Cryptocurrency- Beyond Currency
Originally published at marketprotocol.io.
When Bitcoin began with its genesis block on January 3, 2009, pseudonymous creator Satoshi Nakamoto embedded the following message: “The Times 03/Jan/2009 Chancellor on brink of the second bailout for banks.”
In the height of the global financial crisis, this single line introduced Bitcoin to the world as a radically new form of currency, poised to disrupt the global financial institutions responsible for the harm endured by global citizens throughout the course of the recession.
As such, many of Bitcoin’s early supporters held the belief that the true potential of Bitcoin (and cryptocurrency in general) was to instill a revolutionary, global monetary system that would completely eliminate the role of the banks, governments, and investment banks that manipulated traditional financial systems at the peril of its citizens.
With this philosophy at the core of the cryptocurrency community, much of the discussion and activity to date within the space has been aimed at increasing adoption among merchants and consumers. Nearly a decade old, Bitcoin has achieved significant growth. The first commercial exchange of Bitcoin didn’t take place until over a year after its inception, when a user by the name of Laszlo offered to pay 10,000 BTC for two pizzas on May 22, 2010.
Following this landmark purchase, individual e-commerce merchants began to accept BTC. In the following years, merchants and consumers were using cryptocurrency to exchange things like online accounts, overseas goods, virtual assets, and even illicit goods.
The comprehensive network of trust utilized on Bitcointalk (where a majority of the activity took place), combined with the ease and anonymity of sending cryptocurrency made the use of BTC possible, and sometimes preferable, to its fiat alternatives.
Today, Bitcoin and other cryptocurrencies can be used to purchase just about any good or service. Cryptocurrency debit cards and crypto payment processors have enabled the use of cryptocurrency for practically any desire.
As a currency, a number of groups and niches have now seen significant adoption of crypto. Remote freelancers, tech entrepreneurs, and citizens of failing local economies — such as those located in Venezuela — are three examples of groups that frequently use crypto as a currency. E-commerce, specifically for virtual assets and items, has also seen significant adoption of cryptocurrency.
However, the growth in usage of Bitcoin has been far outpaced by the growth in price appreciation and worldwide exposure. Bitcoin grew to highs of US$20,000, has been addressed by many of the most influential individuals worldwide, and its underlying blockchain technology is being explored by many Fortune 500 corporations.
Just years ago, speculators suggested that these high values would surely mean the world’s fiat currencies would see massive displacement, even elimination, in favor of cryptocurrency. Of course, this is far from the reality, and while only time will tell if cryptocurrency can replace the fiat currencies of the past and present, it can be assumed that such a revolution is likely decades away, at the earliest.
This discrepancy between adoption and price appreciation has led many skeptics of crypto (most notably economists such as Paul Krugman) to deduce that cryptocurrency is worthless, a scam, a bubble, and so on. However, this conclusion ignores a major component of cryptocurrencies: the utility they can provide.
Cryptocurrency is going beyond just a currency, as different projects and initiatives are now enabling participants to use their coins and tokens to encapsulate a wide variety of use cases. With that, the growing divide between adoption and appreciation is not symptomatic of a bubble. Rather, this trend suggests an evolution: the potential for cryptocurrency to provide numerous utilities wildly expands its global potential beyond its role as just a new medium of exchange.
Blockchain 2.0
In 2013, some activity focused on the development of second generation blockchain applications began within the cryptocurrency community. At its core, 2.0 represents a concept that data — beyond just currency — could also be transacted on a blockchain.
The first manifestation of this evolution was Mastercoin, a protocol layer that allowed the creation of assets upon the Bitcoin blockchain, which launched its campaign in July of 2013. Colored Coins and Counterparty both followed.
The idea behind Colored Coins was to attach real-world assets to highlighted or colored portions of BTC. NASDAQ even built upon this Colored Coins idea and spent time recording asset transactions tied to Bitcoin starting in 2015. Counterparty was essentially an improved alternative to Mastercoin, featuring enhanced user-friendliness and a broader scope.
Colored Coins has faded, but both Mastercoin (now called Omni Layer) and Counterparty are still active as protocols on top of Bitcoin. Both Tether and MaidSafeCoin are Omni assets, and a few of the many assets built with Counterparty include Bitcrystals, Pepecash, and Foldingcoin.
However, as you may have guessed, the real transition to blockchain 2.0 did not happen through Bitcoin, but through an alternative blockchain, one geared specifically for the transaction of data and assets. This is the Ethereum network — the blockchain that comes to mind when most think of “blockchain 2.0”.
Although Ethereum was not the first blockchain to enable smart contracts (asset creation through the protocols listed earlier could be considered as such), it was the first to enable them in a way that was much more simple for users to interact with and build upon. It also massively expanded the scope and potential of what could be done with said contracts.
Ethereum mainnet went live on July 30, 2015. Three years since its launch, thousands of applications have been developed on the blockchain through the use of its smart contract functionalities. These applications, referred to as “dapps” (short for decentralized applications), provide a number of services, such as decentralized exchanges and blockchain games.
Perhaps more exciting, however, are some of the thousands of tokens created through Ethereum. Numerous projects have enabled a wide variety of use cases through interaction with Ethereum, and have attached these uses to tokens in the form of utility tokens.
Every day, different Ethereum tokens are being used for activities such as cloud computing, mobile data exchange, consumer counterfeit protection, logistics tracking, peer-to-peer lending, trustless gambling, and so much more.
MARKET Protocol’s MKT token is a great example of a utility token built upon Ethereum. MKT is used to create contracts on the protocol. This activity allows individuals to participate in derivatives exchanges in a secure, trustless manner. The contracts can also be used to hedge against volatility, to gain price exposure to assets beyond the Ethereum network, among other possibilities (many of which will be explored and discovered by the protocol’s users).
In general, MKT and other utility tokens therefore act as catalysts to this evolution of cryptocurrency. The market capitalization of Bitcoin and cryptocurrency as a whole are no longer reflections solely of their potential to disrupt global finance and replace fiat currencies. While this would have been the case throughout the first four or five years of crypto, price valuations today reflect the potential for cryptocurrencies to create new and previously impossible opportunities for citizens worldwide.
The Next Generation
The next generation of blockchain developments is sometimes referred to as “blockchain 3.0” — the third evolution of cryptocurrency.
Cryptocurrency in general, since the advent of Bitcoin, has carried with it a number of issues. These issues have only become more prominent and inhibiting with the growth of these blockchains. Perhaps the most prominent issue that currently plagues the progress of blockchains is the interoperability issue.
The interoperability issue consists of two key components. Blockchains are akin to independent, walled-off communities. While each community has its own qualities, ambitions, and merit, these values do not interact. The two components are as such:
1) Communities (or blockchains) cannot interact with one another. Information on Ethereum cannot be communicated with Bitcoin. NEO cannot be exchanged for Stellar tokens. Litecoin cannot be used for Steem Power.
2) Each community is barred from the outside world. Each Bitcoin block does not include the current weather, the scores of the baseball game, the price index of oil, and so on.
As it stands, what is possible in the virtual world through the utilities of different blockchains and developments encompasses endless capabilities and the creation of previously unthinkable digital activities. However, these possibilities cannot integrate with one another — they can’t communicate or be transferred to different blockchains. Beyond this, there is very little, if any, translation to the real world.
With that said, the leading developments of blockchain 3.0 focus on connecting the hundreds of blockchains and their respective developments with one another, and also with the physical world.
In the context of markets, the protocol that makes up MARKET Protocol does just that. Through the use of oracles, such as Chainlink and Oraclize.it, MARKET Protocol is able to interact beyond the Ethereum blockchain — with other blockchains and protocols that make up this space, as well as systems that populate the physical world.
As a result, MARKET Protocol empowers its users to gain price exposure to digital assets across various blockchains and traditional securities alike. For the first time, traders can utilize their Ether and ETH tokens to interact with traditional markets. In this manner, MARKET Protocol represents an initial bridge between traditional and crypto markets.
The next era of cryptocurrency comes when the interoperability problem is overcome, and the MARKET Protocol is leading as a pioneer to usher in this next generation.
