I was discussing this topic with someone new to crypto and thought I'd make it into its own post, hopefully it is useful to anyone starting out in the crypto space and provide some clarity in (relatively) plain english on how ethereum really is changing finance as we know it.ETH has enabled a few totally new things that really are revolutionary to the crypto space including:‘stablecoins’, or more generally 'tokenized assets', cryptocurrencies whose value is pegged to the value of another asset, like the US dollar. (eg USDT/Tether, USDC, Dai) This allows crypto users to easily exchange their more volatile assets such as ethereum or any other ‘ERC-20’ token (basically a token created using ethereum and exists on the ethereum blockchain), into one that reliably maintains its value, while still having all the advantages of having a blockchain asset (eg secure, global, permissionless transactions).Decentralized, smart contract-based trading platforms, allowing users to trade while still maintaining full self-custody of their private keys unlike on centralized cryptocurrency exchanges. In other words you always maintain control of your coins, instead of needing to send your coins to the exchange to trade them. On top of that they never have any downtime during volatile markets like centralized exchanges. They also can't stop you from trading *cough cough* robinhoodThe development of decentralized, peer-to-peer lending/borrowing platforms. This allows users to earn interest on their cryptos or borrow cryptos. These loans are quite low risk due to them being overcollateralized loans, meaning that to take out a loan, you must post collateral, in the form of other crytpocurrencies, that is more valuable than what you are borrowing. This means that people can invest in crypto in a low risk way, lending out stablecoins can yield >5% annual returns which, while much lower than what is possible with higher risk crypto investments, is still quite high given the risk profile, easily 100x the annual return of a savings account at a bank.These three things constitute a large part of what we call ‘decentralized finance’ or DeFi and right now they only really exist on the ethereum blockchain. Right now there is one major problem for both bitcoin and ethereum, scalability. Essentially, transaction fees are obsurdly high making it cost-prohibitive for most people to take advantage of these amazing new features. The good thing is, over the course of the next 1-2 years (potentially even in the coming weeks), we will be seeing the implementation of several major solutions to this for ethereum. Namely 'Layer 2' (L2) solutions (aka off-chain solutions), these allow users to make ethereum based transactions off the ethereum blockchain and onto a platform that can handle more transactions. The other solution to the scaling problem is ethereum 2.0. This is an improvement to the ethereum platform itself, making on-chain (as opposed to off-chain, L2) transactions much more effecient. With these solutions in place, we could be seeing transaction fees at <$0.01 and transaction speeds in <1 second. Unfortunately, at least in my view, we don't have the level of concrete development in this area of bitcoin, making the prospect of bitcoin scaling less likely to be coming soon.So as you can see, the future for ethereum is very exciting, and the things I mentioned really just scratch the surface in what is possible with ethereum. Hopefully, I have provided some of the DOGE noobs who just got burned with some knowledge on what really is so interesting about crypto - its not all just a pump and dump meme like doge, this stuff is real.
Submitted February 03, 2021 at 02:57AM
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