Posted on May 09, 2022Read on

Ethereum Blockchain In A Nutshell - FourWeekMBA

Ethereum was launched in 2015 with its cryptocurrency, Ether, as an open-source, blockchain-based, decentralized platform software. Smart contracts are enabled, and Distributed Applications (dApps) get built without downtime or third-party disturbance. It also helps developers build and publish applications as it is also a programming language running on a blockchain.


Why does Ethereum matter?

Ethereum is a cryptocurrency currently ranking at number two in market capitalization after Bitcoin, which is at the top. However, in terms of being used actively, Ethereum is ahead of Bitcoin. While Bitcoin is sent, received, and held only in a singular form, Ethereum allows entities to create different ledgers. These can even be used to create additional cryptocurrencies. The use and transactions using Ethereum have grown consistently over the years ever since it began operations half a decade ago.

Banking can be traced back to 2000BC when merchants began to give loans to farmers and traders. They used to carry goods and the transactions began to be noted down. With each passing century as the interaction between people increased, a more centralized system began to be developed which turned into the banking system that we witness in the world today.

From a small transaction occurring in a remote village through card payment to the mergers of big companies on Wall Street, everything is monitored by the banking system. With every transaction, there are intermediaries between the buyer and the seller.

The control of financial institutions over every transaction that occurs does not sit right with everyone. Banks are seen as an evil force, which controls every aspect of human lives. In order to disrupt the operations of these financial intermediaries and break their control over the money that people have, the concept of Decentralized Finance or DeFi has been introduced. DeFi is inspired by blockchain. Blockchain distributes the copy of transactions occurring over several entities and hence, decentralizes the system so that no single entity can have control over them.

This is important because, in a centralized system, the speed of the transactions is less and people have less direct control over their own money. DeFi is basically an extension using blockchain technologies in going against the centralized systems. With the concept of DeFi, the intermediaries are eliminated between the buyer and seller. All of the financial institutions are cut out using this technology. Loans and insurances, even crowdfunding is controlled by financial institutions and one of the biggest advantages of DeFi is to cut out these intermediaries.

Understanding Ethereum & Decentralized Finance


Decentralized finance (DeFi) refers to an ecosystem of financial products that do not rely on traditional financial intermediaries such as banks and exchanges. Central to the success of decentralized finance is smart contracts, which are deployed on Ethereum (contracts that two parties can deploy without an intermediary). DeFi also gave rise to dApps (decentralized apps), giving developers the ability to build applications on top of the Ethereum blockchain.

Ethereum allows digital transactions in the simplest form but also allows entities to move towards a decentralized system. It protects in terms of being outside the control companies and governments. These institutions are cut out of the picture by the use of Ethereum. Ethereum offers what is known as a “smart contract” by the use of which transactions automatically occur if certain predefined conditions are met.


Smart contracts are protocols designed to facilitate, verify, or enforce digital contracts without the need for a credible third party. These contracts work on an “if/when-then” principle and have some similarities to modern escrow services but without a third party involved in guaranteeing the transaction. Instead, it uses blockchain technology to verify the information and increase trust between the transaction participants.

As a simple example, it can be written in a smart contract that the transaction is to be done on a certain Wednesday if the temperature in San Francisco drops below 30 degrees centigrade according to Having these smart at the core of the ideology behind Ethereum, numerous applications of DeFi are operating Ethereum.

The biggest application of DeFi is a decentralized exchange (DEX). While online exchanges allow users to exchange currencies either for other currencies or bitcoins, for example, DEXs connect users directly to each other. By this direct connection, all intermediaries are cut out of the picture and the users do not have to worry about trusting anyone with their money.

Another application is known as Stablecoin. The concept behind Stablecoin is basically “tying” the cryptocurrency to an asset that is outside the cryptocurrency. As an example, to stabilize the price it can be tied to the Pound or Dollar. It aims to bring stability to the prices set.

To cut out intermediaries from lending, DeFi is used in the process based on Ethereum. Smart contracts are employed in the process and institutions like banks are removed from acting as intermediaries. Platforms like Compound allow users to borrow cryptocurrencies and provides them with the option of offering their own loans. The platform is responsible for setting the interest rates, which allows users to earn money off the money that they loan out.

An algorithm is used in this process, which changes and adjusts the interest rate based on the demand of the cryptocurrency. The users are not required to give out their identity when giving or borrowing loans, which differentiates them from non-DeFi services. Another application revolves around Prediction Markets.

These are betting platforms like on the outcomes of football matches for example. The concept of DeFi prediction markets is the same as regular prediction markets but they differ on the grounds that while in the typical prediction markets intermediaries exist but in DeFi they are not included and the transactions remain user to user.

The concept of DeFi is attractive to many who seek privacy in their financial transactions. However, there are a lot of risks associated with it as well. For new entrants into the DeFi market, there are a lot of uncertainties. It is not easy to make a distinction between the good and the bad projects. There are bugs within DeFi, which sometimes become permanent, and hence the risk is increased. They become permanent because once the smart contracts are initiated, their rules cannot be changed. So, if the bugs are a part of the contract, they become permanent.

The problems that this system faces are in terms of security as well. Hackers have in the past attacked Ethereum and stole millions in the cryptocurrency. It remains a major concern for investors unsure of the investments they are making. The next step in Ethereum is the launching of Ethereum 2.0. The upgrade will increase the speed of transactions that occur per second. Currently, the transactions are around 15 per second, which will increase to tens of thousands per second.

This will be achieved through a process known as “sharding”. This basically means running many blockchains in parallel and then having them share a common blockchain. This will mean that a potential hacker who wants to tamper with one chain will have to tamper with the common consensus and it will end up costing more than what the hacker could make of it. These developments can increase the reliability of Ethereum as an application of DeFi.


Blockchain companies use sharding to partition databases and increase scalability, allowing them to process more transactions per second. Sharding is a key mechanism underneath the Ethereum Blockchain and one of its critical components. Indeed, sharding enables Blockchain protocols to overcome the Scalability Trilemma (as a Blockchain grows, it stays scalable, secure, and decentralized).


A Proof of Stake (PoS) is a form of consensus algorithm used to achieve agreement across a distributed network. As such it is, together with Proof of Work, among the key consensus algorithms for Blockchain protocols (like the Ethereum’s Casper protocol). Proof of Stake has the advantage of the security, reduced risk of centralization, and energy efficiency.

Other applications on top of Ethereum



An ERC-20 Token stands for “Ethereum Request for Comments,” which is a standard built on top of Ethereum to enable other tokens to be issued. Based on a smart contract that determines its rules, the ERC-20 enables anyone to issue tokens on top of Ethereum. As they are using a standard, those are interoperable. ERC-20 Tokens are critical to understanding the development of Ethereum as a business platform.

Decentralized Autonomous Organizations


A decentralized autonomous organization (DAO) operates autonomously on blockchain protocol under rules governed by smart contracts. DAO is among the most important innovations that Blockchain has brought to the business world, which can create “super entities” or large entities that do not have a central authority but are instead managed in a decentralized manner.



Non-fungible tokens (NFTs) are cryptographic tokens that represent something unique. Non-fungible assets are those that are not mutually interchangeable. Non-fungible tokens contain identifying information that makes them unique. Unlike Bitcoin – which has a supply of 21 million identical coins – they cannot be exchanged like for like.

Read Next: Blockchain Business Models Framework Decentralized Finance, Blockchain Economics, Bitcoin.

Read Also: Proof-of-stakeProof-of-workBlockchain, ERC-20, DAO, NFT.

Connected Business Concepts


A free-to-play is a model that became particularly popular in gaming. Free-to-play is also commonly referred to as free-to-start. For instance, companies like Epic Games have launched popular games like Fortnite’s Battle Royale, which had ingrained a free-to-play model. This is a model that become extremely popular in the digital age of gaming.


According to Joel Monegro, a former analyst at USV (a venture capital firm) the blockchain implies value creation in its protocols. Where the web has allowed the value to be captured at the applications layer (take Facebook, Twitter, Google, and many others). In a Blockchain Economy, this value might be captured by the protocols at the base of the blockchain (for instance Bitcoin and Ethereum). However, according to blockchain investor Paivinen due to ease of forking, incentives to compete and improved interoperability and interchangeability also in a blockchain-based economy, protocols might get thinner. Although the marginal value of scale might be lower compared to a web-based economy, where massive scale created an economic advantage. The success of the Blockchain will depend on its commercial viability!


A Proof of Stake (PoS) is a form of consensus algorithm used to achieve agreement across a distributed network. As such it is, together with Proof of Work, among the key consensus algorithms for Blockchain protocols (like the Ethereum’s Casper protocol). Proof of Stake has the advantage of security, reduced risk of centralization, and energy efficiency.


A Proof of Work is a form of consensus algorithm used to achieve agreement across a distributed network. In a Proof of Work, miners compete to complete transactions on the network, by commuting hard mathematical problems (i.e. hashes functions) and as a result they get rewarded in coins.


A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.


Ethereum was launched in 2015 with its cryptocurrency, Ether, as an open-source, blockchain-based, decentralized platform software. Smart contracts are enabled, and Distributed Applications (dApps) get built without downtime or third-party disturbance. It also helps developers build and publish applications as it is also a programming language running on a blockchain.


The Graph is an ERC20 Utility Token (built on top of Ethereum) to enable consumers to freely query the blockchain through a fully decentralized database kept by indexers, incentivized by the payment of tokens (called GRT). The network is also ministered by curators and delegators that help maintain a high-quality index.


BAT or Basic Attention Token is a utility token aiming to provide privacy-based web tools for advertisers and users to monetize attention on the web in a decentralized way via Blockchain-based technologies. Therefore, the BAT ecosystem moves around a browser (Brave), a privacy-based search engine (Brave Search), and a utility token (BAT). Users can opt-in to advertising, thus making money based on their attention to ads as they browse the web.


In 2012, co-founders Christian Larsen and Jed McCaleb created Ripple, a technology acting as both a pre-mined cryptocurrency called XRP and a digital payment platform enabling monetary transactions. Where Ripple is the tech company, XRP is the decentralized ledger.


In 2014, Jed McCaleb – which also played a key role in the development of Ripple – created a cryptocurrency to provide fast, reliable, and affordable money transactions. The same cryptocurrency has considerably grown seven years later. It is now one of the most stellar cryptocurrencies to provide a real-time platform that links banks, payment systems, and people. Meet, Stellar!


In early 2019, a joint project between TRON and BitTorrent Foundation called BitTorrent Token came to fruition. BitTorrent Token launched to tokenize in-demand file-sharing protocol and enhance content delivery and bandwidth accessibility with blockchain technology.


Chainlink is considered the most established decentralized oracle network. As an ecosystem housing several decentralized oracle networks running simultaneously. As a decentralized oracle service built on Ethereum, Chainlink has the power to support the development of blockchain solutions for both traditional businesses and enterprises.


Uniswap is a renowned decentralized crypto exchange created in 2018 and based on the Ethereum blockchain, to provide liquidity to the system. As a cryptocurrency exchange technology that operates on a decentralized basis. The Uniswap protocol inherited its namesake from the business that created it — Uniswap. Through smart contracts, the Uniswap protocol automates transactions between cryptocurrency tokens on the Ethereum blockchain.


In essence, Polkadot is a cryptocurrency project created as an effort to transform and power a decentralized internet, Web 3.0, in the future. Polkadot is a decentralized platform, which makes it interoperable with other blockchains.


Designed and created as an alternative to Ethereum, Cardano claims to be the first decentralized blockchain protocol to use a scientific approach and undergo a peer evaluation.


Solana is a blockchain network with a focus on high performance and rapid transactions. To boost speed, it employs a one-of-a-kind approach to transaction sequencing. Users can use SOL, the network’s native cryptocurrency, to cover transaction costs and engage with smart contracts.