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Understand Ethereum better with the Iceberg Illusion

Ethereum is the second-largest market capitalization after Bitcoin (or put differently the second most valuable cryptocurrency). The market capitalization is simply the total value of Ethereum and it is calculated by multiplying the price of Ether (ETH) by the total supply of Ether coins available.

First, let’s get some terminologies out of the way; Ethereum is the name of the project, and Ether (short code ETH) is the name of the coin used to pay for the Ethereum service.

Unlike many cryptocurrencies that have come and dropped out of the top 10 most valuable crypto projects, Ethereum has remained in the second place almost since it has launched.

In this article, we are diving into Ethereum’s ecosystem to understand why it’s the second-largest cryptocurrency valuation and why it has remained in that spot since its inception in June 2015.

Ethereum is a global decentralized open source super computer, a distributed computing platform that enables the creation of decentralized applications.

WHAT IS ETHEREUM

Ethereum is a global decentralized open-source computer, that uses a distributed computing platform, to enable the creation of smart contracts and decentralized applications, also known as dapps.

So, what does that mean exactly and why is it so revolutionary? Let’s take the example of Banks. Banks use powerful data centers (computers) to calculate in real-time what the value of their customers’ investment portfolio is.

The data center used by the Banks can be in-house or outsourced, but either way, they are gigantic computers located in a very cold room with significant protections. To avoid losing all their precious customer data, Banks will then ensure the data center they use has a backup (often referred to as a recovery site) where the data is replicated almost in real-time or at the least daily.

This means that if the main data center burnt down, for example, the Bank would simply connect to the recovery site and continue as if nothing had happened from a customer’s perspective. A significant distance usually physically separates those data centers to avoid both being destroyed by a natural disaster simultaneously (Earthquake, Tsunami, etc…).

Although this is a sensible strategy, malicious people who figure out where the two data centers are for any given Bank could bomb the two of them concurrently, causing that bank to lose all its customer data. The consequences of that could be catastrophic.

Enter: Ethereum and decentralized applications. The Ethereum ecosystem would allow the Bank to run its calculation engine in a decentralized manner. This means that instead of operating in one centralized data center (and its recovery site), it would operate on thousands of computers scattered around the world, making it virtually impossible to stop or destroy.

Participants to the Ethereum ecosystem put their computer (or computing power) at the disposal of the Ethereum customers. And by doing so they are paid in Ethers (ETH). Similarly, in our example, Banks, who want to run their applications in a decentralized manner, have to pay with Ether.

The potential here is enormous because it allows for businesses that run sensitive applications, to ensure they cannot be stopped. To take down a decentralized computer like Ethereum, the hacker would have to disable all the participating computers simultaneously and that is problematic to do.

THE ETHEREUM ICEBERG ILLUSION

So how many projects or applications run on Ethereum? Simply put, a lot! What many people don’t realize when looking at Ethereum is that there are hundreds of other cryptocurrencies that are built using Ethereum at their core. Meaning that instead of creating a new blockchain for each new cryptocurrency service, most companies use the Ethereum blockchain/ecosystem.

But how many exactly? Well, if we look at the above diagram, it highlights only the biggest project currently running in Ethereum! But that’s only the tip of the iceberg… If you go to etherscan.io you can determine exactly how many tokens are ETH-based. There are, at the time of this article, more than 380,000 tokens created based on Ethereum. Yes, you read that correctly, 380,000.

All those tokens have to use Ether (ETH) to pay the fees to operate on the Ethereum platform. Some people argue their respective capitalization should be added to the one of Ethereum, to get an idea of the actual value or scale of ETH.

This also explains why Ethereum is now suffering from high fees. Its network is in such high demand that the fees have skyrocketed. The good news is that Vitalic Buterin (co-founder of Ethereum) and his team are working on ETH 2.0 that will address the fee issues and make the platform more scalable. But more on that in a future article.

Important Disclaimer: The content of this article or any content from Crypto-Coach.io is for educational purposes only and is not an investment advice. Investors must do their own due diligence before making any type of investment decision.  

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