What was once a market for one is now awash with other options for cryptocurrency investors. The advent of meme currencies that seem to create millionaires overnight makes it easy to believe that investing in cryptocurrencies is only for the short term. However, despite an overcrowded field, there is one cryptocurrency that investors should never sell: Ethereum.
Like Bitcoin, Ethereum is a cryptocurrency that has changed the way we think about finance in the digital age, but for different reasons. Ethereum is unique from Bitcoin in many ways. But one in particular is driving what is perhaps the greatest innovation to come out of blockchain and cryptocurrency technologies: decentralized finance, better known as Challenge.
The new era of finance
The traditional financial world relies on centralized authorities like banks, notaries, brokers, stock exchanges and other intermediaries that manage and process financial services. Traditional financial processes, like applying for a loan or buying a stock, require some sort of middleman to complete the transaction.
But thanks to Ethereum and its innovative smart contract technology, these traditional financial processes are becoming increasingly obsolete. Smart contracts are the backbone of DeFi and are what makes Ethereum so unique. Prior to its creation in 2014, no other cryptocurrency had smart contract capabilities. Creating smart contracts allows blockchain developers to customize the conditions and criteria for executing particular actions.
For example, smart contracts could oversee loan contracts and release collateral upon full repayment. As smart contracts can integrate with other data, they could also regulate agricultural drought insurance policies by automatically disbursing funds in the event of agreed amounts of rainfall.
In addition to their seemingly endless customization and potential, smart contracts and DeFi could completely upend what we believe to be the role of traditional institutions in the financial world.
One of the most appealing aspects of DeFi is its inclusiveness. If you want to use a DeFi financial product, all you need is an internet connection. There are no credit bureaus, no brokers, and no loan officers. As long as a cryptocurrency wallet is set up, users can trade and move assets anytime, anywhere.
In addition, all transactions take place in real time and are completely transparent. There is no need for banks or brokers to process the transactions, as they happen almost instantly on the blockchain. The other benefit of blockchain is that once a transaction is added, anyone with an internet connection can view the activity on the network. Not to mention that any possibility of falsification or embezzlement is eliminated thanks to the high level of security of the blockchain.
Arguably the biggest advantage of DeFi is that it is constantly evolving. Applications and projects built on Ethereum are all open-source. This means that developers can integrate multiple DeFi applications to create financial products that meet new user demands as they arise.
First-mover advantage
Ethereum having been the first blockchain to have the smart contract functionality, it holds most of the market share in the DeFi industry. Despite the arrival of new competitors like Tron, Binance Coin and Avalanche to grab some of the market, they face an uphill battle as Ethereum’s hold on the DeFi economy is incredibly disproportionate.
We can look at a statistic called Total Value Locked (TVL) to compare the collective value of a blockchain’s DeFi ecosystem. Think of it like the market capitalization of a company.
Of the $62.5 billion invested in DeFi per hour, nearly $36 billion is on the Ethereum blockchain. The closest competitor is Tron, and this blockchain only supports around $9 billion in value. That’s far from being the case.
The potential long-term value that DeFi presents should be weighed heavily by investors, especially considering that it is in its infancy. Those optimistic about DeFi’s ability to overtake traditional finance should count on Ethereum to continue to dominate for the foreseeable future.
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