Ethereum or ETH is the second-largest cryptocurrency by market cap. In 2013 a 19-year-old computer programmer named Vitalik Buterin released the Ethereum white paper. This white paper described Ethereum as a “Next-Generation Smart Contract and Decentralized Application Platform.” In simple terms, this means that developers can build various decentralized applications or Dapps to run on top of the Ethereum network. Like the apps on your phone, these Dapps can be anything from games to advanced databases to financial instruments. Dapps are built using smart contracts; similar to traditional contracts; smart contracts establish an agreement between two parties. The difference between smart contracts and traditional contracts is that the smart contract automatically executes when the agreement's terms are met.
Dapps in the decentralized finance space allows users to lend, borrow and trade without the need for identity verification or a financial institution. This is important because it lowers the barrier for entry for individuals who can not receive loans from traditional institutions like banks but have the necessary capital or collateral. The smart contract records the terms of the agreement and executes when the terms are met, and Ethereum fees called “gas” are paid using the Ethereum coin.
Dapps and smart contracts in the gaming industry can expand the gaming economy and benefit players in real life. The global gaming industry is already a hundred billion dollar industry. Through the use of NFTs or Non-Fungible Tokens (unique digital assets that represent in-game assets), players can buy, sell, and trade in-game items. NFTs create an in-game economy that benefits players in real life. Players have experienced this through “Axie Infinity,” where some players make over $500 a month. In many countries, 500 USD per month is life-changing money. The use of Dapps and smart contracts is endless and is only limited by the developers' imaginations.
Recently the popularity of the Ethereum network has led to slower transaction completion times, high consumption of electricity, and higher ETH gas fees. To improve the Ethereum network, ETH 2.0 (a significant upgrade) is in progress that will theoretically reduce electricity consumption, lower gas fees, and speed-up transactions. The transition to ETH 2.0 began in December 2020 and will take two years.
The use case for smart contracts and Dapps on the Ethereum blockchain are endless. Ethereum has even opened the door for smart contracts to be developed on other blockchains, like the Binance Smart Chain, Avalanche, and Fantom. Thanks to Ethereum, smart contract technology is constantly growing, and the future of this technology is bright.