VitaliK Buterin, co-creator of Ethereum (ETH), shared five things that excite him about the blockchain in a blog post. He focused on Crypto and ETH applications that addressed real-world needs.
Buterin, a Russian-Canadian programmer, published the Ethereum white paper in 2013 and deployed the blockchain in 2014. For years he thought of ETH as a general-purpose technology, like the programming language C++. At present, his abstract view has shifted to applications that are seeing usage in the real world.
1. Ethereum as Money or Payment
Vitalik recognized that users are slowly using cryptocurrencies as a mode of payment and to transact money transfers. This is most especially true for developing countries wherein a big chunk of the population has limited access to banks and other financial institutions. Ethereum, Bitcoin, and other crypto projects are providing bank-like transactions at a faster speed and at a fraction of the cost.
He also touched on the topic of financial privacy. He said that governments are taking advantage of the shift to a “cashless society” by introducing financial surveillance that was unheard of before.
“Cryptocurrency is the only thing currently being developed that can realistically combine the benefits of digitalization with cash-like respect for personal privacy.”
Buterin, 2022
In the past, people barter or pay in cash and this leaves little trace of the transaction. A buyer will just walk to the store and leave with the merchandise without giving out any personal information. In a cashless society the name of the buyer, the time of the transaction, and the amount spent are all recorded.
The government can also freeze bank accounts for alleged infractions. This can leave a person without any means to carry out daily monetary transactions.
Crypto addresses concerns with privacy and government overreach.
- The Role of Stablecoins
The role of stablecoins has also been discussed. At the moment the top 3 stablecoins are all supported on the Ethereum Network.
In a volatile industry, stablecoins provide stability of asset value by usually pegging the token to fiat value USDT, USDC, and BUSD are all pegged 1:1 to the US dollar. This allows investors to buy a token that will theoretically not lose value.
The Ethereum founder believes that stablecoins provide many options for savings and currency applications. Users can convert their local currency to a stablecoin as a form of a hedge against inflation.
Brazil is a good example. Due to the depreciation of their local currency, many Brazilians converted their Reals to Tether (USDT). This allows residents to mitigate the erosion of their purchasing power.
Stablecoin savings accounts can also potentially earn more interest compared to traditional bank accounts.
2. DEFI
Decentralized Finance or DEFI is envisioned to be an alternative to traditional centralized finance like banks and brokerages. DEFI removes third parties and associated fees by using blockchain technology and smart contracts. Trading, lending, and borrowing are just some of the things allowed on it.
The Ethereum Founder said that DEFI started as a good concept that evolved into “an overcapitalized monster that relied on unsustainable yield farming”. He did not name any project, but Anchor is an example of what he is describing.
Although he did not approve of the unsustainable yield farming done on DEFI, he still believes that there are still valuable applications in the space.
- He said that stablecoins will always be the most important DEFI product.
- Market prediction is a niche that may increase in usefulness over time. One example of its uses and limitations was seen in the 2020 US presidential election.
- Synthetic assets – like stablecoins, synthetic assets can be used as proof of ownership of real-world items like stock indices and real estate. According to Vitalik, the key is finding the right balance between decentralization and efficiency.
- “Glue Layers” – Buterin sees value in a blockchain layer that will allow efficient transactions between chains. A user should be able to convert Ethereum or any on-chain asset to another without any hassle. The “Glue Layer” is what binds chains to facilitate seamless transactions.
3. Identity Ecosystem
According to Vitalik, identity is a complicated concept and he is bullish on blockchain identity itself, but bearish on the platforms for blockchain identity. He believes that instead of creating a centralized platform for identity, it is better to have multiple interoperable projects.
He mentioned Sign in with Ethereum (SIWE). The SIWE platform allows users to control their digital identity with their Ethereum Account and Ethereum Name Service (ENS) profile. ENS maps human-readable names like vitalik.eth to machine-readable identifiers like ETH and Crypto addresses, content hashes, and metadata. It is the blockchain equivalent of using a Google or Facebook account to log on to websites and applications.
Ethereum Name Service also allows the user to have a username. As an example, Vitalik gave his ENS which is vitalik.eth. This proof of identity or personhood can be used for airdrop claims, proof of attendance, and governance.
4. DAO
MakerDAO (MKR), the issuer of the DAI stablecoin, was mentioned by Vitalik as a good DAO project in the short term, but not for the long term. This project is built on the Ethereum Network.
To understand what he is saying, we have to understand what is a DAO. A Decentralized Autonomous Organization (DAO) puts the decision-making into the hands of members who own governance tokens. There is no traditional authority and rules are enforced by codes and smart contracts.
Going back to MakerDAO, Buterin pointed out that someone could just buy half of all the MKR governance tokens to manipulate prices and drain funds. This has happened to the Beanstalk stablecoin protocol. It hasn’t happened to MKR because the majority of the token is being held by a small group of people who believes in the project. It is good at the beginning, but is not sustainable.
To fix the flaw, Vitalik suggested two possible solutions.
- A non-financialized (sic) governance or a bicameral hybrid wherein decisions are not just voted upon by token holders but some other entity or class of users. In the traditional sense, this can be likened to how a law is passed by both Congress and Senate, before being signed by the President. The Lido Two-chamber proposal is an example in the blockchain space.
- Intentional friction – this is simply delaying the effects of decisions made. This will give users a chance to review everything and decide if they want to get out.
5. Hybrid Applications
Buterin stated that not all systems need to be strictly on-chain. Blockchain can be combined with other systems.
He cited voting as a prime candidate for a hybrid system. Vitalik proposed MACI or Minimum Anti-Collusion Infrastructure. MACI, as its name suggests, prevents collusion or conspiracy to deceive the voting process. It uses an identity system where each member uses an exclusive Ethereum private key.
A more technical explanation is available on this site
What Does The Future Hold?
The Ethereum founder presented several projects that are currently being used or have the possibility of being integrated into our daily lives. People would usually think of crypto or blockchain as tools for investment or income generation. What most of us forget is that blockchain is a technology that can be used in a variety of ways.
Blockchain will probably change the way we do our financial transactions. We have online banking and payments, but paying with crypto proved to be faster, easier, and more accessible. Instead of relying on a traditional bank, ordinary users can handle their finances with just a smartphone.
Instead of using an email address or any other personal identifier, users can simply use a blockchain technology like the Ethereum Name Service. A blockchain’s consensus mechanism will make it secure from tampering.
Ethereum and Blockchain as a whole are still in their early stages. It will take a while to mature, but the things being built on top of this exciting technology will surely change our lives. He haven’t even scratched the surface.
Link to the original Blog
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