Ethereum is becoming the new global financial backend

Author: Federico Carrone, Roberto Catalan; Translation: Block unicorn
Ethereum is on the rise, becoming a universal financial backend that lowers the costs and complexity of building financial services while increasing speed and security. For decades, the internet accelerated communication but failed to establish a neutral system to define ownership or enforce obligations. Economic activities moved online, yet lacked corresponding rights, records, and governance mechanisms. Ethereum fills this gap by embedding these functions into software and enforcing them through a distributed validator set.

Markets rely on property rights, which depend on reliable systems to record ownership, support transfers, and enforce obligations. Prices transmit scarcity and preferences, enabling large-scale coordination. Technological advances continually reduce the costs of information transmission and synchronized actions. Ethereum further expands this model by lowering the costs of establishing and verifying ownership across borders.

From Internet Native to Global Infrastructure

Early innovations in Ethereum involved introducing programmable digital assets with clear economic properties. Issuers can set monetary rules, design scarcity, and integrate assets into applications. Before Ethereum, such experiments required building networks and convincing others to provide security—processes limited to well-funded, technical teams. Ethereum replaces redundant infrastructure with shared security mechanisms and a universal environment, transforming issuance from capital-intensive activities into software-driven ones.

A more profound development is the recognition that Ethereum can reconstruct traditional financial services in a more transparent, operationally lighter form. Financial institutions spend vast resources on authorization, reconciliation, monitoring, dispute resolution, and reporting. Consumer interfaces are built upon complex internal systems designed to prevent errors and misconduct. Ethereum replaces some of these mechanisms with shared ledgers, programmable execution environments, and cryptographic enforcement. Because core functions are delegated to software rather than repeatedly developed within each institution, management complexity is reduced.

Ethereum alleviates the burden on institutions by providing real-time updated shared ledgers, programmable spaces for defining rules, and cryptographic enforcement mechanisms. It does not replace financial institutions but changes the parts of the financial system they need to build themselves. Issuance becomes simpler, custody safer, and management less reliant on proprietary infrastructure.

Reduction of Software, Trust, and Friction

Some economists classify transaction costs into three types of friction: triangulation, transfer, and trust. Triangulation involves how economic participants identify each other and reach agreements. Transfer concerns the flow of value between them. Trust relates to the execution of obligations. Traditional financial architecture manages these frictions through scale, proprietary systems, and coordination among intermediaries.

Ethereum eliminates middlemen, reducing these three frictions. Open markets support asset and price discovery. Digital value can settle globally in minutes without multiple layers of intermediary banks. Obligations can be automatically executed and publicly verified. These features do not replace institutions but shift some functions from organizations to software, reducing costs and operational risks.

New entrants can benefit immediately. They can rely on infrastructure maintained by thousands of engineers without building their own settlement, custody, and execution systems. Business logic becomes code. Obligations can be automated. Settlement becomes instant. Users retain custody rights. This broadens the scope of feasible business models, allowing enterprises to serve markets that existing companies consider too small or too complex.

Having a single global ledger also changes operational dynamics. Many institutions operate multiple databases, requiring frequent reconciliation and prone to errors. Ethereum maintains a continuously updated, non-traceably mutable, reproducible record. Redundancy and recoverability become default features rather than costly internal functions.

Security also follows this pattern. Ethereum does not rely on protecting centralized databases but distributes verification work among numerous independent participants. Altering history requires large-scale coordination and is extremely costly. Trust stems from system design, not institutional promises.

New Financial Services and Global Coverage

These features give rise to services that seem traditional but have fundamentally different cost structures. International transfers can use digital dollars instead of proxy bank networks. Loans can enforce collateral rules via code. Local payment systems can interoperate without proprietary standards. Individuals in economically unstable regions can store value in digital tools without relying on fragile local currencies.

Functions like clearing, custody, reconciliation, monitoring, and enforcement shift from organizational processes to shared software. Companies can focus on product design and distribution without maintaining complex internal infrastructure. Because infrastructure is shared, scaling comes from acquiring users. Value accumulates on applications rather than on duplicated internal systems.

This impact is most pronounced in markets with fragile financial systems. In economies with currency instability or slow payment networks, Ethereum can immediately deliver functional improvements. In developed markets, the gains may seem incremental, but as more tools and processes become programmable, benefits will continue to accumulate.

Institutional Transformation and Long-term Dynamics

Many financial instruments are heterogeneous. Corporate bonds are a typical example. Their terms vary based on maturity, coupon, covenants, collateral, and risk. Trading relies on bilateral negotiations and intermediaries responsible for record-keeping and enforcement. Ethereum can digitally represent these financial instruments, track ownership, and automatically execute terms. Contracts retain their specificity, while management becomes standardized and interoperable.

This signals a shift in institutional architecture. Regulatory and legal frameworks remain crucial, but the boundaries of what can be enforced by enterprise and software are evolving. Institutions are transforming from infrastructure providers to service designers. The cost structure of companies maintaining traditional systems versus those relying on shared infrastructure will diverge.

Ethereum has already operated as an alternative financial track. Its reliability, numerous independently developed clients, extensive real-world applications, active research community, and commitment to openness and verification distinguish it from other blockchain networks. These qualities meet the requirements of durable financial infrastructure.

Conclusion

Ethereum transforms core financial frictions into software functionalities. This changes the economic model of building and operating financial services. Talent and capital shift from operations to product design and innovation. Institutions become leaner and more efficient. Companies adopting Ethereum will enjoy lower operational costs and gain a competitive advantage.

Technological change often begins in niche markets where existing companies cannot meet needs. As systems mature and costs decline, broader adoption becomes possible. Ethereum has followed this path. Initially serving the native internet community, it later expanded into emerging markets, meeting user demands for reliable financial tools. Today, it aims to elevate mainstream markets by simplifying the creation and operation of financial companies.

The deeper significance is that software is gradually becoming the organizing principle of financial infrastructure. Ethereum embodies this shift. Whether it will become the foundation of financial infrastructure depends on regulatory and institutional adaptation, but economic incentives are increasingly favoring open, verifiable, and resilient systems.