

This opens the door for all sorts of new and interesting possibilities such as emancipated machines that literally own themselves and people being employed directly by pieces of software.

Ethereum and Decentralized Applications

While DAO’s may be a concept to be realized in the future, decentralized applications (Dapps) are currently being developed for Ethereum today. These standalone applications utilize smart contracts and run on the EVM. Some examples include micro-payments platforms, reputation functions, online gambling apps, schedulers and P2P marketplaces.

The key feature to Dapps is that they run across a decentralized network and are enforced without the need for a central authority or overseer. Any sort of multi-party application that today relies on a central server can be disintermediated via the Ethereum blockchain. This can eventually include chat, gaming, shopping and banking.

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The Bottom Line

What Bitcoin did for money and payments by harnessing blockchain technology, Ethereum may do for applications of all shapes and sizes. With a built-in scripting language and distributed virtual machine, smart contracts can be built to carry out all sorts of functions without the need for a trusted third party or central authority. Using its internal cryptocurrency, ether, nodes can be paid for their processing power in running these decentralized apps, and eventually, entire decentralized autonomous organizations may exist in an ether economy.

Ethereum May Be One of The Most Important Innovations for Finance: David Iach

Also, there’s now $1 billion in DeFi!

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Hello Defiers! Crypto investor David Iach is taking over The Defiant today. Iach recently spurred up debate around the need for an Ethereum-based fundraising mechanism that aligns investors’ and projects’ incentives. After the ICO boom and bust, the space has been wary of pursuing decentralized fundraising again, and it’s broadly recognized a better system is necessary.

Here, Iach dives deeper into his “liquidity fundraising” idea. He also describes two new innovations: “influencer financing” and “no-loss investing.” Read on to see what he means; it’s a good one!

Both paid and free subscribers receive full guest posts, but paid subscribers get them hours early. Paid subscribers also get complete access to The Defiant content and archive. Join the club! Subscribe now at $10/month, $100/year, or 70 Dai on this link.

Before we get into David’s column though, the following deserves some space:

DeFi Just Reached the $1 Billion Milestone

DeFi, prone like Ethereum to a mythological animal-filled aesthetic, is now an actual unicorn. Decentralized finance platforms are holding $1 billion in value, according to data compiled by DeFi Pulse, which tracks digital assets deposited in smart contracts of 21 DeFi projects.

With ether surging past $200, it’s no wonder value in DeFi is soaring. But it’s not just the rise in ETH that explains the move, as net amounts of digital assets have also been on the rise. Ether in DeFi increased 3 percent in the past month to 3.13 million, or about $689 million (with ETH at $220). Dai locked surged by 48 percent to 67 million in that time. Bitcoin locked in DeFi rose by 8 percent to 1.57k.

Image source: DeFi Pulse

MakerDAO is the most important platform in the space, accounting for almost 60 percent of value locked. It’s followed by Synthetix and Compound Finance.

It took DeFi just 2.5 years to reach unicorn category, compared with 14 for Apple, 5 for Google and 4 for Bitcoin, Lucas Campbell of Fitzner Blockchain Consulting wrote. Though it might be a bit disingenuous to compare an entire ecosystem with single companies or cryptocurrencies, $1 billion still means the space is now dealing with a non-negligible amount of value, after hardly being on the map just two years ago.

A flashy round number like this will inevitably drive attention from hackers. A big treasure chest means more people will be trying to loot it. DeFi hasn’t had any big hacks so far —no DAO moment yet— which might be unsettling, given how new and experimental the space is. But the 1B will also drive attention from investors, users, and builders, who will hopefully make the space stronger. With this, DeFi is getting harder and harder to ignore.

Ethereum Supercharges Finance

And here are three ideas on how it can move fundraising forward.

By David Iach, long-time crypto investor

Every once in a while a new innovation appears that acts as a catalyst for many other innovations. Think of electricity – which made it possible for us to create things like artificial light, refrigeration, washing machines, communication networks, computers and thousands more.

Most technologies aren’t like that. If we take the washing machine as an example, it’s certainly a great invention that’s very useful for washing clothes, but it didn’t lead to the creation of a considerable number of other technologies that wouldn’t be possible without it.

Computers on the other hand do fit that category. They weren’t just a nice technology, useful but limited, like the washing machine. Instead, they enabled the creation of numerous other technologies that wouldn’t be otherwise possible, like artificial intelligence, flight simulators, photo editing apps, Excel spreadsheets, and millions of other examples.

Not like washing machines

Ethereum is such a technology —like computers, not washing machines— and it might turn out to be one of the most important general purpose innovations for the financial sector.

Even though it’s a very young technology that is still evolving, Ethereum has allowed people to create a great deal of applications and protocols on top of it. We now have numerous types of stablecoins, tokens, securities, decentralized exchanges, lending services, non fungible assets, lotteries, automated contracts, money streaming services and so much more.

One of the most interesting aspects with all of these applications and protocols is how they can interact with each other, sometimes in ways that not even the people who created them could have foreseen. The term for that is composability, but I much prefer the more crypto native term, money legos.

Crypto-native fundraising

I have previously written about how we can use such money legos to build a new mechanism for fundraising to better align the interests of crypto investors with those of crypto projects. I called it liquidity fundraising. I’ll describe it next, along with two other potential fundraising and investing models.

Liquidity fundraising

Liquidity fundraising needs mainly two protocols to work: Uniswap, a decentralized exchange that enables anyone to earn fees by acting as a market maker, and Sablier, a protocol that allows tokens/money to be streamed.

Investors would send ETH (or DAI) to a smart contract that will issue them a proportional amount of the project tokens based on the value of their contribution. The ETH will not all go to the project/team that launches the token, but will be automatically transferred to a liquidity pool on Uniswap Exchange, along with a similar amount of tokens. This would secure instant liquidity for the token.

Projects would get their tokens steamed over time according to a predefined vesting schedule via Sablier, making sure their funding depends on what they deliver. The mechanism would also give project teams a predictable income.

Influencer financing

This model could also be slightly modified and used by influencers to provide them with an income stream and also give their most valued followers a way to share in their success.

Influencers could issue a limited number of tokens that they distribute to their most loyal followers, and they would receive a portion of the tokens as well, which could be streamed in a predictable manner via Sablier. A Uniswap pool would also be created so that advertisers can acquire tokens to pay the influencer for their marketing services.

A more specific example here could be an Instagram influencer in a crypto related niche that could issue say 365 tokens to their most valued followers. The influencer would also receive 2 tokens, streamed every day via a smart contract.

Each time an advertiser pays that influencer, the token gets burned and taken out of circulation. This way the supply of tokens doesn’t grow indefinitely. At the same time, the influencer is still getting a predictable stream of income and her followers will benefit too, by helping the influencer grow their account and become more popular.

Even just a few months ago, such a mechanism would not have been possible since not every lego piece existed. But every time a new lego piece appears, new possibilities open up as well.

No-loss investment

Take another example: PoolTogheter created a lottery where people cannot lose, only win. It works by letting people deposit Dai (a stablecoin pegged to the dollar) in a pool where it earns interest using a Compound Finance lending contract. At the end of the week one lucky person wins all of the interest the Dai in the pool accrues. Currently the size of the pool is around $1 million and the estimated prize for this week is $1,643.

What if we also made no-loss investment contracts? Instead of having the interest go to a lucky lottery winner each week, it would be invested in a crypto projects. A DAO could be used to decide which projects get funded.

At current rates, a $100 million pool would be able to make a $160,000 investment in a new project every week. All that without risking the money in the pool as just the interest gets invested. That’s 52 investments in a year.

Scratching the surface

Once again, we need the “legos” to build such a system. We need a stablecoin like Dai, we need a lending protocol like Compound Finance and we need a DAO to coordinate the investing part. All parts exist on Ethereum, but pretty much on no other blockchain.

Every time a new lego piece gets deployed on Ethereum, it opens new ways to use the existing ones and strengthens the entire ecosystem. This also builds a moat around Ethereum because it’s becoming increasingly difficult to attract projects to build on blockchains that lack most of those pieces.

While these three examples that I mentioned offer possibilities for experimenting with new ways of fundraising and investing, I am convinced that we have barely scratched the surface of what’s possible to build on a permissionless platform like Ethereum and as more protocols and applications get build, we will see a Cambrian explosion of financial applications in a very short amount of time.

The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access at $10/month or $100/year, while free signups get only part of the content.

Click here to pay with DAI.There’s a limited amount of OG Memberships at 70 Dai per annual subscription ($100/yr normal price).

About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.

Mapping the Most Important Ethereum Forks

November 26, 2020

Mapping the Major Ethereum Forks

Many people are familiar with blockchain technology, but did you know that Ethereum has the largest and most active blockchain community in the world?

Unlike many other blockchain networks, Ethereum is programmable. This customizable feature has enabled developers to solve problems ranging from digital identification and privacy, to corporate ownership and data security.

When the blockchain community disagrees on what changes the network needs to function smoothly or when such changes should take place, developers plan for a fork (an offshoot) of the underlying code rules.

Today’s graphic maps out the major Ethereum blockchain forks that have occurred to date, highlighting key events that surrounded each of these updates. It also includes details on the highly anticipated Istanbul hard fork, planned for December 2020.

Four Types of Forks

Forks are common practice in the software industry, and happen for one of two reasons: split opinions within the community, and required changes to the blockchain code.

When either reason is discussed, four major types of forks can occur.

  1. Codebase Forks: Copy of the original code, to allow for minor tweaks without developing the whole blockchain code from scratch.
  2. Blockchain Forks: Branching or splitting a blockchain’s whole transaction history, causing the new network to develop a distinct identity.
  3. Soft Forks: Gradual software upgrades—bug fixes, security checks, and new features.
  4. Hard Forks: A permanent division of the blockchain.

There are currently three types of hard forks:

  • Planned
    Scheduled upgrades to the network, often abandoning the old chain
  • Contentious
    Community disagreements cause major code changes, forming a new chain
  • Spin-off Coins
    Minor changes to the blockchain’s code that create new coins

Let’s dive into the timeline of major Ethereum forks, and explore a few of their defining moments and characteristics.

Mapping the Major Ethereum Forks

Below are some of the most prominent and important forks—both hard and soft—on the Ethereum blockchain since its launch.

Ethereum

Vitalik Buterin, founder of Ethereum, and his team finished the 9th and final proof of concept known as Olympic in May 2020. The Ethereum blockchain, also known as Frontier, went live shortly after, on July 30, 2020.

Ice Age

Also known as “Frontier Thawing”, this was the first (unplanned) fork of the Ethereum blockchain, providing security and speed updates to the network.

Homestead

Homestead is widely considered Phase 2 of Ethereum’s development evolution. This rollout included three critical updates to Ethereum: the removal of centralization on the network, enabling users to hold and transact with ETH, and to write and deploy smart contracts.

The DAO

The Decentralized Autonomous Organization (DAO) event was the most contentious event in Ethereum’s short history. The DAO team raised US$150 million through a 2020 token sale—but an unknown hacker stole US$50 million in ether (ETH), prompting the developer community to hard fork in order to recover the stolen funds.

Ethereum Classic

Widely regarded as the only Ethereum fork of any significance, this hard fork was based on the controversial DAO event. The original chain became known as Ethereum Classic, and the new chain moved forward as the main Ethereum chain.

Atlantis

This September 2020 hard fork event required all software users to upgrade their clients in order to stay with the current network. Enhancements included better security, stability, and network performance for higher volumes of traffic.

Metropolis-Byzantium

Regarded as the third phase of Ethereum’s evolution, the Metropolis-Byzantium soft fork functioned more like an operating system upgrade, rather than a full split.

Metropolis-Constantinople

Constantinople is the current version of the Ethereum blockchain. This hard fork occurred concurrently with the St. Petersburg update. Important changes included closing a major security loophole that could have allowed hackers to easily access users’ funds.

Constantinople’s most notable improvements include smart contracts being able to verify each other using only the unique string of computer code of another smart contract, and reduced gas fees─namely, the price users pay to process transactions more quickly.

Future Forks in the Road

The Ethereum community is preparing for the next hard fork event Istanbul, scheduled for release on December 4th, 2020.

Ethereum’s 4th and projected final stage of development is Serenity, which has yet to be scheduled. Community members have speculated what changes will come with Serenity, but many agree that the Ethereum blockchain will shift focus from Proof of Work to Proof of Stake.

  • Proof of Work (PoW): “Miners” are rewarded with cryptocurrency for solving puzzles that process and post blocks of data to the network
  • Proof of Stake (PoS): Miners are chosen from a pool of miners, based on the stake of cryptocurrency they bid; no puzzle = no reward

Proof of Stake means that there is less competition for completing blocks of data, significantly reducing the energy required to process data. Currently, a single Bitcoin transaction consumes the same electricity as 1.75 American households do in a day.

Ethereum Leads the Way

Ethereum continues to be a leading blockchain platform, with the highest number of decentralized apps (dApps) and a massive, engaged community.

To date, cryptocurrencies have largely been the focus of news headlines. However, we’ve only begun to scratch the surface of what blockchain can offer, and the value it will create beyond the financial world.

[Blockchain] could be the foundation of a whole new era whereby our basic right to privacy is protected, because identity is the foundation of freedom and it needs to be managed responsibly.

—Don Tapscott, Executive Chairman of the Blockchain Research Institute

Visualizing the New Cryptocurrency Ecosystem

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Visualizing the New Cryptocurrency Ecosystem

Cryptocurrencies have evolved past digital cash. This graphic explores the the new cryptocurrency ecosystem and how it’s impacting the modern economy.

November 19, 2020

Visualizing the New Cryptocurrency Economy

Over a decade ago, the birth of Bitcoin sparked a revolution in the digital world — and just last year, the number of active cryptocurrencies jumped from roughly 1,600 to over 3,000 worldwide.

Cryptocurrencies have now evolved past simple digital currencies, offering solutions to meet the complex needs of modern financial markets.

Today’s graphic from Abra visualizes the complex, ever-evolving cryptocurrency ecosystem and its real-world applications.

Characteristics of Cryptocurrencies

Why are cryptocurrencies important for the future of digital finance?

  • Borderless
    Drastically reduces fees and processing times due to a lack of cross-border restrictions
  • Censorship-free
    Prevents governments or major institutions from blocking financial activities at whim
  • Greater financial control
    Individuals can have total control of their funds
  • Greater security
    Prevents fraudulent alterations from third parties
  • Lower costs
    Lower transaction fees thanks to fewer third parties
  • Greater Accessibility
    Reduces or eliminates traditional barriers to capital markets

Much like the internet has forever altered how we live and work, cryptocurrencies have the potential to change how people participate in global financial markets.

Categorizing the New Crypto Economy

Today’s cryptocurrencies go beyond replacing cash. This new token-based economy is evolving─with unique solutions emerging in finance, security, identification, social engagement, and ownership.

Cryptocurrencies are generally categorized by their primary application within the ecosystem:

  • Payments
    Digital cash can be used for both ecommerce and brick-and-mortar retailers
  • Store of value
    New form of scarce native currency and a means of settlement
  • Programmable money
    Borderless money that enables easy conversion between currencies
  • Stablecoins
    Crypto version of fiat which is tied to the value of resources like gold or the U.S. dollar
  • Privacy
    Private digital transactions, with some offering anonymity
  • Digital ownership
    Digital handling, storage, and monetization of data
  • Decentralized utilities
    Crypto-enabled networks, products, and services that exchange between assets
  • Alternative finance
    Digital assets such as collectibles, commodities, and tokenized securities

Cryptocurrencies are adding both value and utility to the digital economy, and to the global financial market as a whole.

Applications of Cryptocurrencies

Because cryptocurrencies are programmable, customizable computer code, developers can design and adapt them for many use cases within the digital economy.

How are these various cryptocurrencies being used in everyday applications?

Current Projects

  • SPEDN auto-converts crypto to fiat for merchants, reducing exchange rate risk while offering convenient customer payment options.
  • Slice offers real estate investing to anyone for as low as $10,000 through fractional investment.

Near-future Projects

  • CyClean plans to launch a blockchain-enabled electric vehicle (EV) fleet that mines crypto as users travel—reducing emissions and rewarding users for doing so.
  • Digital construction platform Builderium connects contractors to clients around the world through blockchain, opening up a global marketplace of potential deals.

These are just a few of the ways cryptocurrencies are breaking down barriers for people and companies worldwide—allowing them to grow personal wealth and enter the global market.

The Growth of the Crypto Economy

Worldwide, the numbers show that blockchain-based technology and cryptocurrency use is growing. Blockchain wallet users rose from nearly 9 million in 2020 to over 42 million in 2020.

Developers produced a mere 100 decentralized apps (DApps) in 2020─with that number skyrocketing to over 3,100 by 2020.

Overall, cryptocurrencies are helping to create an innovative and accessible financial system around the world.

Cryptocurrency deserves an opportunity to find a sustainable future in our economy.

—Adena Friedman, President & CEO of NASDAQ

While the future of the new cryptocurrency economy is still taking shape, one thing is certain─cryptos are forever altering the way we view and measure the value of money.

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