Why Spotify, Netflix and Kickstarter could become obsolete
Ethereum itself is not a conventional cryptocurrency like Bitcoin, but a platform for decentralized applications. The cryptocurrency belonging to the Ethereum network is called Ether.
Put simply, the platform gives you the ability to create contracts that are enforced automatically and without an intermediary. So-called Smart Contracts are used for this purpose. These are contracts that are automatically executed when certain conditions occur.
Sounds very abstract? Yes, admittedly! But if you look at the two examples below, you will understand:
Example 1: Financing a start-up company
Imagine that a start-up company wants to bring innovative new headphones onto the market, but needs around €1,000,000 to do so. If no large investor can be found who is willing to carry the capital and also the risk of the start-up alone, it would make sense to find many small investors.
This is exactly the principle of crowdfunding. Many private individuals or investors provide smaller amounts of money for the project and together they raise the money needed to make the start-up a reality. In detail it works like this:
If enough investors are found, the capital provided by them is collected and passed on to the start-up company. If the financing is not successful, the money collected so far is returned to the investors. Kickstarter is one of the best-known platforms that organizes such capital collections and acts as an intermediary between investors and the start-up. Of course, Kickstarter can be well paid for this.
Ethereum can do just that without a kickstarter as a middleman. People who want to invest in the start-up company provide the capital via the Ethereum network, where it is initially blocked.Only when enough capital has been raised the blocked capital will be transferred to the start-up company. If not enough capital is collected, the blocked capital is returned to the investors. All this happens fully automatically via the blockchain. So the costs for kickstarters can be saved.
Example 2: Artist financing
Spotify, Apple Music and other music streaming providers have built a very lucrative business model. They collect money from their subscribers and pass on parts of the revenues to the artists, agencies and record companies. Who receives how much of the revenue depends on the number of streams. Frequently heard artists therefore receive more than artists who are less popular.
Via Smart Contract, stream service providers such as Spotify, Apple Music and Co. could be made redundant as intermediaries. The distribution of revenues by subscribers is done automatically via Smart Contracts. The result: lower subscription prices for subscribers and higher payouts to musicians.
You can already guess it from our two simple examples: The Smart Contracts handled through the Ethereum network have the potential to revolutionize numerous industries and markets. Many large companies have long since recognized this. Microsoft, Amazon and the financial giant JP Morgan have been researching the new technology for quite some time.
