With technology like Ethereum, a fundamental shift from the traditional means of exchange from which we currently operate to a more dynamic and logical system is underway. The primary use for Ethereum is for smart contracts, which are contracts that are digitally stored on the Ethereum blockchain. The use of smart contracts is widespread in finance due to its high availability of information with lower transaction costs.
An intelligent contract incentivizes the parties involved and acts as a third party while ensuring they meet specific criteria (for example, if one party misses their payment obligations). While intelligent contracts serve several purposes in finance, they are especially advantageous in the healthcare and insurance industries, where they have the potential to reduce friction and costs significantly. First, let’s discuss the reasons why Ethereum has an intrinsic value.
Proof-of-Stake (PoS) is a consensus protocol and blockchain in which validators (miners) stake their tokens to validate new blocks in the chain. “Staking” refers to a process whereby a validator attributes new tokens to their account, increasing the number of tokens at the risk of losing all or some of that allocation. Validators in PoS protocols are incentivized to participate by receiving rewards for validating blocks. These rewards can either be voted by stakeholders or are automatically distributed through an algorithm with more computational power contributing more funds per block.
In PoS systems, validators have a vested interest in securing the network because if they perform poorly, they risk losing funds invested in staking. It is opposed to POW systems, where validators have a one-time stake that can fail when they sync incorrect blocks. Because of this staking fee, POW systems are costly and risky because validators need to pay for their electricity or hardware to prevent their investment loss.
Ethereum’s smart contracts are more secure than traditional fiat currencies, as the user cannot manipulate the blockchain. It makes Ethereum an ideal party for financial transactions, given that it is a solid proof-of-concept in today’s world. Using Ethereum in place of traditional payment methods lets users control the transactions entirely, resulting in lower costs and increased security.
In addition to making the transactions more secure, Ethereum has built-in mechanisms for dispute resolution wherein third parties can be paid to mediate disputes. Disputes are crucial to asset management and blockchain systems because they can be a common source of failure with traditional and alternative financial instruments.
Without proper dispute resolution mechanisms, the user could freeze assets, or funds could become inaccessible if one party loses trust in another. The existence of appropriate dispute mechanisms increases the stability of money by eliminating uncertainty associated with the blockchain or innovative contract protocol itself.
3. Speed and Scalability:
Rapid and low transaction costs are the two main reasons why banks use Ethereum. In addition, Ethereum’s smart contracts can be deployed by the user with a much smaller footprint than their traditional counterparts, which speeds up the validation of transactions and the processing of funds.
With current systems, banks often have to purchase hardware and pay for electricity to run the backend operations, then spend thousands of dollars on labor to manage those systems – but that’s not even the end. The labor required to enter all transactions manually is another costly process that people must do, which is where blockchain technology can make a difference.
Ethereum’s speed also comes from its ability to process many actions simultaneously. These dApps and smart contracts allow users to not only send transactions but actuate them or store them in a digital form that can then be sold or traded.
The speed at which transactions are processed helps lower the fees charged by banks. Banks sometimes have to make costly mistakes by acquiring multiple forms of paper copies of checks and other documents to finalize a transaction. Many banks spend tens of millions on manual processes because they have yet to adopt blockchain technology.
4. A New Type of Connectivity:
Blockchain, of which Ethereum is a prime example, is the connectivity layer for information on different systems. The internet has connected large corporations and governments over the past few decades. However, it still needs to be fully optimized because there are many ways in which data can become untrusted or even opaque. Corporate databases sometimes have access to the same data, creating knowledge holes.
Companies can use blockchain to optimize the internet by creating a trusted network between otherwise disconnected institutions and may only share information with a limited number of partners. However, Ethereum is more than just another blockchain; it’s an innovative technology with many use cases because of its high efficiency and availability of information.