We can broadly distinguish three main types of applications outlined in the Ethereum white paper.
The first type is purely financial applications that provide complex financial products and solutions through smart contracts. These can include insurance, financial derivatives, escrow accounts for trade settlement, financial trusts, and crowdfunding. A good example for this type of applications comes from a company called Etherisc, which is developing insurance policies based on Ethereum smart contracts. They have a working product for flight insurance, which provides automatic premium pay-off to passengers in case of a delayed or cancelled flight. This solution brings a clear advantage to customers as they get their premium paid off automatically, with no delay, once a coverage trigger event occurs. Typically, getting a refund for a delayed or cancelled flight has been a cumbersome and lengthy process plagued by bureaucracy, which can drag on for months or even years. And we all know how often flights have issues with being on time. Therefore, Etherisc brings a clear and compelling value proposition to customers, who generally aren't treated fairly by airlines and traditional insurance companies alike. This new solution is powered by Ethereum.
You can see the business logic of Etherisc's insurance smart contract in the following diagram:
Another major category of applications is ones with some sort of financial angle, perhaps involving the use of money on the platform, but that also have a substantial non-monetary component. They can be used in gaming, betting, prediction markets, and any decentralized peer-to-peer marketplaces for products or services. One such application based on Ethereum is Fun Fair. It provides turnkey online casino technology that can be used as a white label solution by anyone, anywhere to create an online casino. With the help of blockchain and smart contracts, Fun Fair brings transparency, security, and efficiency to both players and online casino operators:
With regards to peer-to-peer marketplaces, some primary use cases include decentralized data storage, computing, web hosting, electricity trading, and media and content distribution platforms. Pretty much any type of resource and market you can think of can benefit from a peer-to-peer sharing economy.
For example, projects such as Golem and SONM are building decentralized marketplaces for spare computing power based on Ethereum. Their vision is to enable the sharing and trading of unused computer processing capacity by participants on their distributed platforms.
The concept is similar to the sharing economy Airbnb creates with its platform for renting out underutilized real estate. In this way, Golem and SONM aim to create a worldwide supercomputer network that employs idle PCs all over the planet. Excess computing power can be used by scientists, businesses, or consumers that need to run large amounts of computation, while providers of such resources can be rewarded. All transactions are automated with smart contracts and benefit from direct and decentralized peer-to-peer interaction, thus maximizing the value for users. All this economic activity benefits from the security and programmability of the Ethereum blockchain. The following diagram shows the flow of Golem:
Following a similar logic, Power Ledger and WePower are building decentralized peer-to-peer platforms for electricity trading and the funding of renewable energy projects. Both platforms run on Ethereum.
Another interesting project, Substratum is building a decentralized censorship-resistant peer-to-peer web-hosting platform based on Ethereum. This platform tackles the important global problems of cybersecurity and net neutrality. Net neutrality is the principle that all data on the internet should be treated fairly and equally by internet service providers (ISP). Here again, providers of spare computer resources for web hosting get rewarded via transactions on the blockchain.
Another interesting example comes from Basic Attention Token (BAT). This project introduces an innovative concept for the advertising industry with its decentralized advertising marketplace. It proposes a superior economic model for all parties involved – advertisers, publishers, and consumers. The project is led by Brendan Eich, the creator of the JavaScript programming language and co-founder of Mozilla Firefox, the popular web browser. This solution uses smart contracts on the Ethereum blockchain to tokenize and trade consumer attention to online ads, just like any other commodity. The BAT platform uses its native tokens and smart contracts to distribute value across the advertising ecosystem. The Brave browser is an integral part of this system – it blocks third-party ads and trackers, and measures user attention to online content using embedded and transparent machine learning algorithms. User profiles are protected by anonymity protocols and features but still provide useful data for targeted ads on the platform. Users get rewarded for their attention with native tokens; in other words, they get paid to view ads. This is a completely disruptive concept as, so far, there hasn't been a reward mechanism for consumers to monetize their attention to ads. There are no middlemen on the platform, such as data brokers, which typically collect personal information, aggregate it, build consumer profiles, and sell this to advertisers, thereby monetizing people's personal data. Cutting out such middlemen creates efficiencies and value for consumers, publishers, and advertisers alike. BAT's smart contracts automatically distribute the flow of value in the ecosystem as follows: advertisers send payments in native tokens along with ads to users, as users view ads, the smart contracts unlock the funds and send payments to the users, the Brave platform, and the publishers. Therefore, these are multiparty transactions facilitated by smart contracts. The marketplace benefits from Ethereum blockchain's decentralization, security, and programmability features.
The following diagram shows how BAT works:
Then, we have applications, which are further away from the realm of financial services, but still benefit from the blockchain architecture and smart contracts. Despite these applications being non-financial, services on their platforms still would have a cost to them that needs to be covered, usually in their native tokens. This category includes applications for supply-chain management, such as tracking components across the industry supply chain, reputation systems, digital IDs, voting, and decentralized governance.
You probably remember WaBi. It's a decentralized application for supply-chain management that aims to solve the problem of counterfeit consumer goods. Product-authenticity verification is done by consumers themselves who scan special RFID labels on the products with their smartphones. RFID stands for radio-frequency identification. These labels are applied on the products at a designated point of origin along the supply chain and are linked to a unique digital ID for each product. With each scan of the RFID tag, the product ID is checked and verified. For each scan, users are rewarded WaBi tokens, which currently run on the Ethereum blockchain. With the reward transactions, the product ID verification is time- and geo-stamped on the blockchain. WaBi tokens serve as both an incentive mechanism in the form of reward points, and as a currency to purchase products secured by the system. WaBi has been rebranded as Tael. The following diagram shows how WaBi works:
With regards to voting and decentralized governance applications, an interesting example is Horizon State. They build voting systems using the Ethereum blockchain. Voting is done with their native decision tokens, which can be used for all sorts of political elections, opinion polls, and shareholder votes. The benefits of security and immutability that blockchain brings to the voting process are all important.
We've made quite a journey through the extensive universe of the decentralized applications of Web 3, and you should have a good idea of what they're all about. Now let's cover another important aspect of the Ethereum platform. Besides an environment for building decentralized applications, Ethereum provides a platform for crowdfunding these projects. Let's see how this works next.