One of the critical questions about cryptocurrencies has to be how they obtain their value.The answer to this question depends on the particular cryptocurrency as they have different use cases. In the case of Ethereum on which the native currency Ether (ETH) runs, it is related to its utility.
Another way to look at this is that a software application’s value is related to the number of users and a precise mechanism to monetize the application. We could think of Ethereum as a software platform that enables financial applications which pay transaction fees in ETH (called gas fees) to execute. As long as the financial applications become dominant with many users, the software platform will earn fees to sustain a transparent economic model.
There are also other considerations designed around the offer and demand of ETH, which impact its price, but the utility is what provides the incentive to use the platform. The Etherum platform allows the creation of financial applications which can provide better returns than the traditional financial system.
The banks have had a monopoly on the computer networks used to manage money, but Ethereum is a public computer network that developers can use to offer similar services.For example, a service that exchange currencies is easy to understand and can be very profitable.In such a service, we require deposits of at least two different currencies, and we charge a fee when we provide a conversion from one into the other. In Ethereum, this service is called a liquidity pool, and as a user, I can provide the different currencies and gain the conversion fees. While my bank pays a meagre interest rate, I can supply my savings to an Ethereum liquidity pool and earn higher interest.
On the other hand, one of the main streams of the Ethereum ecosystem is the execution of smart contracts. As defined by IBM smart contracts are “simply programs stored on a blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss.”.
Nowadays smart contracts bring many advantages, one of these is the release of the need for intermediaries due to the fact that smart contracts are executed autonomously once the conditions have been met. An example of this can be a smart contract that is designed for a fundraising for a determined foundation where the amount that needs to be collected is determined, once the amount that had been determined in the initial conditions has been collected, the deposits are automatically sent to the foundation account. On the other hand, another condition that can be determined in this smart contract is that if after two months the required amount has not been collected, the money that was deposited before returned to the depositors. In this way, either by the first or second condition, the contract is executed autonomously and without any intermediary.
In this way, Ethereum offers improved financial services, which have gained a significant number of users and sustain the value of the ETH cryptocurrency. Likewise, the implementation of smart contracts on the blockchain network makes Ethereum more used every day and consecutively that its own cryptocurrency takes on more value. As Etherum gets more users and more services, the utility of Etherum will increase, and so its economic value.
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