The release of Bitcoin in 2009 brought cryptography and the concept of legitimate digital money to the forefront of today’s financial industry, but it was certainly not the world-changing asset that many would have believed it to be. Only years after its creation, others began working on developing their own cryptocurrency projects, with some of the most notable being projects such as Litecoin. These early projects largely focused on creating assets very similar to Bitcoin as they would act solely as a new payment system for the digital age. It was only when Ethereum came out, however, that cryptocurrency was revolutionized and molded into a product that could build ecosystems, not just serve as a payment system to replace the everyday dollar. To truly understand why Ethereum was so revolutionary and how it functions in our technology based society, let’s walk through every step of the product and measure its true scope beyond the token.
Why We Need Decentralized Digital Money (and Why Ethereum Answers That Calling)
Many people will look at assets like Ethereum and Bitcoin and ask themselves, why would I want to choose digital assets over traditional fiat? While the traditional finance system is the one that we currently operate on, there are many inherent problems with fiat currencies and the organizations that control or handle them. Here are a few of the main reasons why we need decentralized finance in the digital age.
- A Permissionless Economy of Trust: Millions of people in the world are unbanked, and if you look at many studies out there regarding cryptocurrency projects and developing countries, you’ll find that decentralized finance has managed to accomplish strides in helping these individuals more so than traditional finance. This is due to the fact that assets and applications such as those found in Ethereum are permissionless. Anyone is able to participate in the system and can use the many applications that are built on top of the blockchain. In traditional finance, anyone may participate but they are not necessarily allowed to. In a decentralized world, everyone is able to become a part of the ecosystem.
- Secured Funds and Privacy: From online grocery shopping to the delivery of goods, the world relies on the internet for the bulk of our everyday needs. That said, the many ways that we pay for our goods are, generally speaking, not safe. Financial products like credit and debit cards are used on these platforms regularly, which then gives the vendors access to information such as our name, address, all of the numbers needed to make a purchase on the card, and other such sensitive data. Where does this data go? It is stored on the website that accepted the purchase. This leaves us vulnerable to hackers who can take this information and assume our identity. Cryptocurrency secures our privacy by making purchases pseudoanonymous, only showing our wallet information on the decentralized ledger when a transaction is made.
- Better Store of Value: The U.S. Dollar, for example, is generally considered a store of value, but we could argue that Bitcoin and Ethereum are better stores of value. Why? The main reason being that these types of assets are far more scarce than fiat currency could ever be. While we could always print more money, there are only so many digital tokens in the world. Once there is no more to mine or distribute, we cannot change the overall amount. Additionally, digital assets continue to meet a growing need in our society that transcends regular currencies and borders to feed a global community. If we want something we can truly value, we need to look towards digital products that are more dependable down the road.
- Improved Transparency: Fraud and other financial crimes can be a bit more difficult to track in this day and age, regardless of surveillance tactics and other methods that are used to find these criminals. The wonderful thing about digital assets is that all of their information is recorded on a public ledger. Any transaction that is made can be seen by the public so that they can see where their money is going. If we thrived on digital currency rather than fiat, we could better monitor our own money and defend against malicious actors.
While these are some of the key points, the takeaway from the benefits listed above is that decentralized finance is more than a dream. In a world that is becoming more and more dependent on the internet, we need to turn to a financial product that allows us to make this transition safely.
Why Ethereum Serves the Needs We Would See in Traditional Finance
Digital assets have long been a source of frustration and speculation for those in the finance industry. When it comes to assets such as Bitcoin, these are often considered to be in the sphere of assets like stocks due to their volatility and for their use in trading. Ethereum is such a fascinating product because it meets the requirements of All asset classes. What do these asset classes consist of? To further break it down, the three main asset classes include:
- Capital assets, which typically produce value for their holders
- Transformable/consumable assets, which are used to produce outputs that are used in our society (for example, using copper to create electronics)
- Store-of-value assets, which are scarce and will continue to have a value for others
In the first category, Ethereum is a capital asset because it gives owners a share of Ethereum’s fees and the ability to work within the economy. Ethereum functions on a proof-of-stake system, which means that users on the system will earn Ether for holding it and participating in the network. As you may have guessed, this results in growing value for users who validate blocks and hold money in the network, which is why it is a capital asset in the ecosystem.
In regards to transformable/consumable assets, Ethereum acts as such an asset by powering the Ethereum network. The Ether token serves to facilitate transactions of Etherum and power the many different applications as well as the main Ethereum blockchain itself. The team often describes Ether as the gas that powers the network, which is an accurate description that could be best compared to how taxes fund the U.S. economy. Ether is burned or consumed anytime there is a transaction or movement of funds made. Since it powers the network, it is a consumable asset.
Finally, Ethereum serves a store-of-value asset for the users of the blockchain who either choose to use Ether or other tokens that have been built on the foundation that Ethereum has provided. People and organizations consistently use Ethereum as collateral for products such as loans or investments, and the trust lies in the permissionless system that Ethereum has created.
Money, at its core, is extremely flexible. It is not just a currency that can be traded for goods but one that can be stored away, can be used to produce more value, and can be used to hold goods that are important to our economy and society. Ethereum meets all of these needs and mirrors our own financial system. Its flexibility is what makes it such a desirable asset that acts as an alternative to traditional fiat. However, its contributions do not end there.
How Ethereum Has Reshaped the Digital Ecosystem
The Ethereum blockchain is a modern marvel. At its base, it provides value to the online ecosystem. Ethereum is both a system and a token that others can use to pay for transactions between each other. Where it takes it one step farther is by allowing applications to be developed on top of the blockchain.
To best demonstrate this, think about the internet. The world wide web consists of several layers that are designed to provide you with goods and information. From the ethernet layer that helps to deliver this information to the code that produces it to the applications and interface that displays the final product, the internet is built in stacks to perform its desired function. The one issue it has, however, is handling and providing value for its network. There are also issues like advertising and freedom that have made its use considerably less exciting.
Ethereum, on the other hand, is built with value in mind. At your base, you have the currency that is used by the entire network. On top of that, you have the financial application layer that gives your users the ability to spend their currency on products and information that interests them. The final layer then consists of the decentralized applications that help to deliver the information and products that we want. Rather than having to rely on the current online system and payment products, Ethereum users can use a fully-decentralized system instead. In a world of centralized programs and currencies, Ethereum truly stands out as a new way to approach the way we interact with each other and with technology.
The cryptocurrency industry was designed to challenge the status quo and no digital asset does so better than Ethereum. By creating a viable fiat alternative and creating a decentralized financial and digital landscape, Ethereum may just be the way of the future as we seek out more desirable ways to move forward in our society.
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