Author name: @nobumei (https://twitter.com/nobu_mei)
<aside> 💡 This page explains the basic features of BaaS and the strength of Ethereum.
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In the previous chapters, we have discussed blockchain interoperability. This chapter describes the BaaS layer, the financial infrastructure of the future.
BaaS stands for Banking as a Service, a service that digitizes functions and financial services previously provided by banks to enhance convenience. Recently, non-banks have begun to incorporate BaaS functions, such as QR payments and P2P money transfer apps, into their own apps and services.
The blockchain technology created by Bitcoin has made it possible to transfer money between individuals without a central administrator. And with Ethereum's invention of smart contracts, it will be possible to create decentralized applications called dApps (dapps) on the blockchain.
There are dApps with various functions, and the development of dApps with BaaS functions is making it easier for anyone to implement the same system as a bank without having to go through a bank or payment provider.
Generally, "the norm" at present is to put money in a bank account and ask the bank to transfer money, but blockchain technology will make it "the norm" on the future Internet to transfer money directly without going through a bank.
Although banks and other financial institutions have recently been making progress in DX, such as online banking, true DX using smart contracts and tokens will make them more efficient than ever before.
And the giant of this BaaS layer is Ethereum. This section describes the world that Ethereum will enable and its value.
The giant of this layer is Ethereum, the most developed and decentralized place in the world to put programs like smart contracts. In terms of the Internet, this applies to AWS and GCP, which cannot be tampered with. It is not as a storage device to store data, but as a console to run programs.
Regarding the value realized by AWS and GCP, for example, it is difficult for a start-up company to set up a server with strong security from scratch. The startup's limited resources must be focused on application development without spending time on server construction. Here, AWS provided a service that made it easy to build servers, which dramatically increased the speed of smartphone app development and was a key driver of the market's rapid growth.
In the case of blockchain applications, even if a startup creates its own blockchain, the nodes are not sufficiently decentralized in the beginning and a hacker can easily conduct a 51% attack (hacking) if they have a large amount of PC resources available. Building a blockchain is far more challenging than setting up a few servers.
In that sense, Ethereum is already highly decentralized with enough nodes to be recognized by the SEC (U.S. Securities Exchange), providing a level of security and miners that are difficult for hackers to attack. App developers can now easily create Apps on the blockchain by paying a fee to Ethreum in exchange. Ethereum provides the same mechanism as AWS and GCP in a decentralized way in that it provides an environment where programs can be implemented and run immediately.
Ethereum has grown as the first blockchain to implement smart contracts and is the second largest in the world by market capitalization after Bitcoin. The following graph shows that even though the ratio is gradually decreasing compared to the TVLs of blockchains that implement smart contracts, it still boasts an overwhelming share of the market.
Defi TVL Trends in 2021 (2021 CoinGeko Annual Report)
TVL (=Total Value Lock) represents the total amount deposited in the smart contract and is an indicator that can be used to compare how much "value" is currently on the blockchain. We call dApps that provide financial functionality DeFi, and please understand that Ethereum has the No. 1 market share in the BaaS market at this stage. DeFi will be dealt with in the next chapter.