Authors: Federico Carrone, Roberto Catalan; Translator: Block unicornEthereum is rising to become a universal financial backend, reducing the cost and complexity of building financial services while improving speed and security. For decades, the internet accelerated communication but failed to establish a neutral system for defining ownership or enforcing obligations. Economic activity moved online, but lacked corresponding rights, record-keeping, and jurisdictional mechanisms. Ethereum fills this gap by embedding these functions in software and enforcing them through a distributed set of validators.
Markets rely on property rights, which in turn rely on reliable systems to record ownership, support transfers, and enforce obligations. Prices convey scarcity and preferences, enabling large-scale coordination. Technological advancements continuously reduce the cost of information transmission and action synchronization. Ethereum further expands this model by reducing the cost of establishing and verifying ownership across borders.
From Internet Native to Global Infrastructure
Ethereum's early innovation lay in introducing programmable digital assets with clearly defined economic attributes. Issuers could set currency rules, design scarcity, and integrate assets into applications. Before Ethereum, such experiments required building networks and convincing others to provide security guarantees, a process limited to technically strong teams. Ethereum replaced the redundant construction of infrastructure with shared security mechanisms and a universal environment, transforming issuance from a capital-intensive activity into a software-driven one.
A more far-reaching development was the recognition that Ethereum could restructure traditional financial services in a more transparent and less operationally burdensome way. Financial institutions invest heavily in authorization, reconciliation, monitoring, dispute resolution, and reporting. Consumer interfaces are built on complex internal systems designed to prevent errors and misconduct. Ethereum replaced some of these mechanisms with a shared ledger, a programmable execution environment, and cryptographic enforcement mechanisms. Because core functionality is delegated to software rather than being repeatedly developed within each institution, administrative complexity is reduced.
Ethereum alleviates the burden on institutions by providing a shared ledger that is updated in real time, a programmable space for defining rules, and cryptographic enforcement mechanisms. It doesn't replace financial institutions, but rather changes which parts of the financial system they must build themselves. Issuance becomes simpler, custody more secure, and management less reliant on proprietary infrastructure. Software, Trust, and Reduced Friction Some economists categorize transaction costs into three types of friction: triangulation, transfer, and trust. Triangulation involves how economic participants identify each other and reach agreements. Transfer involves how value flows between them. Trust involves the enforcement of obligations. Traditional financial architectures manage these frictions through scale, proprietary systems, and coordination between intermediaries. Ethereum eliminates intermediaries, thereby reducing all three types of friction. Open markets support asset and price discovery. Digital value can be settled instantly globally within minutes, without the need for multiple layers of correspondent banks. Obligations can be executed automatically and verified publicly. These functions do not replace institutional functions, but rather offload some work from institutions to software, thereby reducing costs and operational risks. New entrants can benefit immediately. They can rely on infrastructure maintained by thousands of engineers without having to build their own settlement, custody, and execution systems. Business logic is translated into code. Obligations can be automated. Settlement becomes instantaneous. Users retain custody. This expands the scope of viable business models, enabling businesses to serve markets that existing businesses deem too small or too complex. Having a single global ledger also changes operational dynamics. Many institutions operate multiple databases, requiring frequent reconciliation and are prone to errors. Ethereum maintains a continuously updated and untraceable replicable record. Redundancy and recoverability become default attributes, not costly internal features. Security follows the same pattern. Instead of relying on protecting a centralized database, Ethereum distributes verification work among numerous independent participants. Tampering with historical records requires massive coordination and is extremely costly. Trust stems from system design, not institutional promises. These characteristics give rise to services that appear traditional but have vastly different cost structures. International transfers can use digital dollars instead of correspondent banking networks. Loans can enforce collateral rules through code. Local payment systems can interoperate without proprietary standards. Individuals in economically unstable regions can store value in digital instruments without considering the fragility of local monetary systems. Functions such as clearing, custody, reconciliation, monitoring, and execution are shifted from organizational processes to shared software. Companies can focus on product design and distribution without maintaining complex internal infrastructure. Because the infrastructure is shared, scaling is achieved through user acquisition. Value accumulates on the application, not on redundant internal systems. This impact is most pronounced in markets with fragile financial systems. In economies with unstable currencies or slow payment networks, Ethereum can immediately deliver functional improvements. In developed markets, returns may appear gradual, but they will accumulate as more tools and processes become programmable. Institutional Transformation and Long-Term Dynamics Many financial instruments are heterogeneous. Corporate bonds are a prime example. Their terms vary depending on maturity date, coupon rate, covenant, collateral, and risk. Transactions rely on bilateral negotiations and intermediaries responsible for maintaining records and enforcing obligations. Ethereum can digitally represent these financial instruments, track ownership, and automatically enforce terms. Contracts retain their specificity, while governance becomes standardized and interoperable. This heralds a shift in institutional architecture. Regulatory and legal systems remain crucial, but the boundaries of what can be enforced by businesses and software are changing. Institutions are evolving from infrastructure providers to service designers. Cost structures will diverge between companies maintaining traditional systems and those relying on shared infrastructure. Ethereum already operates as an alternative financial track. Its reliability, numerous independently developed clients, extensive real-world applications, active research community, and commitment to openness and verification distinguish it from other blockchain networks. These qualities meet the requirements of persistent financial infrastructure.
Conclusion
Ethereum transforms core financial frictions into software functionality. This changes the economic model of building and operating financial services. Talent and capital shift from operations to product design innovation. Institutions become leaner and more efficient. Businesses adopting Ethereum will have lower operating costs and a competitive advantage.
Technological change often begins in niche markets where existing businesses cannot meet demand. As systems mature and costs decrease, wider adoption becomes possible. Ethereum has followed this path. Initially serving the internet-native community, it expanded to emerging markets to meet users' needs for reliable financial instruments, and today it is working to elevate the mainstream market by simplifying the creation and operation of financial companies.
More profoundly, software is gradually becoming the organizing principle of financial infrastructure.
Ethereum embodies this shift. Whether it can become the foundation of financial infrastructure will depend on the adaptability of regulation and institutions, but economic incentives are increasingly favoring open, verifiable, and resilient systems.
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