What is Ethereum? The Complete Guide – Part 3 (2024 Update)

• What is Ethereum? The Complete Guide – Part 1 (2024 Update)
• What is Ethereum? The Complete Guide – Part 2 (2024 Update)

Contents – Part 3

• Ethereum Use Cases
  • The Rise of DeFi
  • The NFT Boom (ERC721) and the Coming Metaverse
• Who are Ethereum’s Competitors?
  • Binance Smart Chain (BNB)
  • Solana (SOL)
  • Polkadot (DOT)
  • Cardano (ADA)
  • Avalanche (AVAX)
  • Algorand (ALGO)
  • Cosmos (ATOM)
  • Near Protocol (NEAR)
  • Tezos (XTZ)
  • Fantom (FTM)
  • The Open Network (TON)
• How to Buy ETH
  • Buy ETH on centralized exchanges
  • Buy ETH with CoolWallet
• How Do I Store Ethereum
  • Hardware Wallets
  • Paper Wallets
  • Desktop and Online Wallets
• Additional Ethereum Resources

6. Ethereum Use Cases

The Rise of DeFi

DeFi (Decentralized Finance) refers to financial services that operate on public blockchains, primarily Ethereum. It enables users to perform banking activities such as earning interest, borrowing, lending, buying insurance, trading derivatives, and assets—all without the need for paperwork or intermediaries.

The concept of DeFi has been discussed by Ethereum developers since 2018, but it wasn’t until 2020 that applications like Uniswap, Yearn Finance, and Aave gained significant traction. The DeFi bull run began in early 2020, driven by the yield farming craze initiated by Yearn Finance. Yield farming, which involves earning rewards by staking cryptocurrencies in DeFi protocols, was quickly adopted by other projects like YFII, bringing even more users into this burgeoning crypto sub-market.

DeFi leverages the decentralized nature of blockchain technology to emulate traditional financial services, offering a new way to participate in the economy without centralized control. Early infrastructure projects like Uniswap, Maker, and Chainlink laid the foundation for the DeFi ecosystem. These projects enabled decentralized exchanges, stablecoin issuance, and reliable data feeds, respectively, which are crucial for DeFi operations. At the peak of the DeFi bull run, stakersthey were earning over 100% annualized yields.

In recent years, DeFi has attracted attention from institutions and mainstream media. Notable figures who were once skeptical, such as Kevin O’Leary, have become proponents of DeFi. The ecosystem has expanded beyond Ethereum, with many projects exploring alternative blockchains due to Ethereum’s scalability issues. Platforms like Binance Smart Chain, Solana, and Polygon have seen a surge in DeFi projects, offering faster and cheaper transactions.

As of 2024, several trends are shaping the future of DeFi:

• Interoperability: Cross-chain solutions are becoming more prevalent, allowing DeFi protocols to operate seamlessly across different blockchains.
• Regulatory Developments: Governments and regulatory bodies are increasingly focusing on DeFi, aiming to establish frameworks that balance innovation with consumer protection.
• Security Enhancements: With the rise in DeFi exploits and hacks, there is a greater emphasis on security audits and the implementation of robust security measures.
• DeFi 2.0: The next generation of DeFi projects aims to address the limitations of current protocols, focusing on sustainability, improved user experience, and new financial primitives.

Despite its rapid growth, DeFi faces several challenges:

• Scalability: While Ethereum 2.0 promises improvements, current scalability issues drive projects to alternative blockchains.
• Regulatory Uncertainty: The evolving regulatory landscape can impact the development and adoption of DeFi.
• Security Risks: The open and permissionless nature of DeFi makes it vulnerable to hacks and exploits.

However, these challenges also present opportunities for innovation and improvement within the DeFi space. As technology and regulatory clarity evolve, DeFi is poised to become a cornerstone of the global financial system.

The Rise of NFTs and the Coming Metaverse

The first-generation NFTs, such as CryptoPunks and Crypto Kittie, were launched on Ethereum in 2017. Ethereum remains the primary platform for launching non-fungible tokens (NFTs), but it wasn’t until early 2021 that the market truly caught up with the hype. Individual NFT pieces, including artworks, songs and albums, digital characters and pets, video clips, and many others, have fetched enormous sums, ranging from a few hundred dollars to tens of millions since the beginning of the NFT boom.

Beeple raised the bar for digital artwork when his piece “EVERYDAYS: THE FIRST 5000 DAYS” sold for a staggering $69.3 million on Christie’s auction platform. The NFT craze has since expanded beyond digital art to include video games like Axie Infinity and Gods Unchained, which offer play-to-earn (P2E) features. These games have enabled individuals, particularly from developing countries like the Philippines, to earn income that exceeds the average wage.

While NFTs initially appeared to primarily enrich artists and collectors, this is just the beginning. The concept of the metaverse—a virtual space created through the convergence of multiple virtual worlds, augmented reality, and cyberspaces—promises to revolutionize the digital economy. In this new virtual economy, in-world assets will be stored on blockchains like Ethereum, enabling secure and transparent ownership.

At its core, centralized applications rely on a single cluster of servers that contain all the knowledge and logic for executing necessary actions. In contrast, decentralized applications (DApps) have a radically different architecture where knowledge and logic are distributed across a network of nodes, or computers, without a single point of failure.

Below are just a few reasons why decentralized applications are becoming more favorable over centralized ones:

• No Single Point of Failure
  Decentralized architecture enhances security and reliability by processing data and transactions across various nodes on the network. Unlike centralized systems, there is no central cluster of servers to hack. For instance, the 2014 iCloud leak of private photos highlighted the vulnerabilities of centralized systems. Decentralized systems offer increased security and reliability at a lower cost.
• Monetization
  Decentralized applications provide individuals and businesses with new ways to process and monetize transactions, bypassing traditional financial mechanisms. This competitive economic pressure challenges manipulative and market-dominant players, offering users a cheaper and more effective alternative. Additionally, avoiding heavy startup costs and recurring fees fosters market penetration, longevity, and increased traffic and user base.
• Innovation and Opportunity
  Centralized applications have reached their limits due to the extent of centralized processing power and computational resources. By decentralizing these elements, processes and ideas previously deemed impossible are now being automated and brought to life.
• Elimination of Censorship
  Decentralized and immutable blockchains ensure that processes and institutions remain uncorrupted and online. In a world where government censorship is prevalent, decentralized applications provide a platform for dissenting opinions and ideas to flourish without fear of being taken down.

7. Who are Ethereum’s Competitors?

Ethereum, the second-largest cryptocurrency by market cap, faces competition from several blockchain platforms that offer unique features and improvements over Ethereum’s existing infrastructure. Below is a non-exhaustive list of notable Ethereum competitors making significant strides in the blockchain space as of 2024.

Binance Smart Chain (BNB)

Launched in 2020 by Binance, one of the largest crypto exchanges, Binance Smart Chain (BSC) is a hard fork of Ethereum with significant modifications. BSC uses a hybrid consensus mechanism combining Proof of Stake (PoS) and Proof of Authority (PoA), enabling better scalability compared to Ethereum. Many DeFi and NFT projects have migrated to BSC or adopted a multi-chain approach to leverage its 3-second block time and low transaction fees. BSC has occasionally surpassed Ethereum in daily transaction volume, highlighting its growing popularity.

Solana (SOL)

Solana emerged as a major player in 2021, offering a highly scalable network that supports a wide range of applications, especially in DeFi. Utilizing a unique consensus mechanism called Proof of History (PoH) combined with Delegated Proof of Stake (dPoS), Solana can handle up to 65,000 transactions per second (tps), vastly outpacing Ethereum. Key projects on Solana include Raydium, and Serum. Solana’s market cap has placed it among the top cryptocurrencies, reflecting its strong position in the market.

Polkadot (DOT)

Founded by Ethereum co-founder Gavin Wood, Polkadot aims to solve the blockchain trilemma of speed, security, and decentralization. Polkadot’s architecture consists of a main relay chain and multiple parachains, which are individual blockchains connected to the relay chain. This multi-chain framework allows for greater scalability and interoperability. Polkadot also features parachain bridges, enabling interaction with different blockchain networks. Its vision for Web 3.0 and decentralized internet has garnered substantial attention and investment.

Cardano (ADA)

Created by Charles Hoskinson, another Ethereum co-founder, Cardano is an open-source blockchain platform with a strong focus on peer-reviewed academic research and a rigorous development process. Cardano aims to offer advanced features and higher security through its Ouroboros Proof of Stake (PoS) consensus mechanism. Cardano launched its smart contract functionality in 2021, allowing it to compete directly with Ethereum in the DApp market. Cardano’s emphasis on scalability, interoperability, and sustainability has made it one of the top cryptocurrencies by market cap.

Avalanche (AVAX)

Avalanche has gained significant traction due to its high scalability and fast confirmation times. The platform uses a consensus protocol called Avalanche, which promises near-instant finality and the capability to handle thousands of transactions per second. Avalanche’s subnet architecture allows for the creation of custom blockchains, each tailored to specific use cases. As of 2024, Avalanche continues to grow in adoption, with numerous DeFi and enterprise applications leveraging its technology.

Algorand (ALGO)

Algorand is designed to be a scalable and secure blockchain that supports smart contracts and decentralized applications. Using a pure proof-of-stake (PPoS) consensus mechanism, Algorand aims to solve the blockchain trilemma by providing decentralization, scalability, and security. Algorand’s focus on speed and efficiency has attracted a variety of DeFi projects, and its robust infrastructure supports a wide range of applications.

Cosmos (ATOM)

Cosmos aims to create an internet of blockchains, enabling multiple blockchains to interoperate and share data and tokens without relying on a central party. Its Inter-Blockchain Communication (IBC) protocol allows different blockchains to transfer value and data seamlessly. Cosmos’ focus on interoperability and its ability to connect various blockchains make it a strong competitor in the blockchain space.