Ethereum’s fifth anniversary since the launch of mainnet is upon us, marking an important milestone in the long history of the first smart contract platform to achieve significant adoption.
After the hype of the initial coin offerings, Today’s main narrative behind Ethereum is decentralized finance, an ecosystem that seeks to recreate the financial system from scratch on the blockchain.
Since Ethereum was founded, the application layer has been at the center of its value proposition. In a interview from 2014, Ethereum co-founder Vitalik Buterin illustrated that Ethereum is not just about the Ether coin, noting a variety of alternative tokens that could find use:
“You can use that currency that uses financial derivatives to perfectly track the price of a US dollar. You can use coin baskets or […] now you can also have a contract that acts as a bitcoin side chain. “
In a somewhat prophetic statement, Buterin essentially described Dai (DAI), the decentralized token that uses a co-guaranteed loan system to maintain an anchor to US dollars.. Buterin may have spoken to Rune Christensen, who at the time was already developing what would become MakerDAO.
Centralized stablecoins like Tether (USDT) and USD Coin (USDC) can be considered coin baskets, while Bitcoin-on-Ethereum projects like WBTC, tBTC and Ren fulfill the role of side chains.
He went on to explain the main use cases he envisioned for the Ethereum blockchain:
“We are talking about things like making your own currencies, putting other currencies, decentralized organizations, voting protocols, name registration, any type of financial contract, financial markets.”
Many of these use cases can be found on Ethereum today.
The DeFi was destined to emerge?
Ethereum’s early years can be characterized as the preparation and execution of the era of initial coin offering.
In a interview December 2015 at Devcon 1, Buterin spoke about financing public goods and said:
“In general, almost everywhere, there is a chronic problem that public goods do not have sufficient funds, and practically nobody has been able to find a consistent solution apart from the governments that run and take 30% of the money from persons”.
The DAO was the first attempt to solve this problem on the Ethereum blockchain. It was an “Autonomous Decentralized Organization” where the community pooled funds and decided which projects to invest in based on a decentralized system of government.
The idea quickly faltered, primarily due to a smart contract bug that resulted in the theft of a significant portion of all outstanding Ether. But while the launch and subsequent crash unfolded in the summer of 2016, the actual development of the DAO started sometime around August 2015, almost immediately after Ethereum’s launch on July 30.
Decentralized financing in the form of ICO went through its own boom-bust cycle afterward, but Many of the existing DeFi projects have their roots in the climax of that era.
In a conversation with Cointelegraph, Corey Petty, chief security officer for Status, said he believes that “This push for DeFi was inevitable.”
But the infrastructure took time to establish. “It only happened now because we had not had enough liquidity and stable currencies to build things on top of it.”he added.
Kain Warwick, founder of Synthetix, told Cointelegraph that he does not believe that finance is “Ethereum’s central focus”, but that “the point was that widespread smart contracts could open up worlds of possibilities.”
“In hindsight,” he added, “it makes sense that decentralized finance is one of the first categories of contracts that has actually reached adjustment in the product market.”
The world of DeFi is also reviving the concept of DAO as many projects rely on community governance with similar incentives to participation. Warwick said:
“What changed between 2016 and 2020 is time. Anything new takes time. It takes time to make mistakes, to fail, to learn from your mistakes and the mistakes of others, and use that to move forward. “
However, he added that “DAO’s rebirth is still in its early stages.”
What about non-financial uses?
One of the defining characteristics of the ICO era was the idea that blockchain technology and smart contracts could be applied to almost any real-life industry. As many of the promises were not kept, some were disappointed with the general concept of blockchain.
Petty believes that “what you saw in 2017 was a kind of irrational exuberance of technology before it was really ready.” According to him, the infrastructure was not yet in place for these projects to prosper, which is why Status decided to contribute to the construction of Eth 2.0, developer tools and a decentralized messaging system for the government.
Warwick believes it was a matter of incentives, noting that “Only recently have we started to demonstrate how to use native tokens to properly incentivize and kick off the first effects of the network”. Although he referred to the ENS system as a current example of “incredible innovations” that are not financial in nature.
The next five years
As we are currently witnessing the growth of anticipated key use cases five years ago, it could be argued that some of the ideas from 2017 will also return.
Petty noted that Status seeks to develop the Ethereum infrastructure so that “those narratives, those use cases, those companies can come back and be really useful.”
A decentralized and ephemeral messaging system is a central component of that, in his opinion, since it would allow decentralized organizations to coordinate in a unified and integrated system.
Warwick, on the other hand, focused on DeFi’s growth:
“I think the next five years of Ethereum innovation will likely focus on finance, we have two decades of faltering fintech ‘progress’ to overwrite and it will happen very quickly.”
But once people get comfortable trusting Ethereum for programmable money, he said, “Trusting Ethereum for everything else will be much easier.”