How to Understand the Crypto Sectors
The crypto sector has evolved dramatically in the past three years. Most notably, we’ve seen the development of decentralized finance (DeFi), non-fungible tokens (NFTs), gaming, metaverse, and Web3. These terms will become part of the mainstream vernacular with time, so let’s spend some time to understand each of them and how it’ll affect our long term investing plans.
DeFi enables users to create and trade financial products without relying on a third party. This eliminates the need for middlemen, which can reduce costs and increase efficiency of markets. NFTs are unique digital assets that can be used to represent real-world objects. This opens up new possibilities for art, gaming, collectibles, and more. Play2Earn andMove2Earn models within the crypto-gaming sphere have led to apps and games that people can play and make money in the process. Metaverses have existed for awhile, but blockchain technology takes their concepts to the next level. Web3 is a term used to describe the decentralized web. It’s envisioned to be a space where users have control over their data & interactions, and where internet business models are less reliant on servers and service providers.
The commonality between all these different sectors within crypto is basically only that they’ve been enabled by the blockchain. Each space will bring its own unique benefit, and it’s important that we take the time to carefully examine each piece individually before moving forward with our suggestion.
NFTs, or non-fungible tokens, are Blockchain-based digital assets that represent unique items. Unlike traditional cryptocurrencies, which are all interchangeable (i.e. fungible), NFTs can represent anything from artwork and collectibles to in-game items and virtual real estate.
Because NFTs are non-fungible, each one is unique and cannot be replaced by another identical token. This makes them ideal for representing items of value that are also scarce, such as limited edition artworks or one-of-a-kind in-game items. One of the key benefits of NFTs is that they can be easily verified and authenticated due to their link to the Blockchain.
NFTs implementation today is mostly limited to images, but anything that can be stored as data can conceivably be stored as an NFT. For example, Snoop Dogg, the infamous West Coast rapper, just partnered with Clay Nation to release limited edition pitches and music as NFTs on the Cardano (ADA) blockchain. Since NFTs can distribute royalties directly to artists upon transfer of ownership, it’s not hard to imagine a world where artists are paid directly for their creations, whether they be videos, music, or anything in between.
Today, the most popular NFT platforms on the market are probably OpenSea and the newly launched CoinBase NFT marketplace. To connect with OpenSea, just load up a MetaMask wallet with some Ethereum, Polygon, or Solana, and begin exploring their collections. Be cautious, though. Art can be quite subjective!
Banks are only required to hold a fraction of the capital that is actually deposited inside of them at any one time. The rest of this can be lent out, and deposited in interest accruing investments. DeFi allows you to become part of a decentralized bank. DeFi apps are typically hosted on websites which communicate with blockchain wallets. When a user deposits funds inside a smart contract with a given DeFi app, it’s like a contract with a bank, similar to a checking or savings account. DeFi apps can give much higher APY than traditional savings accounts, though.
For instance, let’s examine if someone would like to use some Solana (SOL) that they have in a Phantom wallet on the DeFi app Raydium. Let them first connect the Phantom web wallet to the Raydium decentralized application (dapp). After connecting to the dapp, they’d transfer a small portion of funds from the native SOL to also have USDC (a stablecoin representing USD) in their wallet. Once their wallet has both SOL and USDC, they can place equal amounts (in dollar terms) into a liquidity pool. Now, every time someone swaps between SOL and USDC, they’ll earn a portion of the transfer fee in both SOL and USDC.
This is just one potential application of DeFi. Users can also commit option plays based on being in-the-money or out-of-the-money between different cryptocurrency pairs on Uniswap V3, as well as be rewarded for providing liquidity. Users can stake their crypto coins on applications like AAVE and earn steady rewards, as well as borrow against them at any time. If you had enough capital, you could deposit your capital into a program like AAVE and constantly stake it, and only against it as you needed. This way, you’d be highly rewarded for keeping your funds on their platform. On applications like yearn.finance, one can automatically distribute liquidity to many different pools spread out throughout the crypto ecosystem.
GameFi is a new type of gaming platform that allows users to play games and earn rewards in cryptocurrency. The concept is simple: players can challenge themselves in popular games and earn points based on their performance. The amount of crypto earned varies by game and player’s skill, with more lucrative challenges awarding more valuable prizes. Players can cash out their earnings for Bitcoin, Ethereum, and other cryptocurrencies. Now, not only can you have fun playing your favorite games, but you can also earn cryptocurrency while doing so!
Play to earn refers to earning rewards in a game through playing the game, rather than purchasing items or power-ups. In Axie Infinity, players can earn rewards by playing matches and completing tasks in the game. These rewards can be used to purchase new Axies, infinity stones, and other items in the game. Play to earn is a great way for players to progress in the game without spending money on microtransactions.
One of the biggest recent hits within the cryptocurrency industry has been Step’n, which is a dapp that functions under the move to earn model. In Step’n, users download an app and buy an NFT which doubles as ownership of an actual pair of shoes. These shoes track movements of either walking, jogging, or running and reward players with Green Satoshi Tokens, or GSTs. These GSTs can then be staked or swapped just like any other cryptocurrency.
The metaverse is a proposed future technological tool that would allow users to interact with each other and 3D environments in a virtual space. The term was first coined by science fiction author Neal Stephenson in his seminal work Snow Crash. In the book, the metaverse is a three-dimensional virtual world that exists parallel to our own physical world and can be accessed through computer networks.
There are various opinions on what the future metaverse will look like, but many people think that it will be somewhat similar to today’s popular online world Second Life. In Second Life, users create avatars (virtual representations of themselves) and can interact with other avatars and 3D environments in a variety of ways, like buying furniture or a house, having a job, and meeting new and interesting people.
Today, the metaverse might seem clunky and uninteresting to some. But that’s only thes case if you can’t imagine how the technology will develop with time. For example, if it were 1997, would you be someone who would doubt the internet because you can’t be online and use your phone at the same time because of dial up? Metaverses like Decentraland, The SandBox, and Spatial.IO are leading the charge in the metaverse space.
Web3 is a term often used to describe the third wave of the internet, which is built on top of decentralized protocols. The first wave of the internet was characterized by centralized services like AOL and Prodigy. The second wave was marked by the development of websites and the widespread use of browsers. And the third wave is being driven by the development of decentralized applications (dapps) that run on top of blockchain technologies.
This decentralized layer of the internet belongs to cryptos like Polkadot, which is responsible for the interoperability of different crypto assets between one another; Chainlink, which is a crypto oracle which enables universal smart contracts; and Filecoin, which uses the blockchain to store data on a decentralized storage system. This is just a small fraction of the potential Web3 currencies currently on the market.
There are solutions in decentralizing the Internet-of-Things (IoT), ad-blockers, rendering, AI, permanent data storage, and lots more that won’t make this list. When Satoshi solved digital scarcity with Bitcoin, he unlocked a wave of innovation that will take decades to sort itself into full-fledged businesses.
Crypto is going to have an untold impact on our lives. Nearly every month, there’s a new platform or coin springing up which claims it can revolutionize the world. It’s a lot to take in, and can certainly get overwhelming. Think you’ve got a hunch on the next big crypto before it takes off? Let us know what you’re HODLing in the comments below!
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