What is Ethereum?
Learn the benefits of Ethereum and what makes it different from Bitcoin.
Land Ho! Ethereum’s Origins
Ahoy, maties! Welcome to the FirstWatch Crypto newsletter! We hope to provide you with important information and resources for learning more about cryptocurrencies. We are your first watch, sailing the sea of crypto, exploring complex waters that are revealing a brand new world.
Check out the last edition on Bitcoin.
“Ethereum has taken what was a four-function calculator on Bitcoin and turned it into a full-fledged computer” - Fred Ehrsam, Co-Founder of Coinbase
In our debut newsletter on Bitcoin, we discussed how Bitcoin is a fundamentally new financial asset. Its properties allow it to be peer-to-peer, secure, infinitely scalable, borderless. And it works 24/7 too. When Bitcoin came out in 2009, a computer science whiz-kid named Vitalik Buterin immediately recognized the potential not only for Bitcoin but the blockchain technology it was built upon. He saw a future for Blockchain. This vision involved expanded applications that not only take value transfer away from centralized parties, but also remove the need for a middle man to arbiter financial contracts. What areas of finance does this affect? Insurance, lending, gambling, and securitization to name a few. Vitalik built a new cryptocurrency, Ethereum, which launched in 2015. Its core feature, "Smart Contracts" has enabled another wave of innovation in the saga of cryptocurrency. Start Contracts have brought about various blockchain phenomenons like NFTs and Defi (Decentralized Finance). Read on to understand the basics of why Ethereum is different from Bitcoin and how the coin could evolve over the coming years.
Ethereum spawned from an idea that more applications could become decentralized. What is unique about Ethereum, and what value does it bring?
What is Ethereum?
Ethereum is coded in a developer-friendly language called Solidity and mined like Bitcoin. (Remember, computer chips verifying transactions and getting financially rewarded for doing so). Solidity allows coders to build applications on top of Ethereum, where contracts are created in code to execute and transfer value without the need for a centralized party to approve it. An easy example to think about are two parties gambling directly against each other, and Ethereum sending the funds to the person who picks the winning team. Another more important example would be two parties exchanging currencies directly without an exchange. Ethereum does charge a fee per transaction, similar to bitcoin, and this fee, as well as a currency reward, is awarded to the miners. The long-term vision of Ethereum is to cut down on all the fees charged by the legacy financial system, and usher in a new era of finance called "Defi".
Some key stats:
The market cap of Ethereum has risen by more than 2,100% over the last year, peaking at $482B.
The average total volume of Ether being sent every 24 hours is more than $705 million.
The ever-popular non-fungible tokens (NFTs) that have exploded in popularity are created on the Ethereum network.
Unlike the 10 minutes required to validate transactions for Bitcoin, Ethereum blocks are validated every 12 seconds.
Bye Bye Banks, Smart Contracts, and Defi (Decentralized Finance)
Ethereum was the first digital currency network to incorporate a platform for smart contracts. Given this functionality, real-world use cases are already beginning to emerge and sustain value. NFTs (non-fungible tokens) have been the first real way to monetize digital content and provide a royalty stream to the original creator ever. Folks like Mark Cuban and Gary Vaynerchuk are investing in NFT infrastructure because they see it as a way to more efficiently monetize all forms of media, including social media. The underlying technology of smart contracts allows for automations to be built upon the network. The biggest smart contract blockchain by far is Ethereum.
There is also a new wave of smart contracts development forming, one that is the most promising yet. This is called Defi and it has quietly been the best performing sector of Ethereum this year. Defi is the nickname for Decentralized Finance. You can think of Defi apps as rules that are coded into Ethereum that function as traditional banking services. Smart contracts serve as IF/THEN statements. Just like Bitcoin, anyone can access the rules with an internet connection, and their security is upheld by a network of miners. Defi is already beyond the early stages, having proved successful in borrowing and lending applications. There are currently $77.5B dollars locked up on smart contracts being used for lending and providing liquidity for trading. Compare this to 1 year ago, where there was $1B locked up in Defi and you can see why banks might be getting nervous. Defi is a juggernaut and will continue to be so.
Ethereum Resources:
The Ethereum whitepaper was published in 2013 laying out the technical advantages of evolving the blockchain technology outside of the Bitcoin network.
A Twitter thread that visually maps the metaverse of Defi.
Read Seth Godin's thoughts on why the blockchain matters.
This Ethereum syllabus has lots of resources on many of the concepts we've described above.
Learn more about what Ethereum is and the benefits of digital money for everyone.
Here's a more technical look at Smart Contracts.
A non-technical look at the technical operation of Ethereum.
And don't forget to check out last week's edition on Bitcoin.
About FirstWatch Crypto
Every ship needs someone keeping watch. We are the first watch. The tireless observers constantly on duty and essential to the ship's safety. FirstWatch Crypto is inspired by this constant vigilance. We are braving the waters together, helping guide your investments through the complex sea of change of cryptocurrencies. The development of these financial technologies has brought with it a sea of change to finance, one we think is a new world. FirstWatch Crypto brings knowledge of and passion for the future of finance and cryptocurrencies. We want to help you achieve a better future by making crypto easy and accessible for you. We will keep the first watch.
Our Values: Education, Cutting Edge, Competition
Educating investors on the fundamentals of the revolutionary new asset class of cryptocurrencies.
Positioning ourselves at the cutting edge of finance and (blockchain) technology.
Providing a platform to serve as an introduction to digital currency and using industry best practices to stay ahead.
Key Takeaways
Ethereum is the second-largest crypto.
Ethereum's network allows for smart contracts.
Smart contracts create opportunities for decentralized financial applications.
Disclaimer: None of the above is investment advice. This blog is published for entertainment and informational purposes only. The ideas expressed are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. Nothing on this blog constitutes investment advice, performance data, or any recommendation that any security, portfolio of securities, investment product, transaction, or investment strategy is suitable for any specific person. You should not use this blog to make financial decisions. We highly recommended you seek professional advice from someone who is authorized to provide investment advice. You should always do your own research before investing in cryptocurrencies. It is a volatile market.