Spot ether ETFs are set to trade Tuesday. Here’s what it means for the Ethereum blockchain

Many investors have never been impressed with bitcoin, primarily because the use case seems limited: It is purely a digital currency. But the Ethereum platform is different. 

Bitcoin and Ethereum both utilize blockchain, which is a decentralized, immutable ledger to record transaction histories, but they have very different purposes. 

Bitcoin uses the blockchain as a digital currency. Ethereum utilizes digital money just like bitcoin, but its blockchain has broader purposes. (Ether is the cryptocurrency used in the Ethereum network, but in practice the terms Ethereum and ether are often used interchangeably.) 

Ethereum is a platform for building smart contracts, which are self-executing programs that enforce a pre-existing contract or agreement. It can be as simple as “If I do this, you do that.” The key is that they execute automatically, are done on the blockchain (the Ethereum network) and produce the same result each time they are executed. They also have a wide variety of applications.

The most common use is for decentralized finance, or “DeFi.” This is just a fancy term for using financial services on the blockchain. In theory, you could perform almost any banking services: Users can send, lend or borrow money, open a savings account, trade stocks or derivatives or other cryptocurrencies, get insurance. Theoretically, you could also do real estate transactions. Users can perform these functions using software called “decentralized apps.”

The use case goes beyond financial services. Users can play games. Corporations could use it for tracking supply chains. It could even be used as a clearing platform to settle stock trades. 

Another application for Ethereum: stablecoins. These are cryptocurrencies whose value is pegged to another asset, usually the dollar. Because cryptocurrencies like bitcoin and ether are volatile, many DeFi applications rely on stablecoins for lending, borrowing and trading.

The promise is a transaction network that — in theory — could be a much cheaper and faster way to do business.

It’s not clear whether this latest development will open the floodgates for more crypto ETFs — or whether the U.S. Securities and Exchange Commission will find a way to stop the potential tidal wave.

Any applicant for other crypto ETFs would still need to show that the underlying market was not subject to manipulation, a crucial requirement for approval of these funds.

But a lot may depend on the political climate.

In the past, for commodities, the SEC has traditionally required a regulated futures market to trade alongside the asset. Right now, that only exists for bitcoin and ether, so it would take time to develop futures markets for other crypto products. 

“Under the current regime in Washington, that would not change,” Matt Hougan, chief investment officer of Bitwise told me. “But if you get a change of regimes in Washington, that could change.”

Regardless, expect a lot of trading. “These new ETH ETFs will likely trade a lot,” Johnson at Morningstar told me. “I’d guess that if and when options on these ETFs become available, this will all go into overdrive…. These ETFs effectively add a whole new wing to the crypto casino.”