Ethereum, the Contender
Blockchain technology is the bedrock of all cryptocurrencies, due to the immutability of information. Also called distributed ledger technology, blockchain is a digital database managed by a decentralized system, consisting of thousands of different computers, as opposed to a single centralized server. The independent computers themselves are referred to as nodes which are all connected in a randomized way. As new information is entered into the system, these peer-to-peer nodes create a chronological ledger of that information which must be agreed upon by the entire network. This randomized grouping of computers makes it impossible for one node to be the sole censorship of information as the entire network would over-rule and bypass any single node.
After a set of information is agreed upon by the whole network, it is grouped into a block and given a cryptographic signature. This process secures and encrypts the signature, linking it to the previous block of information. In return, building a complicated math problem or algorithm as the process continues until a chain of information is built. The more nodes, also known as miners, in the system, the more secure the blockchain as they work together to validate the data. The process of mining is how new crypto coins are created. As a miner’s system competes to be the first to identify and solve the algorithm during the validate and build step, they are rewarded by adding a new block, gaining cryptocurrency and/or payment.
Interestingly, not all cryptocurrencies are minable and some such as Bitcoin have limits on how many can be generated. However, if you are not computer savvy and would like to own cryptocurrencies without having to mine, there are other ways to acquire it.
When we think of cryptocurrencies many people think of money as digital currency, and this is partially correct. Cryptocurrencies are the applications that sit on top of the Blockchain. One application that sets itself apart from Bitcoin is called Ethereum, also known by its ticker name, ETH. Ethereum is the second largest crypto that some say will surpass Bitcoin in market capitalization due to its business application opportunities. Its value has been steadily increasing over the past year, yielding approximately 1,000% year-to-date return at the time of writing.
The crypto ecosystem is broken down into three sub-categories:
- Crypto enterprises
- Crypto protocols
Ethereum is a prime example of crypto enterprises. It is a marketplace that provides business solutions for data like smart contracts, product traceability as seen in supply chain, personal data for human resources, education, retail, healthcare and financial services, real estate, games and art. This is a high-level list of innovations that have been around for a few years yet surprisingly are just now starting to gain popularity. Blockchain innovation can be used across numerous industries and is going through the acceptance stage, a process where people are becoming educated and determining whether to trust the system. This is similar to the adaptation of the cloud and internet when they were first introduced.
One of the trendier uses of ETH making headlines are non-fungible tokens (NFTs). A multimillion-dollar niche that has caught on in the art world, it takes a unique piece of digital content stored on the blockchain where an individual can bid/buy and be the sole owner of a one-of-a-kind, certified digital asset. Most of these pieces are considered and sold as high dollar valued items. Some NFT examples include art, music, and collectibles.
On the flip side, the press headlines and social media have been focused on the controversy as to how much electrical energy it takes to create, store, and sell the digital asset. Because of the wide network of computers required to create, maintain, and ensure the chain stays secure, this high use of energy is not isolated to just NFTs, but applies across all Blockchain applications. There are solutions in the works on how to recycle and/or recover the energy. Trials are currently being conducted where one Canadian miner is using the energy from his computer to heat his small fish and vegetable farm. A Czech businessman has started a company that uses the heat from a mining farm for growing vegetables. He refers to the vegetables in his five-acre greenhouse as cryptomatoes. Other innovations involve everything from heating chicken houses to plugging reusable energy back into the national or regional grids or even directly into the household. There are even opportunities to tie in alternate ways of gaining energy to power the nodes using solar power, hydro, wind, and recycled tires.
What is not advertised in the general media is the spread of more robust business applications currently being adopted by various industries. Within the financial services industry, Ethereum-based applications are giving rise to crypto platforms where a retail consumer can convert their dollars to a cryptocurrency called a stablecoin. A stablecoin is a cryptocurrency that is pegged to the movement of a traditional currency like the dollar. The consumer then stakes the stablecoins on a platform, whereby agreeing to “rent” the coins to the network. This process assists the miners and nodes with the Ethereum network to scale-up and free up energy. In consideration for staking their cryptocurrency, the consumer receives approximately 6% to 10% return on their crypto. As a result, the interest can be reinvested or paid out immediately. Each platform has their own rules of how interest is paid and access to coins. Billions of dollars right now are being converted to stablecoins and retail consumers are taking advantage of this process every day. We may be on the cusp of a changing financial landscape where consumers will transfer their savings from a low yielding 0.50% “certificate of depreciation” to high yielding stablecoin that truly keeps pace with inflation.
As this technology continues to grow and be accepted, many innovations in the cryptocurrency and enterprise realm will start to be implemented for business and society use. Future blogs will expand on some of these real-world examples.