What is Ethereum?

Although Bitcoin was the first gateway to the decentralized finance universe, there had not been very much built on this platform until the Lightning Network entered, designed to make transactions faster and cheaper. Bitcoin was not the only asset skyrocketing in the last bull run; Ethereum was right behind Bitcoin and rose to record highs in 2017. Ethereum’s core features are public fundraising, more secure contracts, and decentralized applications that remove the issue of trusting a third party with your private information. All of these different features allow people to become part of the global computational network called Ethereum, which has become prevalent in this era of privacy. Most people currently store their savings in a centralized bank instead of guarding their funds themselves because they trust the entity to secure their hard earned money. People also enjoy the convenience of apps that connect to banks and allow the painless transfer of money, like Venmo and Paypal. Although these features are attractive when deciding where to store your money, banks can be compromised — whether it is a national holiday and the bank is closed or they have been hacked and all of your personal information has been leaked. Another example of people not being able to access their money at their trusted bank was during the Great Depression, when banks were failing because everyone was withdrawing at the same time.

People are currently looking to decentralized banking as a solution to take away the requirement of trusting a third-party to manage their money. Over time, banks will become less necessary as more users opt for an Ethereum wallet, where they’ll enjoy reduced risks of data breaches and no unnecessary fees, like overdraft charges.

What are smart contracts?

Smart contracts are similar to the contracts people see in their daily lives, such as in legal filings and workplaces, that designate the parties and terms involved in a deal or a transaction. These contracts are completely digital on the blockchain, which means they can be tracked from the moment they are deployed and a properly-coded contract has no way of being altered once it is created. For example, say I wanted to raise money on a crowdfunding website. I would set a goal and I would wait for people to donate to my fund. In these circumstances, both the people donating to the fund and fund itself have to trust that the crowdfunding website will take the donations and hand them over to me. There is a lot of risk in this example, as the people donating and the people receiving the donations have to trust the crowdfunding website to deliver. People are being introduced to smart contracts as a way to mediate these events by handling the transactions and the settlements while storing all the records on the Ethereum blockchain without an intermediary.

What are dapps?

Recently, we’ve been hearing stories of peoples’ personal information being leaked on the websites that they trust, like Facebook during the Cambridge Analytica scandal. Since the beginning of social media, users have trusted their favorite websites with their personal info. We are now in a stage where people do not need to trust these websites with their personal info, as the Ethereum blockchain removes third parties from user-to-user interactions. Everyone is used to apps that are centralized and governed by a business or government, but dapps (decentralized apps) are decentralized and governed by the users who interact with them — and users do not have to trust these apps with their information because there is never anything stored on personal servers.

Dapps have become prevalent since the 2017 bull run. DeFi Pulse, an Ethereum decentralized finance tracker, has recorded that over $545 Million worth of Ethereum is locked in DeFi applications.

The most popular categories for decentralized products currently being used are:

Lending and borrowing

Decentralized exchanges

Derivatives

Payments

Assets

Dapps are not just financial applications with features similar to our current banking systems. Companies like Cent, an Ethereum-generating social media network, are building blockchain-based products to allow for more revenue streams.

Although Ethereum and all of the projects built on the blockchain are decentralized, there has to be some sort of organization of shareholders that facilitate voting for future developments and improvements.

What are DAOs?

Since blockchain technology takes away the middlemen in businesses, Decentralized Autonomous Organizations are used to formulate the management-level rules of business governance. These rules are normally illustrated in a smart contract prior to the development of a project, as this contract has no way of being altered later.

An example of a DAO is MakerDAO, the leader of decentralized finance, which boasts having lent over $420 million worth of Ethereum Defi Pulse. Maker has developed an ERC-20 stablecoin that is built on Ethereum called DAI. It is a stablecoin pegged to the US Dollar and maintains the same price of $1 but is backed by ETH (Ethereum). A decentralized solution like DAI is generally safer than the dollar we are familiar with. For example, Maker does not have to rely on a third party, like a bank, to store the accurate amount of USD value to maintain the 1:1 balance for DAI, as trusting the bank could result in regulatory and modified inflation situations. DAI is created by depositing and locking ETH in a Collateralized Debt Position on MakerDAO. DAI is generated by taking out a certain amount of DAI depending on the amount of ETH you deposit, and the collateralization ratio must remain over 150% or else the CDP will be closed automatically. This ratio could fluctuate based on the price of ETH and the amount of DAI taken out.

If you would like to read more about DAI, check out MyCrypto’s detailed article on the purpose of DAI and how it works!

Maker acts as a DAO, as they open up MKR tokens to holders who would like to gain voting control to contribute to further developments of the protocol, like changing the stability fee, collateralization percentages, and more. The MKR token may also be used to pay for the stability fees added when paying off a CDP.

The most recent DAO to be released is dxDAO, which launched in May 2019. This DAO is set up in a very interesting way, as there aren’t any hierarchies and the ability to gain voting power starts at the same time for everyone by locking ETH and other tokens. The original “DAO” in 2014 suffered from certain problems, such as being available to everyone through their token sale, and had centralized proposals, which goes against the overall mission statement of a DAO. dxDAO was formed recently to provide truly decentralized governance models for the decentralized finance protocols that are being built on Ethereum.

Who is currently using Ethereum?

Since what people called “the crash of Bitcoin and Ethereum” and the end of the ICO mania, some people have lost interest in Bitcoin and Ethereum, and cryptocurrency as a whole, whether they’re people who bought it to become rich quickly or investors in the traditional finance world.

In the past two years, while the speculative people have tried to forget about the crypto roller coaster in 2017, all sorts of technology and finance companies have been working on their own projects backed by Ethereum. One really cool example is Amazon’s newest project Amazon Managed Blockchain, which is using Ethereum to help people create and manage their own private blockchains in order to make work more efficient. Another development we’ve seen is traditional bank JP Morgan evolve to the next stage of finance by adding security to the Ethereum blockchain as one of their initial projects.

What is Ambo?

Ambo is the easiest to use mobile app that gives people the power of investing in the digital economy. Expect many more of these articles and feel free to reach out if you have any suggestions!