The evolution of the cryptocurrency market can be divided into two phases- pre-Ethereum and post-Ethereum.
In the pre-Ethereum era, Bitcoin-like cryptocurrencies dominated the market, focusing on peer-to-peer payment systems, solving a single use-case using blockchain technology. Whereas, in the post-Ethereum period, we witnessed how Ethereum can integrate blockchain technology into any business process to make them more efficient.
In short, Ethereum showcased the potential in blockchain technology and using which one can develop new decentralised economies.
Before delving deeper into the topic, how Ethereum revolutionised the crypto market, first, let’s understand the difference between Bitcoin and Ethereum blockchains.
Also Read: What is EIP-1559 & Its effect on ETH Price
Difference Between Bitcoin and Ethereum
Bitcoin and Ethereum may share many similarities, but technically they are very different cryptocurrencies.
Bitcoin functions as a digital currency and enables peer-to-peer transactions that involve no intermediaries. It was the first major innovation using blockchain technology. Bitcoin was designed to be an alternative to highly centralised fiat currencies, which are subject to value erosion over time due to inflation.
Speaking of Ethereum, its blockchain is far more versatile than Bitcoin and has multiple use-cases. It was not designed to become the alternative to the centralised monetary system.
Ethereum blockchain technology supports the P2P payment network, creating smart contracts, and allows developers to create and run distributed applications. The Ethereum blockchain powers several decentralised ecosystems like the DeFi, wrapped tokens, stablecoins and NFTs.
The key difference between Bitcoin and Ethereum blockchain is that the Bitcoin blockchain is designed only for note keeping/recording transactions, whereas, Ethereum blockchain contains executable codes.
What is the Impact of Ethereum on the Crypto Market?
The launch of Ethereum in the crypto market is like transitioning from web 1.0 to web 2.0 of the blockchain. In web 1.0, the information displayed on the websites was static and updated once in a while. Whereas, web 2.0 is dynamic as it enables two-way communication. For example, the evolution of web 2.0 enabled the creation of social networking platforms.
Similarly, Ethereum helped the crypto market to expand by enabling the use of blockchain technology in other real-world applications.
How Ethereum achieves that? Through smart contracts- the unique selling proposition of Ethereum blockchain.
Smart Contract Functionality of Ethereum Blockchain: The Real Difference Maker
One of the unique features of the Ethereum blockchain is the smart contract functionality. These are self-executing contracts blockchain, which gets executed only when all the conditions in the contracts are met.
The contracts can be of any nature, from a simple and straightforward transaction between two parties to a complex one, including multiple and interconnected smart contracts.
When a complex network of smart contracts interacts with each other, it forms an operational platform, which can also become standalone platforms such as DAOs or DApps.
Using the smart contracts functionality and different token standards (ERC-20, 621, 721, 827, 1155), users can create digital assets on the Ethereum blockchain that are programmable and can execute special functions.
The following are the different decentralised ecosystems powered by the Ethereum blockchain.
Decentralised Autonomous Organizations (DAOs)
As the name suggests, DAOs are autonomous decentralised organisations governed by rules encoded into a blockchain through smart contracts. The smart contracts represent the rule of the organisation, which is firm and cannot be modified without the complete consensus of the DAO community.
The funding of DAO is managed through the issuance of tokens, which the members of the community subscribe to and based on their holdings, the voting power is determined, which makes the whole process fully transparent.
In the cryptosphere, DAOs can be built for many purposes like investments, charity, lending, fundraising, or buying NFTs.
Distributed Applications (DApps)
DApps are decentralised applications that are built on top of any blockchain platform that supports smart contract functionality.
DApps have their own tokens, which are traded freely across exchanges and determine the worth of the crypto project.
They are similar to any web or mobile application, but the only difference, they operate in a decentralised P2P fashion, without involving intermediaries. For example, using DApps, one can disrupt and build unique business models. You can build blockchain-enabled credit services, web browsers, financial exchanges, file-sharing platforms, etc. Some of the popular DApps on the Ethereum blockchain include- Polygon, UniSwap, Axie Infinity, Chainlink, Aave etc.
According to a crypto analytic website, stateofthedapps.com, over 2,800 DApps currently running on the Ethereum blockchain, constituting roughly 80% of all active DApps in the market.
The major categories under which DApps are created on the Ethereum blockchain are gaming, gambling, finance, social, development, marketplace, etc.
Decentralised Finance (DeFi)
DeFi draws inspiration from the Bitcoin blockchain, aiming to become the alternative to the current financial system.
DeFi apps are built on the top of the Ethereum blockchain, allowing you to lend, borrow, invest, trade, and many more without involving intermediaries. Some of the most popular forms of DeFi include stablecoins, decentralised exchanges, lending platforms, wrapped bitcoins, yield mining, prediction markets, etc.
As of 5th Oct 2021, ETH worth over $90.95 billion is locked in various DeFi apps.
Non-Fungible Tokens (NFTs)
NFTs are the next growth and focus area in the Ethereum ecosystem. Based on the ERC-721 token standards, NFTs generally consist of original artworks, collectables whose ownership can be proven and stored in the blockchain, from where one can trade it. Each NFT in the blockchain is unique and cannot be interchangeable with other tokens.
According to a report published in Reuters, the NFT sales value has reached over $2.5 billion in the first half of 2021 compared to $13.7 million in the first half of 2020.
The above discussed are the different components in the Ethereum ecosystem and how they are revolutionising the traditional marketplace and pushing the growth of the crypto market.
According to a crypto analytic website, messari.io, as of 15th Nov 2021, the total market capitalization of Ethereum assets on the Ethereum blockchain is over $827 billion. Of this, the total market capitalization of ETH is $556 billion, and the rest is contributed by all ERC-20 tokens. This figure excludes the market capitalization data of wrapped tokens and NFTs on the Ethereum blockchain.
And, as of 15th Nov 2021, the total market cap of Bitcoin is $1.23 trillion.
The Future of Ethereum
Ethereum has completely revolutionised the crypto market. It would be not wrong to say, the Ethereum ecosystem has the potential to become the most valued crypto ecosystem, surpassing Bitcoin.
The next phase of growth in Ethereum will be triggered by how well it moves to the proof-of-stake consensus mechanism. And, it is expected, it will attract more users towards Ethereum, driving up its adoption rate.
To perfectly describe Ethereum, it is the magnet of innovation, where people can run their minds and explore new possibilities in the decentralized ecosystem and disrupt the market.
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Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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