Ethereum is the new financial backend of the world

By Federico Carrone and Roberto Catalan

Ethereum is emerging as a general purpose financial backend that reduces the cost and complexity of building financial services while improving their speed and security. For decades the internet accelerated communication but did not create a neutral system for defining ownership or enforcing obligations. Economic activity moved online without the accompanying machinery of rights, records, and jurisdiction. Ethereum fills this gap by embedding these functions in software and enforcing them through a distributed validator set.

Markets depend on property rights, and property rights depend on reliable systems for recording ownership, supporting transfer, and enforcing obligations. Prices then communicate scarcity and preference, enabling coordination at scale. Technological progress has repeatedly lowered the cost of transmitting information and synchronizing action. Ethereum extends this pattern by lowering the cost of establishing and verifying ownership across borders.

From internet native to global infrastructure

Ethereum’s early innovation was the introduction of programmable digital assets with defined economic properties. Issuers could establish monetary rules, engineer scarcity, and integrate assets into applications. Before Ethereum, such experimentation required constructing a network and persuading others to secure it, a process limited to technically sophisticated groups. Ethereum replaced infrastructure duplication with shared security and a general purpose environment, turning issuance from a capital intensive undertaking into a software driven activity.

The more consequential development has been the recognition that Ethereum can reconstruct traditional financial services in a form that is more transparent and less operationally burdensome. Financial institutions devote substantial resources to authorization, accounting, monitoring, dispute resolution, and reporting. Consumer interfaces sit atop complex internal systems designed to prevent error and misconduct. Ethereum substitutes a portion of this apparatus with a shared ledger, a programmable execution environment, and cryptographic enforcement. Administrative complexity is reduced because core functions are delegated to software rather than replicated within each institution.

Ethereum reduces that burden by providing a shared ledger with real time updates, a programmable space for defining rules, and cryptographic enforcement. It does not remove institutions but changes which parts of the financial stack they must build themselves. Issuance becomes simpler, custody more secure, and administration less dependent on proprietary infrastructure.

Software, trust and the reduction of friction

Some economists describe transaction costs through three frictions: triangulation, transfer and trust. Triangulation concerns how economic actors identify each other and agree on terms. Transfer concerns how value moves between them. Trust concerns the enforcement of obligations. Traditional financial architecture manages these frictions through scale, proprietary systems, and coordination among intermediaries.

Ethereum remove middlemen and therefore lowers the three frictions enumerated before. Open marketplaces support discovery of assets and prices. Digital value can settle globally within minutes without the layers of correspondent banking. Obligations can be executed automatically and verified publicly. These capabilities do not eliminate institutional functions but shift part of the work from organizations to software, reducing cost and operational risk.

New entrants benefit immediately. They can rely on infrastructure maintained by thousands of engineers rather than building their own systems for settlement, custody, and enforcement. Business logic becomes code. Obligations can be automated. Settlement becomes immediate. Users retain custody. This expands the range of viable business models and allows firms to serve markets that incumbents consider too small or too complex.

Having a single global ledger also changes operational dynamics. Many institutions operate multiple databases that require frequent reconciliation and remain vulnerable to error. Ethereum maintains a continuously updated and replicated record that cannot be amended retroactively. Redundancy and recoverability become default properties rather than costly internal functions.

Security follows the same pattern. Instead of defending a central database, Ethereum distributes verification among many independent actors. Altering history requires coordination at scale and becomes prohibitively expensive. Confidence arises from system design rather than institutional promises.

New financial services and global reach

These features enable services that resemble established financial activities but operate with different cost structures. International transfers can use digital dollars rather than correspondent networks. Loans can enforce collateral rules in code. Local payment systems can interoperate without proprietary standards. Individuals in unstable economies can store value in digital instruments independent of local monetary fragility.

Clearing, custody, reconciliation, monitoring, and enforcement shift from organizational processes into shared software. Companies can focus on product design and distribution rather than maintaining complex internal infrastructure. Scale is achieved by acquiring users, because infrastructure is shared. Value accrues to applications rather than to duplicated internal systems.

The impact is most visible in markets with fragile financial systems. In economies with unstable currencies or slow payment networks, Ethereum provides immediate functional gains. In developed markets the benefits appear incremental but accumulate as more instruments and processes become programmable.

Institutional transformation and long term dynamics

Many financial instruments are heterogeneous. Corporate debt is a clear example. Terms differ by maturity, coupon, covenants, collateral, and risk. Trading depends on bilateral negotiation and intermediaries who maintain records and enforce obligations. Ethereum can represent these instruments digitally, track ownership, and execute terms automatically. Contracts retain their specificity, while administration becomes standardized and interoperable.

This suggests a shift in institutional architecture. Regulation and legal systems remain central, but the boundary between what firms must build and what software can enforce changes. Institutions evolve from infrastructure providers to service designers. Cost structures diverge between firms that maintain legacy systems and those that rely on shared infrastructure.

Ethereum already functions as an alternative financial rail. Its reliability, the presence of multiple independently developed clients, substantial real world usage, active research community, and commitment to openness and verification distinguish it from other blockchain networks. These qualities align with the requirements of durable financial infrastructure.

Conclusion

Ethereum converts core financial frictions into software functions. This changes the economics of building and operating financial services. Talent and capital shift from operations to innovation in product design. Institutions become lighter and more focused. Those who will adopt Ethereum will have lower costs of operation and will have a head start against competitors.

Technological transitions begin in niches where incumbents do not meet demand. As systems mature, costs fall and broader adoption becomes feasible. Ethereum followed this path. It began with internet native communities, expanded across emerging markets where users lacked reliable financial tools, and is now positioned to upgrade mainstream markets by making financial companies easier to create and operate.

The broader implication is that software is becoming the organizing principle of financial infrastructure. Ethereum makes this shift concrete. Whether it becomes foundational will depend on regulation and institutional adaptation, but the economic incentives are increasingly aligned with systems that are open, verifiable, and resilient.