Ether: A New Model for Money
By: David Hoffman
Tags: Blockchain, Ethereum, Money, Bitcoin, Cryptocurrency

Part 1: Defining Ethereum

Before we define Ether, we need to define Ethereum. Ether will be defined by how Ethereum is used. Defining Ethereum has also been difficult. Attempting to define Ethereum feels a bit like defining the Internet in the 80’s: no-one really knows what is coming. The cool thing about open-source technology is that the use and application of the technology evolves and emerges, as the community builds and discovers its use-case.

Applications define the Internet

If you ask google to define the internet, you will get this answer:

A global computer network

providing a variety of information and communication facilities

consisting of interconnected networks

using standardized communication protocol

Personally, I don’t think this definition is helpful. It is technically right, but it’s a definition meant for the technically minded. If you were to ask “how is the internet?”, or “how does the internet impact humanity”, we need to look at what we are doing on the internet 99% of the time. Which brings us to these:

The internet is a stack of different technologies, with the applications at the top. While “the internet” cannot exist without any one part of the stack, it is the application layer of the internet that defines how the internet meaningfully impacts our lives. All the layers below the application layer are a means to an end: to provide products and services to the people.

The Missing Layer: Value

The innovation behind the internet was to make data cheap, available, and infinitely copiable. This innovation opened up the world to abundant and cheap information, and humanity is better because of it. However, cheap, available, and copiable is the opposite of what money and value are. Money and value are by definition scarce, expensive, and difficult to access.

When Bitcoin solved the internet’s double-spend problem, it achieved creating internet scarcity. For the first time ever, when you sent something on the internet, you could no longer keep it yourself. However, with Bitcoin, this is only true if you are sending bitcoins; the Bitcoin protocol only provides scarcity to bitcoins, nothing else.

This is where Ethereum comes in: a platform for providing digital scarcity for any digital asset. Ethereum gives the power of digital scarcity to more than just its own native currency. Because of Ethereum, digital scarcity can be made for any asset found on its platform. “Tokenization”, and the ERC20 standard, is the printing-press for digital scarcity. As a result, Ethereum has become the asset-agnostic settlement layer for the internet. Because of its permissionlessness and openness, any asset can come to Ethereum and use it for management of its scarcity and settlement between parties.

Ethereum exists as a new layer on the internet. It uses the communication protocols below it to create a new network that defines how digital value is managed. Ethereum is the value-layer of the internet.

If you go to Ethereum.org, you will find the following definition 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.

The applications on the internet defined what the internet is. Likewise, the applications on Ethereum will define what Ethereum is.

Ethereum’s Application Layer

The revolution of Ethereum is the establishment of a new application layer on the internet. The internet of Web 2 is the internet of centralized databases and centralized data. Facebook, Google, Amazon, and their products, represent the big applications of Web 2.

Ethereum provides an alternative. A new layer, a value layer, that allows for new applications. While the internet of Web 2 is saturated, and dominated by gargantuans, Web 3 provides an unclaimed landscape of potential value-applications.

The financial applications found on top of Ethereum have begun to dominate its application landscape. Led by MakerDAO, and the establishment of permissionless stability by Dai, Ethereum’s permissionless financial network has exploded. Open Finance on Ethereum has begun to lock-in Ethereum as a global value settlement platform. The open finance movement that started as a curiosity in 2018 has erupted into what is perhaps Ethereum’s main purpose: A network for permissionless financial applications and services.

Ethereum’s Open Finance landscape spawns horizontally across its internet of value. Each application is able to be composable with others, generating endless permutations of transactions between each app. However, Ethereum is not a flat landscape. Financial systems and economies are inherently stratified, and Ethereum is no exception.