Ethereum Use Case

Ethereum Use Case: Layer 1 Network

As the second-ever blockchain to be created, Ethereum is a network that processes transactions. However, unlike Bitcoin, whose blockchain platform was created to serve as a payment alternative to existing traditional finance solutions, the Ethereum mainnet was developed to leverage other use-cases of blockchain.

To put it quite simply, Vitalik Buterin — the co-founder of the Ethereum mainnet — wanted to develop a network that serves as a hub where other blockchain projects could launch and operate. These projects can differ in their functions and deliveries, but they all rely on the Ethereum network to process transactions and keep records.

These Ethereum-based projects are usually referred to as Decentralized Applications (DApps), and they cover every sphere of cryptocurrency — Decentralized Autonomous Organizations (DAOs), Decentralized Finance (DeFi), Decentralized exchanges (DEXs) and many more. Some of the most notable projects that have been built on the Ethereum network include MakerDAO, Chainlink, Uniswap, Aave, Compound, Axie Infinity, OpenSea, Decentraland, and many more.

Decentralized Applications are like any other applications that users can easily interact with. The only difference is that having been built on blockchain, these projects are decentralized and store their records on the Ethereum-powered distributed public ledger.

Ethereum Use Case: Layer 2 Solutions (Network of Networks)

The Ethereum blockchain is not only a network that hosts blockchain projects but also serves as a host for other blockchains (referred to as layer 2 chains). Unlike dApps, these layer 2 networks operate independently of the Ethereum mainnet.

The main advantage of Layer 2 solutions on the Ethereum network is that they have the capacity to process more transactions at increased speeds within the shortest time possible. Layer 2 solutions also can host other decentralized applications. Ultimately, Ethereum serves as the network for other networks that depend on it for its existence and operational support.

Generally, Layer 2 solutions provide scalability to the Ethereum network. Also, they help reduce transaction costs which is increasingly becoming a cause of concern on the Ethereum mainnet. Some of the solutions currently operating as layer 2 on Ethereum include Polygon, Arbitrum, Parastate, Optimism, X-Dai, Immutable X, and many more.

Ethereum Use Case: Smart Contracts

One of the ways that Ethereum revolutionized blockchain space was the introduction of smart contract functionality. Ethereum is built using its programming language called Solidity, and it is the first blockchain ever to use smart contracts to execute orders on its network. Over time, smart contracts have become the standard for many blockchain-based solutions.

Also referred to as self-executing contracts, Smart contracts are executable codes that have been programmed for specific purposes. Smart contracts are triggered when certain criteria are met by the parties involved in a particular blockchain transaction, eradicating the need for a central authority or intermediaries and the exorbitant charges that come along with their services.

There is no better sector that this innovation has been felt more than in decentralized finance — another major innovative use case that Ethereum has enabled in blockchain space. More on DeFi below.

Ethereum Use Case: Enterprise Ethereum

Ethereum’s creation of smart contracts opened up a flurry of use cases, first, on the Ethereum network and eventually, in the whole of crypto space — one of which is the burgeoning era of Decentralized Finance (DeFi).

DeFi is a blockchain solution to existing traditional financial services, making them accessible to users without the need for intermediaries (such as banks and other financial regulators), granting complete control to users. Through smart contracts, the terms of a financial service can now be programmed in executable codes. Once the criteria are met, the services are made available to a user with immediate effect. Through smart contracts, there are several decentralized financial services that users can now leverage on the blockchain.

Some of the benefits of DeFi include global access to loans and borrowing with and without collateral, on-chain insurance, token trading, crypto saving and portfolio management, decentralized crypto exchanges, project crowdfunding and token sales.

DeFi has nullified the need for third parties, especially financial houses and the excessive transaction fees they charge for basic financial solutions. The beauty of DeFi is that users have total control over their assets, and no centralized authority can stall transactions or impound assets. While there are various other decentralized platforms today, DeFi owes its existence to the introduction of smart contracts by the Ethereum network. 

Ethereum Use Case: Network of Tokens

Ethereum is supporting an increasing number of project-specific tokens as it supports a growing number of projects. The majority of DeFi projects are presently hosted on Ethereum, with each project having its own native token built according to Ethereum’s ERC-20 token standard.

The ERC-20 standard is a set of predefined rules that all tokens built on the Ethereum network must comply with. According to Investopedia, the Ethereum network presently supports 442,627 ERC-20 compliant tokens. While

Ether (ETH) is the Ethereum network’s utility token, used to pay gas fees for transactions on the network, projects on the Ethereum network have their own native cryptocurrency tokens built according to Ethereum’s token standard which can be used for any project-based activities. Hence,  Ethereum can be thought of as a network of tokens for tokens.

Ethereum Use Case: Enterprise Ethereum

In itself, Ethereum is a decentralized public blockchain network, and its source code is accessible to developers on Github. Anyone can contribute to its source code and even create a fork to launch another blockchain entirely.

However, right within the decentralized ecosystem of Ethereum, it is possible to have a customized network which makes it possible for organizations and companies to run a somewhat private blockchain network. These private networks are guided by rules and standards that are totally different from what is obtainable on the general Ethereum network.

The idea of enterprise Ethereum is prevalent among tokenization platforms, blockchain identity, management protocols, supply-chain management, among others. Enterprise projects have distinctive requirements that can vary slightly from the norm of public blockchains.

An excellent example is Polymath. Polymath once had its digital asset tokenization project on the Ethereum network. It ran on a customized ERC token standard that permitted the rules of securities tokens, and this continued until the protocol could build its specialized blockchain.

Ethereum Use Case: Non-Fungible Tokens (NFTS)

Yet another innovative use case of Ethereum. In fact, Ethereum is the first public blockchain ever to support the minting of Non Fungible Tokens (NFTs). Ethereum has an established ERC-721 standard that is solely dedicated to the minting and creation of NFTs.

Currently, Ethereum has seen the highest number of NFTs ever minted, and it is still the most widely adopted blockchain for the minting of Non-fungible tokens. Additionally, Ethereum hosts two of the biggest NFT platforms in cryptocurrency — OpenSea and Axie Infinity.

Ethereum Use Case: Decentralized Autonomous Organizations

Decentralized autonomous organizations (DAOs) are projects that have no centralized authorities making decisions on their behalf. DAOs, as they are popularly known, make decisions through votes and members’ contributions. 

DAOs decision-making processes are governed by smart contracts that have been programmed to self-execute upon reaching a certain threshold. For example, if a vote is to take place to alter the rules of a platform, the DAOs smart contract could be programmed to change rules when, let’s say, 70% of the platform members vote in support of such changes. Once 70% vote is reached, the code automatically executes the decisions without any human intervention.

Ethereum is home to some of the most popular DAOs platforms, and Maker DAO is one such example.

Is Ethereum a Good Investment in 2022?

Ethereum is already established as one of the blockchains with the most use cases in the cryptocurrency scene. That aside, it has led to some of the foremost innovations of any blockchain and this in itself is the very reason that Ethereum continues to be of high investment value.

From innovative DeFi solutions to self-executing, automated organizational decision-making processes, Ethereum has already left its landmark on the blockchain industry. Only time will tell what will become of this network as it does not show any sign of slowing down in its innovative pace any time soon.