Blockchain and crypto: Hype or financial revolution?
Launched back in 2009, the Bitcoin network has swiftly become front-page news. Since then, the cryptocurrency market has considerably surged. At the same time, blockchain technology has also been introduced to greater audiences, serving as an infrastructure for many digital assets. However, even gaining considerable attention from global communities, cryptocurrencies and blockchain are still considered to be a controversial technology that is not defined, or fully understood by many people. Some of them believe that blockchain and crypto are promising integral parts of the Industry 4.0, while others associate them with one more useless hype, or even don’t see any difference between crypto and blockchain and ignore their existence.
Thus, are blockchain and crypto hype or hope? To answer this question, let’s explore some use cases related to both of them. Before we start, it should be noted that blockchain is a technology, while a cryptocurrency is a digital asset that uses blockchain as an infrastructure. To clarify, blockchain was proposed in 1991 by researchers Stuart Haber and W. Scott Stornetta with a primary purpose to combat document forgery. However, it was not that widely-known before Bitcoin was introduced as an asset that leverages this technology. Read more about blockchain and cryptocurrencies features and advantages here.
Hence, let’s start with one of the most common use cases of the blockchain — Bitcoin network.
Peer-to-peer payment system
Bitcoin network acts as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party”. So, what are the advantages? Here are the major once:
First of all, due to its underlying blockchain technology, the Bitcoin network allows the participants to conduct peer-to-peer transactions online without relying on any third party. This way, the participants are fully in charge of their money, avoid double-spending and other custody risks.
One more appealing future of the Bitcoin network is that in the case of peer-to-peer transactions, you are not required to share any personal information. Obviously, nobody will compromise your personal info and monitor your payments, if your address-identity connection is unknown.
Furthermore, all the transactions are publicly recorded within a blockchain and secured by complex encryption algorithms, therefore, they are hard to fake and easy to be audited.
Last but not least, in terms of international transactions, Bitcoin is often a swiffer solution with lower fees in comparison to many traditional institutions.
At the same time, although the Bitcoin network is the most widely-known decentralized payment system, these features are also typical of some other networks, but vary depending on their purposes and underlying technologies.
By the way, some well-established financial institutions already adopt blockchain solutions to facilitate transactions. For instance, Bank of Canada launched Project Jasper in 2016, which was aimed at the development of the wholesale payment system based on a distributed ledger technology. The project enabled the clients of Bank of Canada to conduct peer-to-peer cash swaps that resulted in instant settlements.
Thus, it’s obvious that payment systems based on blockchain facilitate and improve the payment process, solving some of the inefficiencies of traditional money.
However, being yet a not regulated industry, cryptocurrencies are often accused of being ‘illegal’ money of the darknet markets and speculators’ heaven with a huge volatility rate and pump-and-dump schemes that result in total instability of the digital assets values. One more argument against the global adoption of cryptocurrencies is their infrastructure vulnerabilities to both external (hack attacks) and internal dangers (technical issues).
Yes, an immature crypto industry indeed bears risks, therefore, we highly recommend you to carefully choose your trading platform, study the market behavior, be aware of trading fundamentals and always do your due diligence while investing and using crypto. This way, you’d rather benefit from a young promising market.
Thus, let’s discover some more use cases of blockchain and crypto.
Day-to-day means of payment
It’s also worth mentioning that cryptocurrencies are not so far from our daily life as they may seem to be. They are simply digital money that you can buy and sell, hold, and spend on goods and services. Surprised?
A broad variety of merchants around the globe already accept payments in crypto. Still are not sure? Then just think about KFC Canada that launched a new product called “Bitcoin Bucket” that can be bought with BTC only.
You may say that 2018 was a hype year for the crypto world and KFC just followed a trend. Reasonably, but if you have a look at the map of crypto merchants and ATMs, you’ll make sure that KFC was just one of the adopters among the plenty of companies that accept crypto.
Thus, holding an edge over fiat money in some aspects, cryptocurrencies are gaining popularity and are already used in day-to-day life. But blockchain and crypto have other more complex purposes than being an alternative monetary system and means of payment.
Decentralized applications (DApps)
Roughly five years after Bitcoin emerged, a Russian-Canadian programmer Vitalik Buterin introduced Ethereum. This digital asset also became the second leader (after Bitcoin) in the market due to its outstanding features.
So, the major purpose Ethereum network is to act not as an alternative monetary system (although it is possible), but as a platform to develop and run decentralized applications (DApps). Read more about DApps here.
Definitely, the Ethereum network piqued the interest of global businesses and now DApps are used in a variety of industries. Here are some of the use cases:
Online gambling services: fair game
Blockchain ensures transparent and fair casino games, as all the algorithms of the system used by online decentralized casinos can be reviewed by participants. Therefore, in contrast to offline gambling, the fates of the players no longer depend on any third party. One of the well-known examples of online gambling services is the PokerKing app.
Music industry: direct interaction
Some apps in the music industry also leveraged blockchain to improve the services. To illustrate, Mycelia for music enables musicians to avoid middleman interference (for example, labels and streaming services) while sharing the music, hence, they establish a more direct relationship with the audience within the platform.
Supply chain management: each product has a story
In supply chain management, blockchain technology helps companies reduce costs and ensure more effective and transparent tracking of goods. For instance, the Provenance company is specialized in tracking goods via radio-frequency identification (RFID) tags that are recorded within the blockchain. Thus, each time the product ‘changes hands’, the information is added into the blockchain. Therefore, the end customer is able to verify the origins of the product and see each step of its journey via a mobile app.
These are only a few examples of DApps presented in the market, but you can easily notice that they power transparency and security that are, unfortunately, not typical of many traditional services.
At the same time, we cannot deny that many DApps are still cannot be scaled and integrated with other services. It often results in lower usability and limited functionality. It also might be too complicated to update these apps and fix bugs within them due to their complex architecture. One more possible drawback is the inability to reset user password (no authority controls and holds your personal information in DApps, but it depends on each DApp). Therefore, it is necessary to research carefully the apps you choose, taking into account your needs and priorities.
Decentralized financial applications (DeFi)
Finance area is also disrupted with DApps. Currently, the sector of decentralized financial apps (DeFi) is rapidly growing: “In one year, the total value of Ether (ETH) locked in DeFi markets has increased from $317 million to over $1 billion” (according to Cointelegraph).
DeFi are applied in an array of services from remittances to trading and investing. For example, decentralized lending services are stealing the show nowadays, often providing more accountability, transparency, and lower costs to the end customers, giving them swiffer access to the service (but make sure that an app is truly decentralized if it is important to you!).
A good example is the Compound app allows customers to lend crypto and earn interest on it, or borrow assets against collateral. An app contract matches borrowers and lenders automatically and also adjusts interest rate based on supply and demand.
At the same time, regardless of all the advantages and smart functions, it should be noted that DeFi apps still have room for improvement to compete with legacy financial systems. For example, more robust stress testing in terms of sharply growing customer base, protection against hack attacks and internal stressors. Furthermore, since the industry is still maturing, an issue of regulatory standards is still open for debate and improvement. Thus, carefully explore a DeFi before using it.
Anyway, decentralized finance apps have already shown incredible potential for development and are being improved at a fast pace. By the way, Bizonex will list all major assets related to DeFi applications soon!
Tokenization of services: a business model of the future
Last but not least, it’s important to mention an upcoming trend of the digitized world — tokenization of online services. Global businesses are going online, especially in terms of coronavirus pandemic. Loyalty programs, telecom services, gift cards, and many more are becoming rather online digitized values. These values are already becoming global and a kind of universal, and obviously, raising the necessity of the global ecosystem to share, use, and trade them.
As you may understand, cryptocurrency is a good example of the universal value that is recognized, traded, and used around the globe. Thus, the tokenization of services of global businesses is likely to create a great synergy of the digital world and real economy sectors.
Why is it so great? Simply, it is a win-win scenario. This way, businesses and their clients get an additional value of tokenized assets with obvious advantages of storing, transferring and trading. At the same time, cryptocurrency and blockchain are introduced to well-established communities of these global businesses that means mass adoption and utility of digital assets.
Although tokenization is a complex process and also has some limitations, we carefully observed this trend and consider it to be a viable business model of the foreseeable future. Thus, developing Bizonex, we are aimed at establishing liquid markets for tokenized services, as well as (in some cases) conducting the tokenization itself. Read more about tokenization, its actual prospects and limitations, and the ways Bizonex will contribute to this trend here.
Thus, it can be concluded that blockchain and cryptocurrencies revolutionized plenty of areas during their short life. They gained considerable attention from global communities, businesses, and institutional players and already are applied by ordinary people.
At the same time, it is obvious that the industry is still maturing and, undoubtedly has limitations and rooms for improvement. However, we firmly believe that blockchain and crypto literacy and throughout research of the market are the keys to grab the profits of these technologies and help them revolutionize the world. Thus, start with yourself first, and you’ll see the world changing!
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