Smart contracts and cryptocurrency collections became popular on Ethereum.
The phenomenon of decentralized finance is another of the innovations associated with this blockchain.
This July 30 marks the fifth anniversary of the launch of Ethereum, a platform that emerged as an improvement proposal in the face of “serious scalability problems” that arose when building on Bitcoin, according to the words of the platform’s co-founder, Vitalik Buterin.
The developer expressed these ideas in January 2014, within the framework of the “North American Bitcoin Conference” held in Miami, where he presented the project for the new cryptocurrency platform. However, five years after its launch, Ethereum has similar scalability issues, so it strives to migrate to another network with a new architecture.
In his 2014 speech, Buterin explained that Ethereum would be a platform that would work on the concept of contracts that act as an automated agent, with a language of scripting more powerful for developers. He also emphasized the ability to build secondary coins for highly specialized purposes.
With this approach Buterin offered a list of descriptions that served as a preview of the series of innovations that have gained brilliance in the cryptocurrency ecosystem through Ethereum.
Among the tools that became popular with Ethereum – many of which already exist in Bitcoin – are smart contracts, initial coin offerings (ICOs), decentralized apps, non-expendable tokens, and decentralized finance (DeFi).
From these developments, in these five years the platform has given rise to multiple projects and has become a benchmark within the industry. Let’s talk a little about these innovations.
The concept of smart contracts (smart contracts in English) was first defined by the American computer engineer and jurist Nick Szabo in 1994, as “a computer protocol capable of executing contract clauses.” In doing so, he referred to the agreements that have the capacity to be fulfilled automatically once the parties have agreed to the terms.
However, the technology of that time did not allow the idea to materialize. It was not until the birth of Bitcoin, in 2009, when smart contracts came to life.
Despite the fact that the concept was known since the last century and is part of the pioneering network protocol, the practical application of smart contracts gained notoriety with its integration into Ethereum.
For the implementation of these contracts the creators of Ethereum they introduced the Solidity programming language, Complete Turing language that makes it easy to program a computer to perform a variety of operations. This allows anyone to create smart contracts on the blockchain, just by writing the logic in a few lines of code.
Smart contracts aim to make daily life easier, more efficient and less expensive, by automating common processes and eliminating intermediaries that often delay procedures.
Today, they are widely used in most of the existing cryptocurrency networks, although remain one of Ethereum’s most prominent features.
Smart contracts have become the basis for the development of most innovations in the ecosystem. As we will see later, they are in almost all the solutions that are built on top of a blockchain.
According to Dune Analytics statistics, an online analysis platform, between June 2019 and May 2020 the number of contracts implemented in Ethereum has exceeded one million per month.
Initial Coin Offerings (ICO)
The first fundraiser for the implementation of a blockchain-based project was MasterCoin, now called Omni, launched on top of Bitcoin. However, with the creation of Ethereum this type of collection became more known and gained popularity a term widely used today in the crypto world: The Initial Coin Offering (ICO).
On July 22, 2014 Ethereum launched the presale for its cryptocurrency, called ether (ETH). The terms of the ICO established that the initial price of the tokens would be 2000 ether for 1 bitcoin (BTC), and that they could not be traded until the genesis block was mined.
After selling some 60 billion tokens to its investors, the entire Ethereum ecosystem developed. Currently the platform is used to launch other cryptocurrencies.
Starting with the ERC-20 standard token, defined by the Ethereum Foundation, any developer can issue their own versions of token and collect funds with an ICO. In this way, the collectors establish their collection strategy, the goal to be achieved and receive ETH in return during the collection. With this financing model, trillions of dollars have been raised through Ethereum with initial coin offerings.
ICOs generated a kind of economic bubble between 2017 and 2018, when they grew exponentially and peaked in popularity. From 2019 the escalation stopped. The scheme that led many to think that they would get rich quickly, and which led to various fraudulent projects, seems to have vanished.
It is possible that pressure from the authorities influenced this decline. Since then, new experiments and dynamics have emerged for the launch and financing of cryptocurrency projects. Even so, the ICO model is still valid, only requires adequate regulation.
Decentralized applications (dApps)
Decentralized applications (dApps) are pieces of code written in smart contracts that communicate with the blockchain and are programmed to control various actions. They process the external information they receive, while the codes are executed in a P2P network (peer-to-peer).
How a dApp works depends on two elements: a network like Bitcoin or Ethereum and an execution environment. The blockchain allows the application to have a decentralized network infrastructure, while the environment makes it possible for dApps to be designed and executed under a defined framework and behavior.
In this case, the communication channel is the blockchain and there is a record of each operation that goes through the smart contract.
In particular, the infrastructure behind Ethereum has been noted for facilitating the creation of dApps simply and quickly. Hence the spread of decentralized applications had its maximum with the implementation of smart contracts on this platform.
In these 5 years of Ethereum’s history, the number of applications has grown substantially. There are already around 3,500 applications, encoded not only in this blockchain but in other platforms such as EOS, Tron, Neo and Steem.
Despite the competition, the network maintains its leadership in this industry. Of the total decentralized applications, about 1,959 (almost 60%) are on Ethereum.
However, the data for this second quarter of 2020 shows a decrease in both the number of applications and the number of users. The dapp.com quarterly report indicates that active users went from 4.85 to 3.81 million, and new DApps fell from 135 to 99. In this same period Ethereum doubled the number of active users in the DApps that run on your blockchain.
Non-Expendable Tokens (NFT)
A non-fungible token (NFT), also called a collectible token, is defined as a type of crypto asset that can be uniquely identified during its exchange and circulation. NFTs differ from fungible tokens (FT) in that they are indivisible and unique assets that can be kept on a blockchain. Both make it easy to create virtual representations of the real world.
With the development of the Ethereum ecosystem and the advancement of crypto asset creation through smart contracts, standards were proposed for NFTs. The ERC-20 standard was used as a fungible token, to develop the ERC-721 standard, the best known implementation of an NFT.
The proposal was raised by Dieter Shirley in 2017, who explained that these assets allow smart contracts to function as unique tokens. They are also interchanged similarly to ERC-20s.
Although the first non-expendable tokens existed in Bitcoin, such as those generated by the CounterParty platform, became better known in late 2017 and early 2018, when the company Axiom Zen launched CryptoKitties on Ethereum. The game allows you to acquire, breed and match virtual cats with unique characteristics. The first cat in the series, Genesis, was sold for 247 ETH ($ 117,000).
Cryptokitties’ huge success spawned numerous games in the form of decentralized apps over Ethereum and inspired similar ones based on the same standard, with variations in the allocation of unique tokens.
Due to the popularity of games, the NFT standard is updated frequently. ERC-875 and ERC-998 are new proposals, based on ERC-721, that seek to improve the way of making transactions with these tokens. The ERC-1155 standard, approved in 2019, offers the possibility of creating both expendable and non-expendable assets.
In 2018 the NFT market grew by 482%. The figure fell in 2019, with growth of 17%. For the beginning of 2020 an advance of 50% was estimated, in calculations of the firm Nonfungible.
Decentralized Finance (DeFi)
The DeFi market constitutes the phenomenon of the moment in the cryptocurrency ecosystem. Emerges as an alternative to traditional finance and to the financial products and services offered by banks.
DeFi are defined as a new financial ecosystem, decentralized, global, transparent, resistant to censorship, without intermediaries and easily accessible, where each user has control of their assets.
Most of the tools to launch these platforms are the innovations explained above. Digital assets, dApps and smart contracts, along with decentralized exchange protocols and platforms (DEX), are essential for the development of the DeFi market.
Ethereum is the blockchain associated with the birth of these products, because the stablecoin DAI (cryptocurrency anchored to ETH), became the basis of the system.
However, given the popularity of the Defi, other platforms are implementing this type of these services. EOS, Tezos and Algorand are some of these blockchains that dabble in DeFi.
In a recent tweet Ethereum co-founder and Consensys founder Joseph Lubin offered new data on DeFi’s growth on Ethereum during the second quarter of 2020.
According to the Lubin report, the ETH blocked in DeFi registered an increase of 500,000 after the launch of the COMP token of the Compound loan platform. The platform ends the second quarter of the year with a new all-time high of 3.3 million ETH blocked.