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The Ethereum Money Model

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What if I told you that the best model for money the world has ever seen already existed? 

Ethereum (ETH) has taken the world of crypto by storm with the rising popularity of DeFi and various other projects launched on what is essentially the new Internet of value.

Set some time aside to kick back and get comfortable – this one is a must-read!

Into the Ether

The Ethereum Foundation is integral to building an Internet-based alternative to financial systems of traditional legacy financial markets. In this new era of finance, systems and applications have the advantage of not only being completely open and transparent – but trustless. 

Thus, the application of ETH requires various innovations, such as a native currency that allows the network to continue operating seamlessly without interruption. 

Unfortunately, this does not come without a unique set of challenges – defining Ethereum has proven to be a difficult task.  

Internet 2.0

In many ways, early ETH adopters have experienced a dilemma similar to the feeble attempts made at defining the Internet in the 1980s, long before anybody could anticipate the societal paradigm-shift it would inevitably cause. 

If you ask a search engine such as Google to define the Internet, you will likely receive an answer similar to this:

  • A global computer network, providing a variety of information and communication facilities consisting of interconnected networks while using a standardized communication protocol.

Although this may technically be right, there is a fundamental communication breakdown; this is a definition meant for the technologically savvy – a more appropriate question to ask would be something along the lines of “how does the Internet impact humanity?”

To answer that, we need to look at what we are using the Internet for 99% of the time – applications.

Ethereum’s Application Layer

Ethereum as a whole provides the missing layer to what will ultimately usher in a new era of Internet: value. 

Imagine the Internet is a stack of various technologies with applications being at the top. Although the Internet cannot exist with any part of its technological stack missing, the application layer defines how meaningfully this technology can impact our lives. The subsequent layers below the initial application layer are nothing more than a means to an end, meant to provide products and services to the public. 

While innovations of the Internet made data cheap, available, and infinitely scalable, the exposure to an abundance of readily available information is the opposite of what drives the concept of value behind a monetarily-driven structure. 

Determining something’s value is influenced by its scarcity, cost, and demand. However, being cheap, available, and copiable are the opposite of what drives monetary incentives. Money and value are, by definition, based on how scarce, expensive, and difficult to obtain the desired resource(s) are.

The Missing Layer of Value

When Bitcoin solved the “double-spend” problem, it achieved its mission of successfully creating Internet scarcity – a transaction sent over the Internet without the sender being able to keep a copy for themselves was accomplished for the first time – thus retaining its value. 

However, the BTC protocol only provides scarcity to Bitcoin and nothing else, and this is where ETH comes in.

Through tokenization, the ERC-20 standard is a printing-press to solving digital scarcity for any crypto-asset. 

Bottom Line

Ethereum exists as an emergent layer on the Internet. It uses communication protocols to create a network that defines how digital value gets managed. 

If you go to ethereum.org, you will find the following description for Ethereum:

  • Ethereum is a global, open-source platform for decentralized applications
  • On Ethereum, you can write code that controls digital value, runs exactly as programmed, and is accessible anywhere in the world.

Just as applications on the Internet define what the Internet is, the applications on Ethereum define what Ethereum is – as a result, ETH has become the agnostic settlement layer of the Internet. 

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