The DeFi movement
Bitcoin sparked the imagination of early adopters to revolutionize how finance works. Starting with the question, "can we manage a global currency collectively, removing banks and institutions from the equation altogether?"
As blockchain technology develops, the possibilities continue to grow even bigger and people are starting to build towards decentralized finance.
This system, built on top of blockchain networks through decentralized peer-to-peer applications (called DApps), would create a fairer future for low-income communities and those isolated from current financial systems.
The blockchain would need to be more than a simple ledger like Bitcoin to make this happen. Instead, it would need to become a platform that can process complex jobs and applications.
Ethereum is the first to address that problem. It's a decentralized computing platform built on a blockchain that allows developers to create and launch code. The code runs across a distributed network instead of existing on a centralized server. So, in theory, these applications can't be shut down or censored.
Let's look at some basic characteristics of Ethereum:
A significant difference between BTC and ETH is that ETH acts as a store of value, and it has utility in powering all of the DApps built on the Ethereum blockchain. We can compare ETH to tokens at a carnival — the tokens can get us on rides, or we can cash them out.
We call it smart because it executes itself under certain conditions, and it can be regarded as a contract since it enforces agreements between parties. Because the output is programmable, DApps can effectively control how money or value can be transferred.
The purpose of gas fees is to prevent a contract from looping through the same code and holding everyone's computer hostage, as every node on the Ethereum blockchain would need to run it indefinitely. We have to pay gas fees in ETH if we want to do something on the Ethereum blockchain.
The governing protocols for Ethereum never set a maximum circulation amount like Bitcoin, making ETH inflationary. Like BTC, new ETH is mined; however, developers for Ethereum moved it to a proof-of-stake protocol instead of a proof-of-work, changing how the future supply is created.
A case for utility
A large part of Ethereum's appeal is the ability for individual users to create their own assets on-chain, which can be stored and transferred like ETH. The rules governing them are set out in smart contracts, allowing developers to set specific parameters regarding their tokens: how many to issue, how to issue them, whether they're divisible, whether each is fungible, and many others.
Following ERC-20 guidelines set by Ethereum developers, we could create a "Medes" token with our own DApp on the blockchain using smart contracts. The DApp could look and feel exactly like this one!
NFTs have made multiple headlines in the news, with some going for millions of dollars. These assets are non-fungible, meaning they cannot be broken down into smaller units and are not reproducible. NFTs are built on the Ethereum blockchain and are often traded in ETH. The heightened demand for NFTs has increased the demand for ETH.
Ethereum improved on Bitcoin by allowing applications that make cryptocurrency more useful. While providing people access to financial systems they didn't have before through applications on Ethereum, all of this stuff is incredibly new with enormous uncertainty about the future.
You don't have to own any ETH to explore what DApps are currently out there. However, Ethereum is a good place to start if you're interested in decentralized finance.