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Understanding Ethereum

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If Bitcoin is an app, some say, Ethereum is an app store.

No surprises then, that Ethereum, the second-largest cryptocurrency by market value, has exhibited some fairly explosive growth lately - more than 1,000% between 2020 and 2021. Its ecosystem has flourished with the vast majority of decentralized finance (DeFi) protocols and stablecoins operating on it, and the total value locked in DeFi protocols now exceeds US$60 billion. In the Indian context, Ethereum has also become a popular topic in the mainstream media for a myriad of reasons. As Ethereum applies its EIP-1559 hard fork to bring cheap blockchain transactions to everyone, let’s do a deep dive and understand why Ethereum may not just be the biggest crypto since Bitcoin, but arguably the crux of what makes the blockchain revolutionary.


What is Ethereum?
Ethereum is an open-source, blockchain-based, decentralized computing platform created by Russian-Canadian programmer Vitalik Buterin in 2015 with an initial supply of 72 million Ether (the platform’s currency, or fuel). It builds on Bitcoin’s innovation with some significant differences. While both let you make digital payments to banks and payment partners, Ethereum is programmable and acts as a marketplace for financial services, games, and other apps without being censored. Let's understand why it is gaining popularity and how it will shape our "digital future." 

If you’re confused about the potential Ethereum has, say 5-10 years from now, a direct parallel could be made to Linux in the early days of the internet. Ethereum’s network, called the Ethereum Virtual Machine, is directly comparable to how Linux enables Google’s and Facebook’s servers to function. Ethereum can be termed as Linux, but for blockchain-based applications, offering a wide array of use cases, opening up a plethora of opportunities.

The most common use case of Ethereum is that it allows the transfer of digital money, but its capability extends far beyond than simply facilitating smooth transfers. It is the most flexible platform, and one can create, run, code, and program on Ethereum's decentralized server, which means the permission to execute this code is not centrally controlled. Neither can those programs be shut, edited, or tampered with by any external parties because of its underlying technology - blockchains. Ethereum’s blockchain is similar to that of Bitcoin blockchain, where the data is safe, immutable, secure, and transparent.

In other words - we’re taking the concept that made Bitcoin possible - and applying it to literally every industrial, commercial or personal application in the world.


What’s Different in Ethereum?
But one might ask if Ethereum and Bitcoin's blockchain technology is inherently same, how are they different?

The significant difference is that Bitcoin uses blockchain technology to create a global digital value system. It is specific in its functionality (that of moving money) and doesn't accommodate applications outside of transactions very well. Remember - Bitcoin functions more like an app.

But Ethereum functions like an app store.

However, Ethereum creates a global digital cash system that allows developers to experiment with their code and create  Decentralized Applications (DApps), or applications that are open-source, decentralized (not controlled by a single entity or authority, but rather by its community), and are cryptographically secure. Picture having a social media platform that is not owned or controlled by anyone. No one owns anyone's private data, and there is no apprehension or threat to data leakage or misuse.

Today, any platform that has access to personal data weilds immense power. It can shape a user’s decision-making right from what they should eat to how and where they should (and can) spend their money, eerily similar to George Orwell's fictional novel Nineteen Eighty-Four.

With Ethereum, developers are enabled to build on their algorithm-based technologies and build apps on their apps on Ethereum’s decentralized network. They cannot be confined to a centralized setup that gives an organization or individual uncomfortable levels of power. In the words of Vitalik Buterin - instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.

While Bitcoin is the leading cryptocurrency in terms of performance and market cap today, thanks to the popularity of DApps, (Decentralized Finance apps, in particular), many experts in the industry predict that Ethereum may soon outperform Bitcoin.

DApps
Ethereum’s DApps have truly been a game-changer, revolutionizing several sectors - right from banking and entertainment, to gaming. It’s a thriving ecosystem already, with DApps such as Uniswap in Finance, a gaming DApp called Dark Forest, and Foundation, a DApp that helps buy and sell digital artworks and fashion from well-known artists and brands. These use cases are shining examples of developers being let loose on an ecosystem with no boundaries, and successfully leveraging its capabilities to create a secure decentralized digital network that uses smart contracts.

A smart contract is a program that runs on the Ethereum blockchain. It's a collection of code and data that resides at a specific address on the Ethereum blockchain that is programmable.

This smart contract feature further enables other use cases of Ethereum, including  Decentralized Finance (DeFi).  Think of DeFi as a banking or financial institution that private or public institutions do not own. Here financial transactions are deployed to the network and run as programmed. It makes the system hack-proof and hard to break into, thus ensuring the safety and security of the data. It would also make payments a lot easier. DeFi is the internet's bank, with no borders and not restricted by country.


Ethereum: Other Use Cases
Similarly, Ethereum can solve many other issues including identity verification. Governments today rely on identity proofs such as Aadhar, Passports, or Social Security Numbers. With Ethereum, identities can be digitized, reducing paperwork for government officials, making the whole process far more seamless and secure.

The pandemic has exposed the lacunae in the healthcare system and infrastructure globally. Health applications built on Ethereum can solve significant problems in developing new vaccines for similar viral outbreaks in the future. Tools can connect the global healthcare system and can help predict healthcare crises and pandemics before their onset. Imagine being able to access your medical records at any healthcare facility across the world. If faced with a medical emergency, your EMT could swiftly access data such as your blood group, ailments, and allergies from Ethereum backed health applications for effective and immediate treatment.

Gaming, the second largest industry in the world, clearly stands to benefit from Ethereum. Gamers today spend hours collecting virtual game coins with no value outside the game realm. Ethereum and other decentralized institutions will soon evolve to focus on games with cryptocurrency as accepted in-game tokens. This means entire worlds and virtual economies will be created with real value, using real cryptocurrencies which can be traded both within and outside the game, finally validating the gamers’ time and effort.

IDOs will revolutionize the use of real-world assets such as Mutual Funds, Gold and other precious gems, stocks, bonds, and even real estate. Issuers can transact with ICOs, once tokenized, in a far more simplified and paperless manner

With Ethereum, everything from data storage to security and speedy transactions will become a reality. IDOs will be key to raising funds by many companies making this an exciting space to watch out for.


In Conclusion
Ethereum blockchain is set to disrupt the already fast-evolving FinTech ecosystem across the world. There are increasing use cases of this network, and we also hear a lot about it even in the NFT (Non-Fungible Tokens) space, as Ethereum has been the most popular network to support this innovation.

While there are certain challenges the network is facing to improve scalability and reduce their energy consumption fee/ gas fee, this network is believed to advance further for the development happening in the Defi space.

Recently, US-based billionaire Mark Cuban invested in Polygon, an Indian startup designed to help make DeFi apps secure and easy to use. Cuban's investment in Polygon comes at a crucial time, signaling that Indian crypto-startups have immense potential and are maturing. Polygon's funding will bolster crypto and blockchain-based innovations even as the Indian government is looking to set up a new panel soon to decide on India's cryptocurrency regulation.

We are positive and hopeful that the Indian Government will study the impact that this kind of innovation can have in favor of the country's burgeoning startup ecosystem and how these crypto networks are adding value to our economies.

The article is authored by Siddharth Menon, COO, WazirX

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