Look What We'th Built
Comparing the envisioned Ethereum applications from 2014 to today
Hello everyone - welcome back to another week of Token Tuesdays!
Earlier this week, we saw this tweet circulate Crypto Twitter on how Vitalik perfectly outlined some of the potential applications with Ethereum back in 2014.
The accuracy of this tweet along with the list of potential applications outlined in the whitepaper are mind-blowing. Therefore, we’ve decided to highlight many of the prominent applications in existence today and why this is ultimately important for ETH in the long-run.
As a side note - we’ll be traveling to a handful of events in the coming months including ETHDenver, ETHLondon, ETHParis, and ETHCC. If you’re at any of these events, give us a shout and we’d love to grab a beer or coffee with you and chat about token economics, DeFi, or anything else crypto-related!
Hope you enjoy this week’s release!
-Lucas and Cooper
Look What We’th Built
Over the past two years, many projects have been gut-checked by what many have come to call “Crypto Winter”. As we look ahead to the coming quarters of 2020, it’s clear that a handful of protocols have actually aggregated true value in line with their intended visions.
In this week’s article, we’ll be diving into the Ethereum ecosystem, predominantly focusing on the use-cases which were conceived within the original whitepaper back in 2014 and highlighting how many of them have been brought to fruition today.
With the upcoming transition to ETH 2.0, it’s likely that Ethereum will enjoy a more robust foundation for this ecosystem to flourish, ultimately signaling that it won’t lose it’s lead as the market-leading smart contract protocol any time soon.
Before diving in, we’d like to highlight that from our perspective, perhaps the most novel aspect of Ethereum ecosystem growth over the past few years has been a shift in focus from speculation to pure usage.
With a web3 wallet like MetaMask and a little bit of Ether, users have the ability to dive into virtually all the use-cases and projects we’ve listed below.
Without further ado, let’s get into it!
2014 Vision
For those unfamiliar, the biggest differentiator for a protocol like Ethereum was the ability to program value directly into smart contracts. Whereas something like Bitcoin has been shown to serve as an excellent store of value, there isn’t much that can be done on top of the Bitcoin blockchain.
Ethereum brought about the ability for a variety of uses and applications to emerge, all of which were synthesized in the original whitepaper as follows:
“In general, there are three types of applications on top of Ethereum. The first category is financial applications, providing users with more powerful ways of managing and entering into contracts using their money. This includes sub-currencies, financial derivatives, hedging contracts, savings wallets, wills, and ultimately even some classes of full-scale employment contracts. The second category is semi-financial applications, where money is involved but there is also a heavy non-monetary side to what is being done; a perfect example is self-enforcing bounties for solutions to computational problems. Finally, there are applications such as online voting and decentralized governance that are not financial at all.”
Let’s explore some projects which have brought these use-cases to life:
Financial derivatives
Stable-Value Currencies
Identity
Decentralized File Storage
Decentralized Autonomous Organizations
Financial Derivatives and Oracles
“Financial derivatives are the most common application of a "smart contract", and one of the simplest to implement in code. The main challenge in implementing financial contracts is that the majority of them require reference to an external price ticker”
Synthetix
A permissionless synthetic asset issuance protocol built on Ethereum. Anyone in the world with an internet connection can access synthetic versions on a range of different assets, including Apple stock and fiat currencies, collateralized by its native token SNX.
UMA Protocol
A decentralized, permissionless financial contract platform for developers to leverage its self-enforcing contract design patterns and provably honest oracle mechanism to essentially create any sort of financial product in existence with the ERC-20 standard.
ChainLink
An oracle solution to fuel smart contracts with real-world data feeds in a secure and decentralized manner. Essentially every financial application requires an oracle solution in order for the smart contracts to reference off-chain data and provide a working application.
Stable-Value Currencies (Stablecoins)
One of the main problems cited about cryptocurrency is the fact that it's volatile; although many users and merchants may want the security and convenience of dealing with cryptographic assets, they may not wish to face that prospect of losing 23% of the value of their funds in a single day.
Dai
MakerDAO’s permissionless stablecoin Dai allows anyone in the world to access stable value as well as earn a substantial interest on it (currently ~8.75% APY). Rather than relying on a trusted entity to issue a “sub-currency” like Coinbase’s USD Coin (USDC) or Tether (USDT), Dai leverages collateralized Ether and an oracle solution to stabilize the asset, creating a trustless and permissionless stablecoin.
Identity and Reputation Systems
“The earliest alternative cryptocurrency of all, Namecoin, attempted to use a Bitcoin-like blockchain to provide a name registration system, where users can register their names in a public database alongside other data”
ENS
Ethereum Naming Service (ENS) allows Ethereum users to abstract away their cryptographic public addresses and replace them with human-readable usernames to mimic Venmo and other legacy solutions. While reputation isn’t necessarily embedded into ENS, it does provide a clear way to identify who’s who in an emerging web3 landscape.
uPort
As one of the Ethereum projects used for last year's ETHDenver event, uPort is a decentralized identity and credential system for web3 users. The application allows you to connect your Ethereum wallet, tie it with your name (real or not) and other relevant information to aggregate any credentials you earn over time under the respective account and ETH address.
Decentralized File Storage
“Ethereum contracts can allow for the development of a decentralized file storage ecosystem, where individual users can earn small quantities of money by renting out their own hard drives and unused space can be used to further drive down the costs of file storage.”
Filecoin
IPFS - A peer-to-peer hypermedia protocol designed to make the web faster, safer, and more open - is used by many decentralized applications for the distributed storage of sensitive information. However, as it exists today, there is no incentive for the nodes who choose to store information using IPFS.
With the introduction of Filecoin, users will be able to offer free hardware space in exchange for Filecoins - the incentive layer to encourage IPFS adoption. Filecoin is expected to go live in Q2 of 2020.
Storj
Storj incentivizes node operators to store content in a distributed fashion. The project is currently in BetaV2 with the Voyager Miannet launch expected sometime this spring.
Storj prides itself on making distributed file storage easy to access and set up, thus trying to allow a wider audience of users to benefit from the protocol’s design.
Decentralized Autonomous Organizations (DAO)
“The general concept of a DAO is that of a virtual entity that has a certain set of members or shareholders which, perhaps with a 67% majority, have the right to spend the entity's funds and modify its code. The members would collectively decide on how the organization should allocate its funds.”
In the past year, we’ve seen a strong resurgence in the number of DAOs launched on Ethereum. Building on the vision of The DAO from 2016, the new wave of DAOs places a strong emphasis on simplicity and community governance.
MakerDAO
As an industry-leading permissionless lending protocol, Maker leverages a DAO for the governance of the protocol and the maintenance of Dai. Community members propose key decisions that are then integrated into the protocol following an executive vote from MKR token holders.
MolochDAO
Focused on funding Ethereum development, Moloch leverages smart contracts for the governance and issuance of shares. These shares are issued to new members and grant recipients and can be redeemed for Ether at any point in time.
By introducing the capacity for RageQuitting and Grace Periods, Moloch provided a mechanism for shareholders to liquidate their shares in the event they were unhappy with the outcome of a vote - a major improvement over the original design of The DAO.
We’ve seen Moloch be forked numerous times, resulting in new DAOs like MetaCartel.
Similarly, we’ve seen many projects (Synthetix, Kyber, Digix) vocalize their intent to migrate to a DAO model, with others such as Aragon, DAOStack and SignalDAO providing tooling to make DAO coordination easier. All in all, it’s clear that all DAOs aim to provide their community with a more direct say in future decisions.
Other Use Cases
Outside of the major sections described above, the whitepaper also mentions “Further Applications” - virtually all of which have been tackled to date.
User-issued Currencies / “Colored Coins”
ERC20 tokens, RollHQ Social Currencies, TokenSet trading strategies
Decentralized Exchanges
Savings Wallet with Withdrawal Limits
Insurance
Smart Multi-sigs
Cloud Computing
Peer-to-Peer Gambling
Prediction markets
We’d like to highlight that there are certainly more projects that could fall into these categories and have chosen to focus on a handful we are familiar with that have working products today.
What’s Missing?
While the Ethereum ecosystem continues to grow, there’s no denying there are a vast number of use-cases that were not mentioned in the original whitepaper.
Non Fungible Tokens
With the emergence of web3 games like Axie Infinity and Gods Unchained, Ethereum’s ERC721 token standard serves a crucial piece of infrastructure for next-generation gaming economies to take form.
Universal Logins
As Ethereum continues to expand on the role of composability - or applications building on top of or integrating with one another - the potential for web3 wallets like MetaMask to act as a universal login also become more powerful. With projects like 3Box and Fortmatic allowing users to tie a social profile to any given wallet address, it’s easier to envision a future where universal logins become user-friendly in the not-so-distant future.
Micropayments
As Ethereum tooling becomes easier to integrate, we’ll likely see projects leveraging smart contracts for the issuance of micropayments. Existing projects like Sablier and Audius are already experimenting with this field, further optimizing the potential for value to be exchanged in an instant, autonomous fashion.
Security Tokens
The ability for tokenized equity, real-estate and bonds brings about a new paradigm for value transfers in a permissionless fashion. While it’s vital to encode parameters like whitelisted addresses directly into contracts, it’s evident that entirely new asset classes (such as a token which represents Amazon equity that double as an Amazon Prime membership) will undoubtedly emerge in the future. In the meantime, this is likely to be on hold as we wait for more regulatory clarity and a robust set of rules and regulations in countries like the United States.
Why ETH?
All of these applications require Ether to some degree. Whether it’s used as trustless collateral to fuel financial applications or simply to pay transaction fees, the proliferation of these applications should drive value to Ether over time as they continue to garner more and more usage.
With the potential future introduction of EIP 1559, this effect will compound. Every transaction on Ethereum will burn a portion of the transaction fees - effectively providing a dividend to Ether holders as everyone’s percentage ownership in the network increases equally.
As the amount of usage of these applications increases, the higher the demand for Ether becomes - it’s that simple.
We’ve seen this happen before as one major use case - the ICO bubble in 2017 - fueled one of the biggest bull runs for the asset to date in 2017 and early 2018 as all of these ICOs occurred on Ethereum (and raised capital with Ether).
We’re now beginning to see this again with the growing prominence of Decentralized Finance (DeFi) and the diverse range of mind-bending financial applications being released day-in and day-out.
It is becoming clear that we’re likely at the very beginning of a multi-year bull-run led by the proliferation of DeFi and other applications.
Where will you be this time around?