Crypto is an umbrella term to categorize the vast ecosystem of blockchain protocols that has emerged since the creation of Bitcoin
To begin, it is important to understand what separates crypto from the other forms of digital assets that we encounter in our daily lives, things like loyalty points at a local coffee shop and airline mile rewards. The big difference is that unlike these programs, which are operated by centralized parties (such as a company), crypto has no primary issuer. Instead, it uses a novel type of database called a blockchain, which can be thought of as a spreadsheet in the sky that anyone can view. Transactions get added to a blockchain by computers around the world running software that ensures the network can function and remain secure without an overseer. These computers are called nodes.
Although this arrangement might seem simple, it is actually a dramatic breakthrough in the field of computer science, yielding a precious resource for the first time in history: scarce digital value.
What does this mean? Well, you know how simple it is for someone to right-click an image to save on a computer. It can then be copied and sent an unlimited number of times. If you were one of those recipients, would you believe someone if they told you that they did not send it to anyone else? Even if you did it would be impossible to verify. Bitcoin makes it possible to know that a digital dollar, or bitcoin, is unique.
Crypto offers a way to move ahead to digital assets for a 21st century economy. Let’s start with bitcoin.
The breakthrough use for crypto was peer-to-peer electronic cash transfers with bitcoin. Consider the challenges that come with sending money across national borders with traditional technology. An international wire transfer takes 3-5 business days with fees as high as $70 depending on the bank. Remittance payments through money transfer companies typically take 1-5 business days and, according to the World Bank, have an average fee of 6.5%. On the bitcoin network, confirmation occurs approximately every 10 minutes. Transaction fees vary with network usage, but are historically in the $1-3 dollar range.
Stablecoins such as tether, U.S. dollar coin, and DAI
Bitcoin is also becoming a reserve asset and store of value. As opposed to holding U.S. dollars, Treasury bonds, or gold, companies such as Tesla and countries including El Salvador and the Central African Republic are choosing to own bitcoin. With its limited supply and a monetary policy that cannot change, some view bitcoin as the 21st-century equivalent of gold.
Though smart contracts debuted on Ethereum, new protocols such as Solana
Decentralized Applications and Organizations
There are currently over 3,000 decentralized applications using smart contracts over the Ethereum network–not all dealing with finance. Storj, for example, is a cloud storage service. Another example, the Basic Attention Token, uses smart contracts to direct advertisement revenue to web surfers using the Brave Browser. Decentralized applications rely on the smart contract framework provided by the protocols mentioned above.
In addition to decentralized applications, decentralized autonomous organizations (DAOs) are another emerging crypto sector. These are corporations that allocate voting rights or special access to holders of their specific tokens. The holders make decisions by majority vote instead of allowing control by a small group of executives or investors. DAOs have been created for all sorts of purposes, from decentralized investing clubs to managing lending protocols.
While cryptocurrencies are fungible, meaning each unit is the same as every other unit, non-fungible tokens(NFTs),are unique. They can be used to represent–and verify–ownership of individual assets, digital or otherwise.
NFTs allow artists to take their digital works straight to consumers. Traditionally, art dealers, record labels, book publishers, and other intermediaries obtained ownership of a work and pay the creator royalties of as little as 15% of the revenue. By creating a piece of digital art, minting it as an NFT and selling it directly to consumers, an artist can deal directly with end buyers. Ownership is recorded on the blockchain and runs on its infrastructure cutting the middlemen out of the process. NFT marketplaces such as OpenSea or Blur allow for the minting and sale of art, photography, collectible avatars, music, digital wallet domain names and more.
The Future of Crypto
Crypto has the potential to revolutionize the way we interact with the internet. This is commonly referred to as Web3. In Web2, as the current iteration is known, internet companies such as Facebook and Google make money by selling advertising or user data. In Web3 the infrastructure is based on blockchain and crypto instead of corporate systems. This allows consumers to participate in the cash flows that currently go to large technology companies and better protect their personal data.
Crypto also has a role to play in the metaverse. Imagine if each piece of property in a popular digital world such as World of Warcraft was a unique NFT. For gamers, property and items would have market prices determined by users who want them. In-game money would be scarce, and its value would appreciate as more users join a network and desire the money for purchasing the virtual goods or services. As opposed to gaming on the server of a company, crypto enables a true metaverse experience where users own pieces of a digital world.
Though we outlined some past and potential applications of crypto, the truth is no one knows where this technology will take us. Not many would have guessed that some of the killer applications of the current web would be hailing cars or liking a stranger’s picture with your smartphone. Crypto’s first example of product-market fit was in decentralizing money and finance. The next killer application may be something completely unexpected.