The crypto market is booming once again. After a 2-year long bear market, prices are skyrocketing far and wide, with Bitcoin leading the charge. In November, Investopedia reported that prices of bitcoin rose 111% and they seem to be increasing even further.
Bitcoin has tripled in value since it raced past its previous all-time high of $20.000. This has pushed investors, retail and institutional, into a buying frenzy. Everyone is trying to buy bitcoins by any means necessary.
With that said, the impact of cryptocurrencies on the economy goes much further than just the profit opportunities they present. The blockchain technology they are based upon has managed to disrupt almost every industry known to man.
Finances, healthcare, insurances, real estate, and supply chain – blockchain has managed to render each one of these sectors more efficient and cost-friendly, to the benefit of everyone involved.
However, to understand how this is possible, we must delve a bit deeper into the characteristics of this technology. To this end, we must explain its main advantages and its use cases.
Let’s get started with a quick overview.
Introduction to blockchain technology
Blockchain was first introduced to the general public with the release of Bitcoin, way back in 2009. This decentralized distributed ledger was initially used to record and verify the transactions of the Bitcoin network. It provided us with the first decentralized digital payment system, independent from banks and governments.
This simple concept was enhanced even further in 2015 with the release of the Ethereum network. Ethereum introduced us to smart contracts, self-executing applications that execute when certain conditions are met.
This evolution of the blockchain allowed us to create our own cryptocurrencies, jumpstarting the ICO craze of 2017, and driving the prices of cryptocurrencies through the roof.
With that said, smart contracts also introduced us to dApps, which are one of the main ingredients of decentralized finance. Furthermore, they also allow us to tokenize anything of value via non-fungible-tokens on the blockchain.
As such, the decentralized nature of the blockchain and its inherent properties bring numerous benefits to today’s economic environment.
Blockchain use cases impacting the economic environment
Blockchain has seen numerous use cases emerge over the years, many of which have managed to improve the traditional financial ecosystem.
Bitcoin as the ultimate store of value
In the past year, the narrative of Bitcoin being the ultimate store of value has entered the mainstream line of thought.
You see, Bitcoin is a deflationary currency by design. Two characteristics define it as such:
- It has a limited maximum supply od 21 million coins.
- It undergoes a reward halving mechanism every 4 years.
As a result, Bitcoin becomes increasingly scarce over time, which increases its value. Furthermore, compared to other traditional stores of value such as gold, it’s much easier to buy, store, or transfer.
Governments have responded to the economic crisis resulting from the pandemic by injecting trillions of freshly printed FIAT money into the ecosystem. This has diluted the value of money, driving investors towards Bitcoin.
Blockchain technology allows us to create decentralized financial products similar to those offered by traditional financial institutions. The DeFi ecosystem, allows users to access a completely decentralized ecosystem, where the only intermediary is the smart contract.
Users can enter a trustless financial system and enjoy products such as lending, staking, and interest accounts, without the hassle of opening a bank account.
In the past year, DeFi has grown by more than 5000%, which shows us that this is more than just a fad. With smart contracts blockchains being upgraded to bring faster and cheaper transactions, we can expect DeFi to grow exponentially in the following years.
Cryptocurrencies as a currency
One of the most important factors in the main adoption of cryptocurrencies is their usage as a digital currency for acquiring goods and services. The more people use crypto for daily purchases, the less volatile the market becomes.
Fortunately, this facet of cryptocurrencies is worked upon on multiple fronts, including:
- The proliferation of stablecoins – stablecoins are cryptocurrencies that are pegged 1 to 1 to traditional money. They avoid volatility and provide a safe blockchain environment for secure, fast, and cheap transactions. Blockchain has been incredibly important for protecting bitcoins from hackers.
- Blockchains are becoming faster – thanks to newer and improved consensus mechanisms like PoS, blockchains are able to treat an increasing number of transactions per second.
- Payment gateways – these crypto on-ramp solutions allow merchants to seamlessly accept cryptocurrencies as payment. At the same time, they can avoid the volatility of cryptos such as Bitcoin by directly receiving FIAT.
- PayPal and other payment processors – since March 2021, PayPal allows users to pay with crypto. Should this trend continue, the number of users spending crypto will increase immensely.
Only a decade after its inception, blockchain has brought the financial revolution humanity sorely needed. While cryptocurrencies aren’t going to replace the current financial system anytime soon, they provide a decentralized alternative that will allow us to improve it going further.
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