What you need to know about cryptocurrencies and how they will impact our future
One of the biggest strengths of crypto is that it represents many different things to many different people. Some people believe that Bitcoin is the ultimate store of value, not just for retail and institutional investors, but also for central banks. Others see an opportunity in the capabilities of Ethereum and the increasing popularity of decentralised finance (DeFi).
In the Webinar series “Is it the Right Time to Reconsider Crypto?” Da Hongfei, the founder of blockchain-based platform Neo, CEO of Onchain, an enterprise blockchain solution provider in China (and sister company of Onchain Custodian), and Chairman of Onchain Custodian, deep-dived on the history of cryptocurrency, the current developments in the industry, and how this space will impact the future.
Bitcoin’s stages of maturity
While Bitcoin was first deployed in 2009, it was in 2011 when the media began paying attention and quickly characterising the Cypherpunk-centric, censorship-resistant money as a tool to escape regulation. People then started talking about Bitcoin as a decentralised global payment system where anyone, anywhere in the world can transfer value using blockchain technology.
As it continuously transforms the foundation of financial markets by going through its stages of maturity, Bitcoin’s narrative has evolved from censorship-resistant money to payments, and finally “store of value.” Despite this, the core principle of using cryptographic technology to build economies and communities unsusceptible to the outdated arbitrary rules remained persistent, inspiring innovations we are now seeing today.
A new paradigm of finance: DeFi
The year 2015 saw the launch of Ethereum, the smart contract sibling of Bitcoin aimed at adding more functionality to the blockchain. It gradually rose to prominence and became one of the busiest blockchain networks because of decentralised finance (DeFi), a form of composable finance without an intermediary. When DeFi came into play, people started earning money from either building Ethereum applications for lending or borrowing, setting the stage for crypto’s next narrative: the ability to be your own bank. In Da’s succinct words, “My metaphor for Ethereum is that it is the engine. It is the operating system for a programmable economy like Bitcoin is the virtual gold in store of value. Ethereum is like the iOS system but with no private and single entity like Apple behind it.”
What DeFi enables is a borderless and permissionless financial system. For example, it allows users to exchange one crypto for another amongst themselves in a decentralised way. There are also open-source protocols that allow one to borrow, and earn interests on deposits which can generate a commonly higher yield compared to traditional banks. Furthermore, the derivatives and innovations emerging in this space arguably have no equivalent in current traditional financial markets.
Web 3.0 and the Metaverse
Da believes DeFi will overtake centralised finance (CeFi) eventually. The increasing momentum of digital assets in financial markets calls for user-owned and controlled data under an efficient and more secured decentralised internet, which is the essential goal of Web 3.0. To quickly recap, Web 1.0 was the ‘read-only’ static websites that were purely informational, and not interactive in any significant sense. Web 2.0, on the other hand, is about user-generated content, such as Facebook and Twitter. It facilitated interactions between web users and sites which in turn allowed users to communicate with other users. But it also has its own set of problems. In Web 2.0, the users do not own their content or the platform. They have limited influence over these platforms and the platforms themselves are in different data silos. The era of Web 3.0 is the future of the web where users have autonomy outside of centralized control and services essentially making users responsible for their own data making it the next generation of the internet.
“We are now in the phase of Web 3.0 and Metaverse,” says Da. Metaverse being an alternate digital reality where users can work and socialize, and more recently spend recreational time, especially in gameplay. It is a virtual space where people are represented by digital avatars.
The elements of Web 3.0 are interoperability, governance, and digital assets. One of the prominent innovations in Web 3.0 is the decentralised autonomous organisation (DAO) similar to “Ltd.” in the current market but with the substantial difference that DAO is not enforced by the company law but rather by code and logic behind a smart contract. “DAO is a new form of cooperation that will be very popular in the future,” says Da Hongfei.
An essential part of Web 3.0 will need native money or value, “and Bitcoin and Ethereum could be one of them,” Da adds. As blockchain developments provide the technology to facilitate exchange and ownership, tokenisation is still needed to convert assets and rights into its digital representation.
It is also important to understand the distinction between cryptocurrencies and tokenised assets in terms of their utility in exchange vehicles and fungibility across networks with interoperability issues. Tokenising an asset can create a business model with fractional ownership. In Web 3.0, every component will be backed by an economic system that will have a token behind it.
With the invention of virtual reality and augmented reality as virtually immersive experiences, Da Hongfei believes there will be fewer people producing work in the real world and will lose their job in today’s sense. “I believe that in several decades from now, the metaverse will become as big as today’s physical world and the economic transactions in the metaverse may even be higher,” Da Hongfei states.
The market and lifestyle disruptions experienced at the height of global lockdown due to COVID-19 are now seen not just as a temporary inconvenience but an opportunity to focus on how we can shift existing systems to move online. Big financial institutions are already embracing the technological shift from physical space to the digital sphere, and as it stands now, it is but a matter of finding ways to bridge the actionable present to the future of virtual reality in the metaverse.
The best way to participate
Although still, at the nascent phase, blockchain technology is already paving the way for the development of business models that push for a participative economy. Technology is, in many ways, a great equaliser. While some people will choose to remain in the ‘live verse’ rather than the ‘metaverse’, the immersive experience of the virtual world adds to the optimisation of places we could explore. “One of the most promising aspects is the opportunity to build alternative institutions that enable the granting of ownership rights which results in the empowerment of individuals,” says Da.
The story of crypto is one that gives broader access to economic activities that used to be only available to a narrow group of capital-rich players. At present, investors and consumers are seeking the most efficient financial services. While DeFi is still quite complex for an average customer, when each participant, big players and otherwise, come together to have a better understanding of how they fit in the DeFi space, it could result in a more interconnected relationship that could bring about a more cohesive and engaging digital world. Da Hongfei puts it briefly, “We are experiencing a very exciting movement. We are witnessing the biggest wealth migration from the physical world to the digital realm.”
Outline
00:00 — Introduction
03:48 — Why Bitcoin is the first of its kind
10:06 — Cryptocurrency status and the next narrative
19:04 — A new paradigm of finance: DeFi
25:21 — Web 3.0 and Metaverse
32:57 — What is the best way to participate
