Designed to be more flexible than Bitcoin, allowing the technology to be used in diverse applications.
Its blockchain enables extensive programming capabilities through a specialized language known as Solidity.
The supply of Ether is not subject to a fixed cap and relies solely on supply and demand within the network.
In the world of digital assets, if Bitcoin is considered gold, then Ethereum represents silver.
Many confuse Ethereum, which is the name of a blockchain, with Ether, which is the main currency traded within the Ethereum ecosystem. However, technical details may not matter to most investors who have pumped more than $6.7 billion into Ether ETFs since the beginning of the year, pushing the price of the second-largest cryptocurrency to around $4600, while the price of Bitcoin surpassed $123,000.
Who is behind Ethereum?
Unlike Bitcoin, whose creator is uncertain, Ethereum was founded by Russian-born programmer Vitalik Buterin. He announced his project to establish the Ethereum blockchain during a Bitcoin conference in the United States in 2014 when he was just 21 years old.
Buterin remains a board member of the Ethereum Foundation, a nonprofit responsible for developing the network. He owns over 300,000 Ether, qualifying him for Forbes' billionaire list in 2021.
What is the motivation behind the development of Ethereum?
Beyond technical complexities, blockchain technology can be likened to a simple digital spreadsheet, akin to Excel tables, used to store and document deposit and withdrawal transactions between network users.
Bitcoin was the first and most prominent application of this technology, proving effective in recording cryptocurrency transactions without the need for financial intermediaries like banks. This success has driven the exploration of the potential use of blockchain in broader applications, including recording contracts, birth and graduation certificates, and other sensitive documents, without referring to centralized institutions.
However, attempts by programmers, including Vitalik Buterin, to expand the use of Bitcoin's blockchain beyond payments have failed due to the limitations of the original network code. While this limitation has been a factor in securing the network against manipulation, it has also made it difficult to develop or update.
From this challenge, the idea of Ethereum was born: a new blockchain network designed to be more flexible and allow the use of technology in various applications beyond merely recording financial transactions.
What is Ethereum then?
You can imagine the Ethereum network as a digital infrastructure for a virtual city, with open streets for rent that developers can use to build their applications and run their code. While Bitcoin resembles a simple spreadsheet in Excel, Ethereum resembles the full version of the same program in the hands of a professional accountant capable of performing complex calculations.
The network offers extensive programming capabilities through a specialized language known as Solidity, which developers use to create smart applications based on blockchain. With each transaction executed on the network, users are charged fees paid to miners – who are the major stakeholders in the infrastructure – for securing the operation of the network and ensuring its efficiency.
These fees are subject to a dynamic pricing system that changes according to demand fluctuations, decreasing during periods of low usage and increasing with network congestion, similar to pricing for transportation services like Uber during peak hours.
How can these fees be paid?
The Ethereum network is a digital currency known as Ether, whose issuance is controlled through precise programming code and is produced through a complex mining process. Despite the apparent similarities with Bitcoin, there are substantial differences between the two currencies.
Bitcoin resembles gold in its characteristics, as it features a limited supply and is primarily viewed as an asset held for the purpose of benefiting from its value increase over time, or for direct spending on goods and services.
As for Ether, its supply is not subject to a fixed cap; the amount issued is determined by supply and demand mechanisms within the network. Its primary function is to serve as a means to pay for using the Ethereum network. Therefore, as demand for network services and applications increases, the demand for Ether rises, which is a key factor in driving its price up.
What are the applications built on Ethereum?
The Ethereum network today hosts over 3,000 applications, ranging from video games and betting platforms to advanced financial services including lending and insurance.
For over 15 years, Ethereum developers have promised the launch of social media sites and platforms for streaming video and music with the aim of building a new internet fundamentally based on blockchain, competing with major players like Facebook and YouTube. However, all these projects have failed for various technical and economic reasons.
However, the most important innovation introduced by the network developers is the concept of the token or digital symbol.
As the name suggests, the token has no intrinsic value; rather, it represents something else of real value and is used as a digital means to facilitate the ownership and trading of assets. Through this technology, the Ethereum network can be used to document buying, selling, and exchange transactions in a flexible manner.
Tokens open the door to unlimited applications. For example, ownership of a property can be divided into a thousand tokens, each representing a partial share that can be sold, mortgaged, or traded without affecting the actual property. Startups can also issue shares of their ownership through digital tokens on the Ethereum network, as an alternative to traditional initial public offerings on exchanges.
The most widely used and popular application for token technology today is stablecoins, which have solidified their position as a core component of the decentralized finance ecosystem.
What are stablecoins?
Stablecoins are cryptographic tokens designed for trading across blockchain networks, where each token represents a unit of a real currency such as the US dollar or the Japanese yen. As their name suggests, these tokens are designed to maintain a stable value, with the expectation that each unit has full cash backing held by the issuing entity, ensuring its immediate convertibility to actual currency.
The first stablecoin emerged in 2014 through Tether, which is based in Singapore, launching digital tokens pegged to several currencies including the euro and the Mexican peso, but the most traded was the dollar-pegged token (USDT). The success of Tether has prompted many companies worldwide to launch their own stablecoins.
This innovation has helped overcome one of the most significant challenges faced by traditional cryptocurrencies, which is extreme price volatility. With the availability of stable-value cryptocurrencies, it has become possible to provide clear liquidity that can be easily traded within the crypto ecosystem, allowing users to hedge and exit digital assets at guaranteed prices.
Stablecoins have also opened the door to the innovation of advanced financial tools, including derivatives and leveraged trading, within the blockchain ecosystem, all outside the traditional framework of oversight and regulation, reinforcing their role as a key driver in the decentralized economy.
Why are stablecoins popular today?
For many years, stablecoin issuing companies operated in a legal gray area, amid the absence of a clear legislative framework governing their activities. During that time, they faced credible accusations of facilitating money laundering for human trafficking and drug networks, as well as cybercriminals.
What has increased concerns is that these companies were not subject to any official financial oversight or independent external audits, raising serious questions about the transparency of their cash reserves. In the absence of controls, it was theoretically possible to issue tokens without actual backing by manipulating the value of purported assets in their bank accounts.
However, this reality has begun to change gradually with the emergence of a more accepting regulatory environment for crypto technologies, particularly during the presidency of Donald Trump, who adopted a supportive approach to financial innovation. The adoption of the GENIUS Act in June marked a pivotal turning point, as it established a clear legal framework for regulating stablecoins and subjected issuing companies to strict auditing and inspection processes.
This legislative change has encouraged major companies and global banks to view stablecoins as reliable payment tools, potentially representing a partial alternative to the SWIFT network, and to compete with traditional payment services like Visa and Mastercard.
What does the stablecoin landscape look like now?
Data from Defi Lama, which specializes in monitoring blockchain systems, indicates that the market value of stablecoins has exceeded $270 billion globally. McKinsey & Company predicts that this figure could rise to $2 trillion by 2028, amid the continuous expansion in the use of these digital assets.
Tether is the dominant player in this sector, with an issuance exceeding $160 billion in USDT tokens, followed by the American Circle, listed on NASDAQ, which has issued over $67 billion in USDC.
The majority of these stablecoins are concentrated on the Ethereum network, despite the availability of technical alternatives such as Solana, Arbitrum, and Hyperliquid.
According to data, the Ethereum ecosystem holds assets worth over $93 billion, compared to only about $11 billion for its closest competitor, Solana.
The daily trading volume on the Ethereum network exceeds $3 billion, according to CoinGecko, while users pay fees exceeding $5 million daily to miners for using the network, according to CoinVise data.
Although the recent rise in the price of Ether was driven directly by massive institutional flows through specialized investment funds, the increasing momentum for stablecoins enhances the actual use of the Ethereum network, raising ongoing demand for its currency, Ether, as the primary operational fuel of this system, solidifying its position as a digital asset with both functional and investment use.
#ETH #ETHETFsApproved #Binance #مجموعة_تداول #BinanceHODLerLA $ETH
