This is a review of what I see of the technology in the Ethereum ecosystem and some of the use cases it addresses today. It is designed to help leaders and decision-makers conceptualize what the functionality of Ethereum means for other technologies and for business operations (I look forward to discussions on this in our Slack or monthly OODA member gatherings to solicit your opinions on all of this).

Let me start with the first opinion: The needs of the Internet will require multiple blockchains for multiple use cases solving multiple problems. But Ethereum is special. It is dominant in its niche in the same way that Microsoft, Amazon and SpaceX are in their niches. If you are in a company that builds things or delivers services in any sector, now is the time to start conceptualizing how to use this dominate player to improve what you do for your customers and your organization. Do you directly use Ethereum? Do you use a chain from the Ethereum ecosystem? Do you use another chain that connects in an interoperable way? Or are the challenges you need to solve so critical you need to build your own separate chain? Even if you do you need to know Ethereum.

What is Ethereum? The short version is Ethereum is a blockchain enabled computing platform. 

The longer version: Ethereum is a platform designed for distributed computing with a unique immutable blockchain. Its primary purpose is to enable smart, automated, secure contracts. Its features, including scale, reliability, functionality, transparency, security and extensive ecosystem are unrivaled in the smart contract space.  Its programability empowers developers to create applications with the security of the blockchain. This programability also enables an entire community of other blockchains which roll up to the Ethereum blockchain.

Ethereum was a good system years ago. But upgrades have been underway to make a good system better including reducing costs per transaction, enabling more transactions faster, enabling better interoperability with other blockchains and operating in a way that enables its functionality with less energy. Additionally, the mechanism for proving the validity of transactions on the Ethereum digital ledger, known as proof of stake, enables generation of yeild for those that stake their Ethereum. This functions like a bond, generating return for using invested Ethereum to ensure the smooth functioning of the system.

In each Ethereum upgrade, new functionality was provided with no downtime, no glitches, no issues at all. This is testimony to the incredible talent of the development teams working on this distributed system.  As a technologist I have found this to be really interesting and impressive.

Who does Ethereum Support?

Ethereum can now support a wide spectrum of users, from the single person to the largest of enterprises. 

Individuals can use the Ethereum ecosystem to store or send value, protect digital property, create immutable records of ownership and invest in digital activities. It can also be used the way many other Web3 capabilities can, to interact with websites in ways that keep your information more secure or to use personal distributed applications enabled by Ethereum.

Large enterprises can use the Ethereum ecosystem to do far more. For example, enterprises can record financial transactions for a fraction of the cost of legacy systems, making Ethereum a good choice as a financial platform for business operations. Ethereum is also being used to tokenize assets in ways that enable tracking of products and supply chains with greater precision and transparency and more efficiency than legacy approaches.  Tokenization of financial instruments and of prices and status of commodities like gold and silver is enabling improved trading of ownership, at speed, with no need for settlement houses to take a cut, and the enterprise use case is being used by some forward leaning firms to deliver new capabilities to clients now. 

There are many other blockchains now, and with the pace of innovation in this space it remains a competitive environment. But many of the other blockchains, including those with the most rapid innovation, are part of the Ethereum ecosystem already. 

This is due to the Layer 1 and 2 architecture approach in blockchain development. 

Layer 1 (L1) blockchains are fully functional themselves but also provide a foundational layer that other blockchains can build on. A Layer 2 (L2) blockchain leverages the features of its L1 blockchain. 

While there are many L1’s in the cryptocurrency space today (including Ethereum, Bitcoin, Binance Smart Chain, Polygon, Avalance, Cardano, Cosmos), Etherereum has attracted the largest number of L2s, for good reason. An L2 built to work with Ethereum inherits the security guarantees of Ethereum. All transaction activities on L2 projects ultimately settle back to the L1 level of Ethereum. 

With recent upgrades to Ethereum, its L2’s can settle to the main blockchain for a much lower cost, which will result in lower transaction fees for end users and continue to enable innovation in this space. The large number of L2’s in the Ethereum ecosystem (about 40) and the developers supporting them are a key reason it has become the platform of choice for most any  serious blockchain work. 

As an example of serious blockchain work, Blackrock (with over $10 Trillion in assets under management), has just launched an investment vehicle that is a tokenized fund using Ethereum. The fund produces a token that gives its holders a shared ownership of the fund. This fund (the Blackrock USD Institutional Digital Liquidity Fund or BUIDL), is significant because of the long stated vision of Blackrock CEO Larry Fink, who has said he wants to tokenize all securities and enable that tokenization to provide complete visibility to all transactions. 

This is perhaps the most bullish signal you can think of for a cryptocurrency.  

Blackrock and seven other large financial institutions have also filed for permission from the SEC to offer investment vehicles called Exchange Traded Funds (ETF) based on Ethereum. 

ETFs have existed for decades. They can trade on stock exchanges like stocks, and can hold assets like stocks, commodities or bonds. They do so while providing liquidity similar to stocks for a lower expense than mutual funds. More recently, the SEC was forced (by lawsuit and court ruling) to approve Bitcoin ETFs. This is instructive regarding what may happen with Ethereum ETFs. 

When Bitcoin ETFs were approved and went live in January 2024, nine firms started offering them. Within days these funds were seeing large inflows of investor capital. At the time of this writing, the funds have over $57 Billion invested. Expectations are that Ethereum ETFs will also attract widespread attention. There are some unique differences in Ethereum and Bitcoin that indicate the Ethereum ETFs will be of even higher interest. One is the tokenomics of Ethereum. When there are Ethereum transactions, a little bit of Ether is burned. So overall, there are fewer tokens available. This is deflationary tokenomics will factor into investor decisions. Another benefit is the previously mentioned yield on Ethereum. Investors in Ethereum ETFs may be doing so because they assess a coming increase in token price, but they will also be getting yield while investing, like buying a bond. 

The current SEC is not supportive of the use of Bitcoin or Ethereum. They were forced to allow the Bitcoin ETFs. Now we are seeing the SEC seem to backtrack on whether or not Ethereum will be regarded as a commodity (the current view) or a security which might be controlled by a group. The community has worried that the SEC’s push to declare Ethereum a security will mean the ETFs will not be approved. This is illogical. ETFs were created for securities. If Ethereum is a commodity or a security it can be in an ETF. If the SEC wants to find an excuse to turn down the ETF it better be a good one, or the same type of lawsuits that forced them to approve the Bitcoin ETF will be brought. 

During a 27 March 2024 interview with Blackrock’s Larry Fink he was asked about the likelihood of an Ethereum ETF if the SEC declares Ethereum to be a security. His response: 

“I really don’t think that designation is going to be that deleterious.”

Wow this guy knows how to throw shade at the SEC. 

He then went on to say

“You can start an ETH ETF even if it is a security” 

I’m very glad he said that. Really proves the point. In my view the likelihood of an Ethereum ETF being approved is extremely high. Once they are approved there will be a tidal wave of institutional money flowing into the Ethereum ecosystem. 

As a technologist, I view the potential of increased investment flows into Ethereum as something that will have an impact on the continued improvement of functionality of Ethereum. It will bring more attention, more developers, more innovation and continue the virtuous spiral progress.

I also want to provide some context on Bitcoin. I am also a fan of Bitcoin. And it has the starts of an L2 ecosystem itself (the Lightning Network). But as technologists we should always pick the right took for the right task. Bitcoin is transforming the way people, organizations and even countries hold value. It is smart and I believe everyone should own some. But it was not designed to provide the functionality of Ethereum. Bitcoin has its niche, and Ethereum has its niche. Both will dominate their separate niches. 

Concluding Thoughts

Ethereum is a well designed technology with a strong developer community, unique functionality, strong security, a thriving ecosystem including support to other innovative blockchains, and an ability to generate yield for those who invest. Ethereum will be number one at what it is good at, secure smart contracts. Ethereum will also increasingly become an operating platform for businesses, providing secure insights into business operations both internally and with partners. It will enable more secure data, smarter use of AI and other analytics, improved supply chains and improved tracking of metrics used to continuously improve what your business does best.

Ethereum and its ecosystem will improve our financial system. Ethereum enabled capabilities support the philosophy of economic freedom, where individuals have the ability to produce, trade and consume goods and services without undue interference from governments or corporations or criminals. Supporting the technology of Ethereum supports individual autonomy, creativity, property rights and free markets, which have historically been the drivers of progress for humanity. This virtuousness will accelerate its growth.