Understanding cryptocurrencies and other distributed ledger technologies is not always easy. Even people who have been into the crypto space for a long time don’t necessarily have a full understanding of the nuances behind the technology.
Cryptocurrencies are often thought of as simple speculation assets or, in the best cases, as real currencies with the potential to revolutionize and replace regular fiat currencies. However, this potential alone isnt the whole reason why one may speak of a crypto revolution.
Upon getting an idea of what blockchain is and does, many people will inevitably ask themselves what’s so revolutionary about it. After all, most of today’s money is already digital and financial services are getting cheaper every day despite still being centralized.
Others still doubt that decentralization is even a good idea at all, pointing at some of its risks, such as the lack of proper failsafe mechanisms in highly decentralized systems.
Nevertheless, the potential of distributed ledger technologies goes far beyond what one would imagine at first glance. It is not simply about having decentralized financial transactions and new digital currencies not bound to the inherent risks of monetary policy.
Cryptocurrencies and blockchain technologies can represent a revolution in financial institutions and organizations, by creating new digital solutions to many of the inefficiencies created by centralized systems, automating countless complex processes while increasing transparency and security.
To understand how this will be achieved, it’s necessary to first have a thorough idea of the ways in which blockchain can be applied and how companies, individuals, and even governments and other institutions will benefit from it.
Why is Crypto so Important?
The term crypto is a generic term normally used to refer to cryptocurrencies, although it can also be used to refer to the concept of cryptography as a whole.
Cryptocurrencies are fully decentralized digital currencies that employ a unique type of software known as blockchain, which allows them to operate in a decentralized manner.
The importance of cryptocurrencies relies mainly on two fundamental factors, their decentralization, and their potential to be the key to true financial inclusion in the world.
Because cryptocurrencies are decentralized, they don’t need to rely on banks, governments, or corporations in order to be regulated, or for transactions to be processed, as the processing is carried out entirely by independent individuals in the community.
These independent processing methods allow cryptocurrencies to be more secure than regular currencies, as they do not have a single point of failure. This means that if one of the nodes processing transactions fails, the system can continue operating.
There are many reasons why having decentralized currencies is important, chief among them is the fact that this can represent a new way of understanding money, in which entities such as central banks no longer have the sole say over things like monetary emissions and interest rates.
Having decentralized digital currencies could be the key to solve money of the problems related to financial inclusion in the world.
As of today, 1.7 billion people around the world don’t have bank accounts or otherwise any type of access to financial services.
This means an inability to use money in any other form that isn’t cash, which represents many problems stemming from security to lack of access to government services, among many others.
A large part of the problem of financial inclusion has to do with the fact that banking institutions don’t have clear incentives to provide their services in places where there is extreme poverty and no institutional presence, as the people in question cannot afford these services.
Cryptocurrencies could provide a cheaper alternative to banking and other financial services such as remittances, without requiring banking institutions, posing themselves as a potential way to reach a world with full financial inclusion.
However, perhaps the most revolutionary aspect of crypto isn’t crypto itself. The most interesting thing about cryptocurrencies is their underlying technology, blockchain, and the wide range of uses they can have outside of the financial sphere.
What is Blockchain?
A blockchain is a type of distributed ledger technology, a software that allows users to carry out transactions of any type while keeping a digital ledger that is recorded across multiple nodes. The nodes are the devices that each user employs to access the software.
Because the data in the ledger is automatically recorded and distributed across the nodes, transactions are automated, safer, and more transparent without requiring any intermediaries or third parties to process and validate them.
What sets blockchain apart from other types of distributed ledgers is the way in which the data is stored, in a structure where data is gathered into a block and then chained into the rest of the ledger, ensuring that it cannot be subsequently modified. Blockchains allow a higher level of decentralization compared to other types of distributed ledger technologies.
What Can Blockchains be Used For Besides Currencies?
Besides serving as the technological basis for various decentralized digital currencies like Bitcoin and Ethereum, blockchain has various practical applications.
It can be used to automatize and decentralize many processes that would otherwise require intermediation.
Hence, crypto innovation isn’t just a matter of having decentralized currencies, but a matter of how these currencies can be applied in creative manners through blockchain technologies to improve efficiency and transparency in several fields.
Some of the fields in which blockchain technology can be effectively applied include:
In the financial field, blockchain can be used to host platforms and provide various financial services more safely and efficiently than with traditional methods. These platforms are usually referred to as decentralized finance or DeFi, and are effectively changing the landscape for banking, trading, and investing.
Through smart contracts, DeFi platforms do not just offer a more efficient digital alternative for making transactions, but they can create innovative digital financial instruments that allow for more flexibility and accessibility when it comes to equities, credits, and other types of assets.
Laws & Regulations
Blockchain can serve as a technological solution to make the exercise of market regulations more effective and transparent.
In the legal sphere, smart contracts, which function as automated programs to make specific transactions when certain previously agreed-upon conditions are met, can be fully legally binding, streamlining abidance to market regulations.
Organizational structures can be programmed through blockchain for various purposes such as the ability to automate processes that would normally require extensive bureaucracy.
For private companies, one of the most interesting uses for blockchain technology is the creation of automated and decentralized incentive systems to increase productivity and efficiency while getting rid of unnecessary bureaucratic processes.
Digital Intellectual Property
We’ve already the potential for blockchain technologies to expand the definition of digital property through non-fungible-tokens (NFTs).
So far, NFTs have been primarily used to define and exercise the property of digital art pieces, assets, and collectibles, but they can also expand the concept of intellectual property in many ways.
NFTs can be bound to digital contracts where the intellectual property of the creative asset they represent is flexibly exchanged, distributed, or granted upon certain conditions. This opens up a new world of incentives for creativity.
Internet, dApps, Social Platforms, and Games
Today we are in the age of Web 2.0, where the internet thrives through user-created content and interactions. However, the platforms in which this content is shared are highly centralized and the companies that run them are oligopolies, holding a disproportionate market share.
Blockchain can evolve the internet into the era of Web 3.0, where decentralization can allow users full control and property over the content they create, regardless of where they publish it. This comes along with the ability to move the content between platforms, trade it and negotiate its property in different ways.
What the Crypto Revolution Will Look Like
The possibility of crypto being the solution to the global financial inclusion problem makes it extremely promising in and of itself. However, when the underlying technology of crypto is taken as a whole, a new world of blockchain-based applications and technologies opens up.
On their own, each of these applications of blockchain technology can add great value to the experience of users, paving the way for innovation. Upon mass adoption, crypto and blockchain ecosystems can become fully interconnected, with various degrees of flexibility and decentralization.
Blockchain organizational solutions in companies can connect with social media platforms and applications into a seamless global system that incorporates financial services, social interactions, telecommuting, and entertainment.
Furthermore, as new ways of defining digital property through smart contracts become legally binding, huge incentives for creativity will emerge.
Since blockchain protocols are for the most part open source, these incentives can lead to incredible user-developed innovations, all adding up to the Web 3.0 revolution.
Only time will tell what types of technological breakthroughs and revolutionary blockchain projects will be created from blockchain technologies. However, given all the innovations and resources that are currently emerging, it is reasonable to expect big things.
The future under the crypto revolution will bring us closer to the ideal of a fully interconnected world, with true financial inclusion, more democratic financial institutions, and no barriers to capital mobility, where everyone gets a real opportunity to create and profit from their creations.
This will all be connected through high-end technology with a new internet system where blockchain and cryptocurrencies are the base of user interactions and transactions.
Although blockchain technologies are still in their infancy and developers are still figuring out ways to fully implement them into services that create great value for users, there is no doubt that they have the potential to revolutionize the digital world as we know it.