Ethereum is the settlement layer for global finance.
It is the only blockchain that can be this.
If you're surprised by the above statement, this article is for you. Other chains will still host many useful apps, and play niche roles, but the global financial system will run on Ethereum.
Rather than being a chain where consumers go to use apps and trade with their friends, a settlement layer is a chain that other chains build upon. It specializes in 5 things:
Securing other chains by storing their data and proofs the data is correct
Deploying Tokens and Assets that will be used across the entire ecosystem of chains.
Managing state that should be shared across multiple chains
Securing the native bridges for all connected chains, so there is no bridging risk
Providing interoperability between all chains connected to it, as the most secure way to move infinite liquidity without any counter party risk.
These chains building on top of Ethereum are called rollups, or Layer 2's, because they roll-up their data into a blob and store it on Ethereum.
This design of Ethereum being a settlement layer instead of a single chain is why so many find it confusing that its market cap is so high when on the surface it appears to be a slower, more expensive version of other newer chains.
There are many chains who claim to be able to do 10k, 50k, or even 100k+ transactions per second, and if they can reach that, that's great.
The problem is global finance will be at least 3 - 4 orders of magnitude bigger than that - closer to 10 - 100 million transactions per second, maybe more, especially as AI agents come onchain.
"But Credit Cards only need 50k TPS and they process all the payments in the world" ~ Some Reply Guy
That number is correct, but you haven't realized how insanely huge finance is going to get.
Think about how many TV shows, Books, and general information existed in the 80's, before the internet, when creation and distribution of this content was restricted to a handful of publishers and almost everyone was forced to consume from a few distribution channels.
Then came the internet, where anyone anywhere can create a blog, video channel, or become an influencer just sharing their views with the world.
The amount of content didn't increase 10x or even 100x, it increased 1,000,000x.
When finance is truly unleashed and anyone can invest or trade anything, rather than some bonds, stocks and real estate like today, the financial system is going to experience similar explosive growth.
Stocks and Bonds will be as boring as watching traditional TV is to the YouTube generation.
What will people be doing?
Investing in their favorite Games, Bands, Songs, Artists, Bloggers, Influencers, Authors, Books, Videos. Being able to fund anything anywhere and receive some benefit or return for doing so.
Collecting and trading game items - millions of players in thousands of games
Performing the same financial trading wall street currently does, but scaled up to the entire world, to everyone who wants to take part.
Betting on anything and everything
And it won't just be people doing these trades, there will be millions of bots and AI agents everywhere trading billions of assets amongst themselves, trying to get some edge in millions of markets.
Still think all of this can be run on a few PC's replicated globally?
Maybe none of this will play out, the government will kill the fun and we'll be stuck trading boring stocks and bonds forever. But I doubt it. The young generation sets the tone of the future and they're way more keen on trading meme coins and gaming items than traditional financial assets, just like they're way more keen on YouTube than TV.
It doesn't necessarily, after all we already have a financial system which runs on many distinct databases. However the improvement in speed, security and interoperability when your system is connected through a standardized layer to all other systems is hard to deny. Ignoring this would be like trying to run your company on a private intranet after the internet has already started to take over the world.
Another key attribute Ethereum has is it's neutral - even countries or companies hostile to each other can use this platform to settle trades. Previously when two countries were at war they would use Gold to settle debts because they didn't trust each others currencies or financial systems. Now they can transact in any of these neutral cryptocurrencies on Ethereum.
When Ethereum first appeared in 2015, many financial firms started experimenting with the technology, not to be a part of the network, but to run their own private blockchains between partner firms. JP Morgan started the Onyx chain, Microsoft started Ethereum Blockchain as a Service, Amazon created AWS Managed Blockchain. Companies wanted private blockchains to maintain control - so they can implement compliance, KYC, AML, and pause the chain in the case of hacks.
None of these private blockchains worked out because they miss the two reasons blockchains are useful: Composability and Permissionless Innovation. When people work together, creating products that complement and extend each other, and anyone can contribute, amazing things happen. When you remove those two components you get a slower database.
Because Ethereum is a layer-2-centric ecosystem, you are free to go independently build a sub-ecosystem that is yours with your unique features, and is at the same time a part of a greater Ethereum. ~ Vitalik Buterin
With rollups, corporations get the best of both worlds - they can create a chain with any restrictions or controls they like, while still retaining interoperability with the rest of the Ethereum ecosystem. They can implement KYC, AML rules, have manual checks on transactions, kick out bad actors, anything they've always done on their centralized platform.
But now users can move to their platform onboard seamlessly in minutes, and it also attracts developers to deploy useful applications for their customers. These applications can be up and running in a day if their rollup uses the same language as other rollups. Developers earn income from usage fees, and the corporation gains many additional services for free.
Coinbase has pioneered this strategy with their Base chain. Launched only a year ago, Base already has over 250 apps, and Coinbase didn't spend a cent building them! Coinbase added incentives for developers, including access to their millions of user and billions of dollars in funds though their smart wallet, and it turned into a win-win scenario for everyone.
This strategy of an exchange extending its offerings with a rollup is now catching on in the crypto ecosystem with Kraken, OKX and Crypto.com all launching their own Layer 2's.
Blackrock, the biggest asset manager in the world, has realized the tides are changing and are correcting course first before other institutions notice. They recently launched a $100M fund on Ethereum and Larry Fink is bullish on tokenizing everything to allow for better interoperability and less overhead compared to the rest of finance. It's only a matter of time before they launch their own rollup and get an ecosystem built before everyone else.
When financial firms realize what Coinbase is doing, and Blackrock is experimenting with, where they can get access to users, liquidity, and a huge developer base that works for free, it'll be a no brainer to launch their own rollup.
Ethereum is the only chain hyper-focused on this mission of being able to support thousands of chains, while maximizing decentralization, uptime, and security. The UX of using this ecosystem is painful today because Ethereum made the tradeoff of short term fragmentation in exchange for being able to scale to millions of TPS in the next decade. Fixing UX is much easier than re-working the underlying infrastructure and there are already many projects solving cross-chain issues.
This system of being the backing layer for thousands of other chains isn't something any other network can copy + paste, it requires a full ecosystem overhaul. You have to create bridges, interop layers, shared sequencers, cross chain MEV solutions, wallets that can handle more than one chain, apps being aware of cross chain assets. Ethereum is going through all of these growing pains now to come out the other side ready to be a base layer for finance.
Furthermore Ethereum has been hyper optimized for this world:
It's designed to run on minimal hardware, on an average internet connection, so nodes can be everywhere making it almost impossible to take down.
It's maximally decentralized on the stake layer, with no single entity holding more than a few percent of the staked tokens. Any chain attack would require the coordination of many companies across the world, which seems extremely far fetched, and even if someone starts to attempt a takeover they can be socially slashed.
It's maximally decentralized at the software layer. Ethereum has 5 execution clients (Geth, Nethermind, Besu, Reth, Erigon), with 4 more in the works (Megaeth, Monad, GPU-EVM, Ethereum Rust), as well as 6 consensus clients (Teku, Lighthouse, Prysm, Nimbus, Lodestar, Granadine). These are all written by different teams in different programming languages, in different parts of the world. This makes it extremely unlikely there are any flaws in the network and even if any of these clients has some critical bug, none of them run enough of the network to bring the network down.
All the biggest upgrades are designed to support this settlement layer design. Ethereum is trying to provide as much data for Layer 2's as possible and focus on fast validation of ZK proofs and other things necessary to make rollups work and be cross compatible.
The Ethereum community cares more than any other chain about maximising decentralization. There's huge communities around staking at home, running your own validator, pressuring large companies to diversify their staking clients, getting users to switch from large staking providers to smaller ones.
Yes other ecosystems could try and pivot to this rollup world, but they all face the innovators dilemma - no company or group wants to work on technology that destroys their current working product. Furthermore everyone that wants to build a monolithic chain has already jumped ship from Ethereum to other projects, and almost everyone that cares about this multi chain hyper scaleable world is working on Ethereum development or research. There's zero chance any other team can pull off a pivot to this vision and get the resources and talent to build out the ecosystem necessary to compete.
Bitcoin is the most credible contender for this settlement layer as like Ethereum it has focused on decentralization and security at the expense of almost everything else. Unfortunately Bitcoins greatest blessing is also it's biggest curse - it never hard forks. Bitcoin never hard forking means it can never add breaking changes, many of which are needed to make rollups viable. Without these changes, adding rollups and all the required infrastructure to make them trustless, secure, cheap, and fast, is an extremely complicated mission.
Even assuming all of its ambitions with L2's get implemented, it'll still be slower, more expensive and more complicated to use than Ethereum, and will be many years behind in ecosystem development, which makes it unlikely to compete.
Everything in technology has tradeoffs. When the base layer does more work the requirements to run a node increase and less people are able to run it from less locations, making it less decentralized. It also has a higher risk of failure, leading to downtime, and downtime is the worst thing for a base layer as every rollup built on top of it breaks as well.
With the magic of ZK Proofs a base layer node can verify millions or even billions of transactions across thousands of layer 2's in a few milliseconds. The nodes that process those transactions and create the ZK proofs need to be very powerful, but the nodes that verify them can be tiny. This means the only real job of the base layer is to store data, verify ZK proofs, and stay online. The lower the hardware requirements the better it can do this.
There are ecosystems of chains that all interoperate with each other right now - Cosmos is the biggest one. These make a lot of sense, more than thinking one chain can do it all, but the common flaw is that there is they are missing the maximally secure settlement and interop layer between all of them.
Without this base layer you have to check and trust the security properties of each chain individually, which is hard to reason about, and as tokens flow throughout the ecosystem you not only have to trust the origination chain, but all chains those tokens moved along on their way to the final destination.
Having this common shared base layer also creates one place to deploy cross-chain tokens, or save shared state, which ensures they are secured by this layer and can be passed between all rollup's seamlessly.
Long Term this seems as inevitable as Linux taking over the server world, but accelerated via financial incentives. Having a common standard platform that everyone works on but no one controls and can restrict / rent-seek is very powerful and very appealing to companies and users of all sorts.
The current financial system is broken, fragmented and hard to fix because there are few truly neutral players coordinating it. Furthermore those neutral players have a tendency to rent seek or enforce their own moral code once they achieve a monopoly. By removing the ability to control the network from humans, we get a financial system that best serves everyone. This is the internet of finance we've been waiting for and it's only a matter of time before everyone realizes it.