How Does Ethereum Make Money? [EXPLAINED]


When it comes to cryptocurrencies revenues are not made in the traditional way. So how does Ethereum make money? There are a number of ways that Ethereum makes money without the organization needing to sell a product.

Since the Ethereum network is a piece of software, the value of the organization lies in the blockchain itself as well as the value of its token which is known as Ether. 

The closest thing to Ethereum making money is through the network fees it charges users for using its blockchain. These fees are more commonly known as gas fees, although a great majority of these fees also get burned. For the founders of Ethereum, much of their earnings will come from the value of Ether rising. 

To learn how a blockchain network like Ethereum makes money, you first need to understand how the project itself works. Cryptocurrency projects do not earn revenue from selling consumer-facing products. If you have ever wondered how a crypto project like Ethereum stays in business, we’ve got the answers to all of your questions!

How Does Ethereum Make Money?

Ethereum was first founded by Vitalik Buterin in 2014 when he published his original white paper. The project itself was launched in 2015 by Buterin, Joe Lubin, and a few others including Cardano founder Charles Hoskinson. Ethereum was one of the first projects to truly illustrate the true potential of the power of blockchain technology. 

The founding fathers of Ethereum created the Ethereum Foundation. Today, the foundation is not controlled by any one person or group. It is a decentralized form of governance that is looking to establish a completely autonomous software network. So while Vitalik is often seen as a CEO-type figure for Ethereum, the network is actually operating on its own and is mostly self-sufficient. 

To use the Ethereum network, users need to spend the Ether crypto token to pay gas fees for transferring funds or making transactions. Many people think these fees are kept by the network or Ethereum Foundation as a form of revenue. A minimal amount is kept as a majority of these fees are either burned or paid to network validators as a form of reward for maintaining the Ethereum network. This process of validating the network is known as staking. 

What Does Ethereum Actually Do?

If you ask casual crypto investors, they will likely just tell you that Ethereum is a crypto you invest in. While this is true, the network behind Ether is of significant importance to the overall crypto industry. Ethereum was the very first blockchain project to utilize smart contracts in its network. These contracts are actual pieces of software that are coded to provide the terms of an agreement between two sides in a transaction. 

But that still does not really explain what Ethereum does. At its simplest definition, Ethereum is a network that allows for decentralized applications to operate in a mostly autonomous form with each transaction written into the Ethereum blockchain. These dApps as they are also called, allow for things like decentralized finance, NFTs, and even the creation of other cryptocurrencies.

Currently, Ethereum can be considered one of the backbones of the crypto world and along with Bitcoin, accounts for a majority of the total crypto market capitalization. You might be surprised to learn that many of the largest crypto projects are built on the Ethereum network. These include USDT (Tether), Polygon (MATIC), Shiba Inu Token (SHIB), and DeFI tokens like AAVE (AAVE), Maker (MKR), and Uniswap (UNI). 

Can You Get Rich With Ethereum?

As with any asset that you can trade, there is always an opportunity to get rich off of Ethereum. You can simply learn to trade the ETH token like it was a stock or currency. Trading with cryptocurrencies can often be more volatile than other more regulated markets like stocks. Learning skills like technical analysis can help with trading ETH. Even in the volatile crypto markets, support and resistance levels are widely used.

Other than trading you can stake ETH to earn rewards. You can do this through a number of different DeFi apps or you can be an Ethereum validator by simply staking your ETH to participate in the consensus of the protocol. By doing this you can earn between about 5-7% APR or the Annual Percentage Rate of the return on your investment.

You can also just choose to buy ETH and hold it or deposit it into an earning account that yields a certain amount of interest. I know that centralized exchanges like Binance have received a bad reputation as of late, but there are ways to earn on the crypto investments that you hold on these sites. For example, Binance Earn will allow you to earn interest on your crypto by depositing it for a certain amount of time. You likely won’t get rich from these accounts but it is an option to earn more!

The Bottom Line: How Does Ethereum Make Money?

The first thing we need to learn about Ethereum is that it is not a company, it is a piece of software. Ethereum operates as a network protocol that uses smart contracts to automatically process transactions between parties. You can participate in things like decentralized finance or staking to earn additional amounts of ETH.

In terms of the Ethereum network itself, it earns money through the gas fees you pay to make transactions on its network. The Ethereum Foundation also generates wealth when the overall price of the ETH asset rises.

So Ethereum will never make revenue through selling a product or service like traditional corporations. The more the network can operate at an autonomous level without human intervention, the more successful the Ethereum project is. 

Geek, out.

Noel

Noel is the founder and main contributor for his blog - Noel's passion for personal finance has helped him amass over 600k readers to his Financial Geek blog.

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