Blockchain technology has been around for more than a decade now. The tech itself managed to revolutionize not only finance, but almost every industry known. Besides, it remains a divergent technology for most mainstream investors or consumers.
Blockchain is gaining more and more traction over time, and everyone will probably need to have a basic understanding of it. This is an excellent reason to learn more about blockchain and cryptocurrencies, as well as their properties.
This article will provide you with in-depth knowledge about cryptocurrencies. It will cover their impact on the global economy, their advantages, and their drawbacks. Stick around if you want to learn why many think Bitcoin and its peers are the future.
Blockchain Technology and Cryptocurrencies
In 2009, Bitcoin put blockchain at the forefront of the tech world. Coming out of the banking crisis of 2008, Satoshi Nakamoto wanted to change the financial world. He felt that banks had too much control over people’s assets and that it needed to change.
His answer? Bitcoin. This decentralized peer-to-peer payment network was set to revolutionize the financial world. For the first time in history, individuals had access to a completely trustless currency. It had no central authority for its issuance or custodianship.
Bitcoin is a cryptocurrency that uses a decentralized ledger technology to record transactions. As such, it allows individuals to transfer value over the internet without the need for intermediaries. What’s more, it follows a deflationary model with a capped maximum supply of 21 million units and a predictable issuance algorithm. To top things off, it provides users full ownership of their assets, through cryptographic private and public keys.
This allowed Bitcoin to become a popular store-of-value asset. Institutional and retail investors recognized it as a better ROI compared to traditional financial instruments.
As a result, thousands of different digital currencies appeared on the market. Each of them tried to solve different problems in the existing financial world. Ethereum is the second most significant advancement in blockchain tech after Bitcoin.
Ethereum was the first smart contract platform to hit mainstream markets. It allowed developers to run decentralized applications (dApps) on the blockchain. Anyone could create a token on the Ethereum network. This provided users with alternative cryptocurrencies, commonly known as altcoins.
Altcoins allow traders to buy cryptocurrency and make potential profits. More importantly, when paired with dApps, cryptocurrencies gave birth to a new financial industry — decentralized finance (DeFi).
Cryptocurrencies and Their Impact on the Global Economy
Cryptocurrencies impacted the financial world, first and foremost. These assets facilitated remittances by providing near-instant transfers at negligible fees. Countries that couldn’t access reliable banking infrastructure could benefit from cryptocurrency technology and transfer value securely.
That said, blockchain technology affected various industries, some more obvious than others. Let’s take a look at some major sectors that blockchain tech disrupted.
Finance and Banking
Finance is the most apparent industry for cryptocurrencies to have an impact on. After all, these assets are valued as real money and traded on exchanges, like the CEX.IO mobile app for cryptocurrency trading.
Moreover, DeFi offered individuals an alternative to the traditional financial world. Through decentralized applications, users can trade cryptocurrencies without the need for a third-party entity.
Decentralized exchanges and lending platforms provided users with advanced financial products. These were previously that were only available to elite investors. Modest users can now provide liquidity to these protocols and start earning interest and accumulating yields.
Additionally, the advent of stablecoins disrupted cross-border money transfers. These assets pegged to fiat currencies allowed users to veer away from the highly volatile BTC and altcoins. At the same time, it allowed them to benefit from blockchain’s properties like low fees and fast transfers.
Blockchain’s immutable transactions have revolutionized multiple industries. For instance, the supply chain industry can use blockchain technology to counter the counterfeit industry in clothing or electronics.
Another great example is the Internet of Things, where IoT devices can use blockchain to communicate and register data.
Healthcare and Education
Blockchain is a great addition to healthcare as it allows the automation of many protocols. It can allow healthcare workers to record patient data, all the while accessing their insurance information, without any risk of fraud.
In education, the technology can improve the transparency of the educational process. Institutions can record immutable data regrouping transcripts, courses, and degrees.
The Inherent Barriers to Cryptocurrency
With all that in mind, cryptocurrencies have a set of drawbacks. While they don’t trump their benefits, they are still worth mentioning:
- Self-custody can be a double-edged sword. While you remain the sole custodian of your assets, this also means that you need to secure them properly.
- Highly volatile assets can be a blessing and a curse. They can dramatically increase or decrease in value, making investment timing very important.
- DeFi is still doing its baby steps and has many shortcomings regarding security. In the last two years, users have lost billions of dollars due to exploits and hacks.
- Regulators are still unclear on how they want to approach the crypto industry. This has led to periods of high volatility, fear, and doubt about the industry as a whole.
It seems that crypto is inevitable and that it will become a part of everyone’s reality.
Future Prospects for Cryptocurrencies
The future for crypto is looking bright. The DeFi industry is slowly growing and polishing out its imperfections. It will become as easy to use as traditional finance, onboarding millions of users.
With such an adoption, we can expect demand for blue-chip assets like BTC and ETH to increase over time. Institutions like Blackrock and Grayscale will propose Bitcoin spot ETFs soon. These advanced financial instruments could inject trillions of dollars of liquidity into the industry.
Blockchain and cryptocurrencies are creeping into everyone’s lives. Long gone are the days when people were presenting Bitcoin as a scam. Today, we have first-grade institutions investing in these digital assets, and touting their strength as a store of value. Who knows, one day Bitcoin might even surpass gold as the most commonly used hedge against inflation.