When I asked why mainstream media (MSM) wouldn’t cover Ethereum as much as Bitcoin, a response I got was; “people can barely understand Bitcoin”. The answer implied that Ethereum is significantly more complex than The Corn, which is somewhat true and also a good place to start considering the technologies are so similar. Vitalik Buterin has contrasted Bitcoin and Ethereum to “…the difference between something like a pocket calculator and a smart phone”. In other words; Ethereum is more “general-purpose”, dynamic, and flexible.
Because it is so ambitious and multi-use in nature, it would help to see various participants’ perspectives. The following is a collection of analogies, metaphors, and parallels to try to understand Ethereum; the settlement layer, Ether ($ETH); the asset, DeFi, smart contracts, and the social construct of the community.
“…a built in P2P network for sending messages and a generalized blockchain with a built-in programming language allowing people to use the blockchain for any kind of decetralized application they want to create.”
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What Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create "contracts" that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code.
What is more interesting about Ethereum, however, is that the Ethereum protocol moves far beyond just currency. Protocols and decentralized applications around decentralized file storage, decentralized computation and decentralized prediction markets, among dozens of other such concepts, have the potential to substantially increase the efficiency of the computational industry, and provide a massive boost to other peer-to-peer protocols by adding for the first time an economic layer. Finally, there is also a substantial array of applications that have nothing to do with money at all.
The concept of an arbitrary state transition function as implemented by the Ethereum protocol provides for a platform with unique potential; rather than being a closed-ended, single-purpose protocol intended for a specific array of applications in data storage, gambling or finance, Ethereum is open-ended by design, and we believe that it is extremely well-suited to serving as a foundational layer for a very large number of both financial and non-financial protocols in the years to come. 1
Ethereum was invented by Vitalik Buterin, a Russian-Canadian teenager who released his white paper on the subject in late 2013. Buterin first fell in love with Bitcoin and the wild group of adherents it attracted, but soon became disaffected with its limits. Nineteen at the time, Buterin set out to craft a system that could do more than record static quantities. His vision was of a blockchain that could host what came to be known as smart contracts, self-executing agreements in which a chain of actions could flow from defined conditions and contingencies. The only limit to the transactions that can run on Ethereum is the imagination of the developers who build Ethereum applications.2
Ethereum is a foundation for building an alternative internet-based financial system. This financial system has the capacity to be completely open and trustless. This new financial system needs a native money to operate. Financial applications in this new landscape need a trustless form of collateral for their operation, and the only truly trustless asset on Ethereum is Ether.
As a result of this demand, Ether has become an economic-trifecta; a “triple-point” asset, satisfying all the requirements that a new economy needs, all at once. As a result of this, Ether has become the best model for money that the world has come up with.3
Separation of monetary power from the state;
Computation transfer;
Web 3.0 Blockchain Cloud Computing / The Ant Financial 2.0 of De(cloud)Fi;
Maximally decentralized programmable collateral;
A perpetual call option on human creativity and innovation;
A replacement of the NYSE;
Trading castles made of math;
Ethereum is a platform for permission-less innovation;
Consumable commodity/digital oil/reserve currency;
Money;
Property rights economy of the internet;
“People often ask, “What is Ethereum for?”. Previous answers to this question often included the term “world computer”, but despite some interesting examples, it’s been difficult to answer this question at a more abstract level. I propose an answer to this question. I hereby propose, Ethereum is an unprecedented arena for playing cooperative games. And moreover, Ethereum enables powerful economic vehicles we don’t yet understand.” 6
“Systems like Ethereum are a fundamentally new class of crypto-economic organisms — decentralized, jurisdiction-less entities that exist entirely in cyberspace, maintained by a combination of cryptography, economics and social consensus.” 7
Currency;
“That is more life-like, and so, I have a lot of Ethereum as well,” Cuban said. “I wish I had bought it sooner, but I started buying it four years ago, simply because I think it’s the closest we have to a true currency.”8
Not Bitcoin 2.0
A trust[-minimized] system;
Programmable money & store of value asset;
Fulfillment of Satoshi’s dreams
The productive crypto;
Finance without the walled garden;
Trading mechanism for all things digital;
Egalitarian;
Wealth creator;
“The Infinite Machine”;
Ecosystem;
Ethereum is a totally different beast. Whereas Bitcoin is considered to be “digital gold,” Ethereum aspires to be a world computer, capable of being a platform for markets and distributed applications. It’s complicated. It aims to do many things. It aims to run smart contracts. It’s not meant to just be hodled.
I think of Ethereum as this wide-open space that people are thinking about ways to build on. There's this group of developers laying sewer lines and electricity and water, trying to entice a vibrant community to be built on top of it. These developers have challenges ahead of them but they're working hard to solve them.
I think the best way to view Ethereum is not just as currency, but as an enabler of a completely different way to organize online life and behavior. As we twilight the age of web 2.0 and all of its failures & overreaches, Ethereum will permit new protocols for company organization, media distribution & funding, innovative marketplaces, and decentralized finance.
Even among the investors (both institutional and retail) I speak to, there’s a varying degree of understanding of what you’re actually buying when you buy Ethereum. Are you buying the asset? Are you helping subsidize the vast ecosystem of developers and protocols that are being worked on worldwide? Are you securing access to a universe of ERC-20 tokens? If you’re using DEXs like Uniswap or Aave, are you performing some form of wholesale funding, or accruing more APY than you would from a bank? The answer is that investing in Ethereum enables all of this (and more). And that’s why it’s so exciting.9
A platform for permission-less innovation;
Digital company generator;
The platform for programmable money;
Information record keeper that supports smart contracts and new applications;
“I think a large part of the consequence is necessarily going to be disempowering some of these centralized players to some extent,” he said in 2016.
“Because ultimately power is a zero sum game. And if you talk about empowering the little guy, as much as you want to couch it in flowery terminology that makes it sound fluffy and good, you are necessarily disempowering the big guy. And personally, I say screw the big guy. They have enough money already.” 10
A Turing-complete virtual network that runs applications and stores information on a blockchain.
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Ethereum is a global, open-source blockchain platform for decentralized applications (DApps), powered by smart contracts and embedded with a native digital currency, ether (ETH). On Ethereum, code can be written to control the transmission of digital value based on programmable conditions. Ether serves three main purposes: (i) to store value in ETH, (ii) to settle transactions by allowing users to send or receive payments in ETH and (iii) to facilitate network operations (i.e., power DApps) via transaction fees paid in ETH, which are based on the computational costs of executing the code. Ethereum was conceptualized through a whitepaper published in November 2013 by Vitalik Buterin, and with additional contributions from his seven co-founders and other developers, the network was launched in June 2015. Initial development was led by the since dissolved Ethereum Switzerland GmbH (EthSuisse), and is currently overseen by the Ethereum Foundation, a non-profit organization based in Switzerland. Prior to inception, Ethereum was designed to expand upon Bitcoin’s primary function as a peer-to-peer (P2P) digital currency, by incorporating a platform capable of deploying smart contracts and more complex structures, such as DApps and decentralized autonomous organizations (DAOs). Its progress is driven by the collaborative efforts of its global developer community, recognized as the largest amongst all digital currency networks. Currently, Ethereum is in its fourth stage of development, called Serenity or Ethereum 2.0, which will be rolled out in several phases, with completion expected sometime after 2022.
The original concept of a smart contract was coined by Szabo (1994). Szabo (1997) used the example of a vending machine to describe the idea further and argued that many agreements could be "embedded in the hardware and software we deal with, in such a way as to make a breach of contract expensive…for the breacher." Buterin (2013) proposed a decentralized blockchain-based smart contract platform to solve any trust issues regarding the execution environment and to enable secure global states. Additionally, this platform allows the contracts to interact with and build on top of each other (composability). The concept was further formalized by Wood (2015) and implemented under the name Ethereum. Although there are many alternatives, Ethereum is the largest smart contract platform in terms of market cap, available applications, and development activity.11
This section proposes a conceptual framework for analyzing these layers and studying the token and the protocol layers in greater detail.1 It differentiates between five layers, as shown in Figure 2: the settlement, asset, protocol, application, and aggregation layers.
The settlement layer (Layer 1) consists of the blockchain and its native protocol asset (e.g., Bitcoin [BTC] on the Bitcoin blockchain and ETH on the Ethereum blockchain). It allows the network to store ownership information securely and ensures that any state changes adhere to its ruleset. The blockchain can be seen as the foundation for trustless execution and serves as a settlement and dispute resolution layer.
The asset layer (Layer 2) consists of all assets that are issued on top of the settlement layer. This includes the native protocol asset as well as any additional assets that are issued on this blockchain (usually referred to as tokens).
The protocol layer (Layer 3) provides standards for specific use cases such as decentralized exchanges, debt markets, derivatives, and on-chain asset management. These standards are usually implemented as a set of smart contracts and can be accessed by any user (or DeFi application). As such, these protocols are highly interoperable.
The application layer (Layer 4) creates user-oriented applications that connect to individual protocols. The smart contract interaction is usually abstracted by a web browser-based front end, making the protocols easier to use.
The aggregation layer (Layer 5) is an extension of the application layer. Aggregators create user-centric platforms that connect to several applications and protocols. They usually provide tools to compare and rate services, allow users to perform otherwise complex tasks by connecting to several protocols simultaneously, and combine relevant information in a clear and concise manner.12
A payment system, store of value, and value added company;
The global settlement layer;
A decentralized, censorship-resistant and permission-less network that enables true financial freedom for the world;
A movement;
The mother of DeFi;
Automated Wall Street;
Can Ethereum pull off being so many different things or do they all compliment each other? We’ll see.
https://blockchainlab.com/pdf/Ethereum_white_paper-a_next_generation_smart_contract_and_decentralized_application_platform-vitalik-buterin.pdf
https://www.bloomberg.com/news/articles/2021-05-09/bitcoin-and-ethereum-how-are-they-different-quicktake
https://newsletter.banklesshq.com/p/ether-a-new-model-for-money
https://grayscale.co/wp-content/uploads/2020/02/Grayscale-Building-Blocks-Ethereum-February-2020.pdf
https://messari.io/pdf/messari-report-eth2-the-next-evolution-of-cryptoeconomy.pdf
https://medium.com/@virgilgr/ethereum-is-game-changing-technology-literally-d67e01a01cf8
https://messari.io/pdf/messari-report-eth2-the-next-evolution-of-cryptoeconomy.pdf
https://www.cnbc.com/2021/04/01/mark-cuban-on-his-crypto-portfolio-i-own-ethereum-ether-and-bitcoin.html
https://www.bloomberg.com/news/articles/2021-05-20/more-and-more-normies-of-finance-are-getting-eth-pilled?sref=vuYGislZ
- https://www.cnbc.com/2021/05/18/why-ethereum-founder-vitalik-buterin-got-into-crypto-bitcoin.html
https://grayscale.co/wp-content/uploads/2020/02/Grayscale-Building-Blocks-Ethereum-February-2020.pdf
https://research.stlouisfed.org/publications/review/2021/02/05/decentralized-finance-on-blockchain-and-smart-contract-based-financial-markets