2023 Crypto Watchlist — Ethereum
Along with an investment analysis is a background of the cryptocurrency, which may be helpful for new audiences. It’s always good to refresh on fundamentals! Also, this is not financial advice.
Ethereum (ETH)
What It Is
Ethereum is a decentralized, open-source blockchain platform that enables the creation of smart contracts and decentralized applications (dApps).
Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code.
dApps are decentralized applications that run on a blockchain, which means they are not controlled by any single entity and can be built on top of Ethereum.
Ethereum relies on a distributed network of computers (nodes) to verify and execute smart contracts and transactions on the platform. This helps to ensure that contracts and transactions are processed accurately and transparently, and it helps to prevent the possibility of fraud or errors.
In addition to enabling the creation of smart contracts and dApps, Ethereum also allows users to create and issue their own digital assets, known as ERC-20 tokens, on the Ethereum blockchain. This has led to the development of a wide range of applications and use cases for Ethereum, including decentralized finance (DeFi), non-fungible tokens (NFTs), and much more.
Ultra Simple Description
Ethereum is a computer program that enables people to make agreements and do transactions online without the need for a middleman. It uses special codes called “smart contracts” and allows people to create and use their own digital assets.
Ethereum operates on a network of computers called the blockchain, which helps to keep everything secure and transparent.
Analogy
Another way to think about Ethereum is as a digital marketplace for buying and selling services and goods.
Imagine that Ethereum is like an online shopping mall, where different merchants can set up their own stores and sell their products or services directly to customers. Just like in a real shopping mall, each store is independent and can set its own prices and policies, but they all operate within the same larger marketplace.
On Ethereum, the stores are replaced by decentralized applications (dApps) and the products and services are represented by smart contracts. Smart contracts are like digital agreements that are stored on the Ethereum blockchain and can be used to automate a wide range of processes and transactions. For example, a smart contract might be used to represent the sale of a digital asset, such as a non-fungible token (NFT), or it might be used to automate the execution of a financial contract.
Ethereum is like the platform that enables all of this to happen. It provides the infrastructure and tools that developers and users need to build and use dApps and execute smart contracts, and it relies on a distributed network of computers (nodes) to verify and execute transactions and smart contracts.
What it Does & How it’s Used
DeFi: Ethereum hosts ~70% of all Decentralized Finance activity. DeFi unlocks a more democratized, transparent, and accessible financial system between users that opens up a vast array of financial services. Traditional, but sometimes exclusive, services like currency trading, borrowing, lending, staking, yield farming, and more are enabled to everyone via DeFi protocols that leverage the Ethereum network. All transactions and rules are set by code within smart-contracts so that fraud is, nearly, non-existent.
DeFi offers a range of financial services and financial instruments, including the ability to create markets within the cryptocurrency world and even outside of it. These markets are powered by Ethereum, allowing for their seamless operation.
NFT’s: NFTs are digital assets that represent the ownership of unique items or assets and can be used in a variety of ways, including verifying ownership and authenticity, facilitating buying and selling, creating unique digital experiences, and creating new investment opportunities.
NFT’s signify a uniqueness in a digital or real world asset and can be applied to systems such as tickets (like concerts, sports events, conferences, etc.) patents, gaming, and more.
Digital Identity Management: One example of how digital identity management is used on Ethereum is in the creation of self-sovereign identities. These are digital identities that individuals own and control, rather than having their identity controlled by a central authority.
Self-sovereign identities can be used to verify and authenticate individuals for a variety of purposes, such as accessing financial services, participating in online communities, or proving their identity for regulatory compliance.
Notable mentions: Patent-NFT’s, DAO’s, P2P payments, Supply chain mgmt., Synthetic assets, Predictive markets, etc.
Why it’s a Good Investment for 2023
Ethereum, along with Cardano, Solana, Avalanche, and others, are layer-1 solutions, meaning they are the infrastructure layers for other developers to build protocols on top of. The layer-1 ecosystem becomes more robust and has more available tools for future builders as more developers build on top of these layer-1 solutions.
This is extremely important because in a rich layer-1 ecosystem, many of the security, scaling, and data issues that a new project may face is easily fixed by the other protocols that share their same ecosystem so that the new project can focus on their specific problem without having to allocate resources to build out the layers necessary for them to even start. Although Solana, Cardano, and others promise faster transactions and lower costs, developers still flock to Ethereum [by a large margin] because of how rich the ecosystem is compared to its competitors.
Like in real-estate investing, when a multi billion dollar project funded by real-estate sharks take place in certain cities, many smaller investors flock to those same places because they know the overall landscape of the area is on the rise. This is the same effect developers have within the layer-1 battle, which is clearly on Ethereum.
Personal Opinions
Ethereum should be a staple in all portfolios. It’s the breeding ground for web3 & DeFi projects and is offering better and better solutions for future projects to use everyday. The main concerns with Ethereum are scaling and speed, and even those are quashed by internal software updates and layer-2 solutions. In just 7 years Ethereum has opened up financial instruments that were never possible before, been used for payments, NFT’s, DAO’s, and more. Other layer-1 solutions have come and gone while Ethereum has stayed dominant.
