DAOs, dApps, and DeFi — Inside The World of Ethereum
If Bitcoin is a house, Ethereum is a whole country.
But before we ask you to bring your maps, we want to make sure that you’re up to speed with two important concepts—blockchain and cryptocurrency.
Recommended Reads:
The Smart Money Blog
The Smart Money Blog
If you have a fair idea about these topics, pack a bag. Let’s go.
First, let’s catch up on a little history.
In 2014, a 19-year-old Russian-Canadian boy named Vitalik Buterin published a white paper that outlined the use of a platform that would take Bitcoin’s innovation and elevate it. (You can find it here, btw). He wanted to create ‘the world’s programmable blockchain’.
To achieve this, Buterin gathered a bunch of developers at a beach house in Miami to chart out a plan.
Suggested Read:
The Uncanny Mind That Built Ethereum
Nearly one year and a crowd-funded campaign later, Ethereum was birthed.
(File under: Teens who changed the world) 💪
So, What is Ethereum?
Doesn’t the name give you a tiny clue? Ethereum is a decentralised blockchain platform that not only has its own cryptocurrency (Ether) but also uses smart contracts to allow other people to create their own blockchain-based applications on top of it. It uses its own programming language called Solidity to allow its customers to build their own services and applications.
And these are not just any applications, these are virtually unhackable (thanks to the inherent properties of the blockchain!)
But wait — what was that word. Smart contracts?
Smart contracts are basically automated contracts. They work much like how the IF function does in your favourite programming language.
Here’s an example:
If the reader liked this post, sign them up to the Yodaa club 😉
As blockchains can reliably track whether the condition specified has been completed without the need for entire fraud or compliance departments, smart contracts can greatly reduce the added expenditure and burden of middlemen and paperwork. Applications using smart contracts can be programmed to automatically execute transactions.
Developers on Ethereum have used it for insurance, gaming, entertainment and so much more. Like we mentioned in our post on blockchains, one major issue solved by blockchains is trust. If you think about it, entire organisations today exist simply to solve this problem. You could hire a cab before Uber, or book rooms in another country before AirBnb, but having these large companies spend time and money verifying people and aggregating services solves the inherent problem of ‘Can I trust this?’
What if every single one of these factors was taken care of by the blockchain though? If everything was on the chain, and chain-based applications could easily verify what is on the chain and execute corresponding contracts, why do you need people to do the manual middle work at all?
DAOs
One of the major applications of smart contracts has been the DAO (Decentralised Autonomous Organisation). This is a type of business in which there are no CEOs and management teams. They are essentially a bunch of interconnected smart contracts that can automatically execute actions whenever certain conditions are met. It is run and managed by all its members.
dApps
By now, we know that Ethereum allows users to create their own applications on their blockchain network, these applications are what are known as dApps (decentralised apps). They look and work like any other mobile application, but as you can imagine, the backend is a whole lot different. In fact, as of date there are more than 3000 dApps created through Ethereum.
DeFi
As blockchains and cryptocurrency have given rise to a new form of digital economy, many dApps are being developed with financial use cases. These have in turn given rise to the world of Decentralised Finance (DeFi) which seeks to recreate many of the savings and investment concepts we are familiar with, but on secure and decentralised blockchain platforms using cryptocurrencies. The logic here is that if the world ever goes through another financial crisis or sees hyperinflation, DeFi can help prevent people’s wealth from getting destroyed.
In a nutshell, Ethereum is an advanced blockchain that allows people to use its tools (Solidity and smart contracts) to create powerful decentralised applications. The Ether cryptocurrency is one of the most popular in the world today.
Between dApps, smart contracts, and entire organisations that can effectively run themselves, we definitely are in for some interesting times in the coming years!
Yodaa is a smart money app and card for the entire family. Join the club of the smartest financially empowered teens in India and SE Asia. Get Yodaa today.
