CRYPTOCURRENCIES: NEW TECHNOLOGY, THE FUTURE OF MONEY & WHY YOU SHOULD INVEST IN THEM
The world of finance is evolving as technology is changing how things are done globally. Cryptocurrency has become a mainstream topic generating conversations worldwide. In 2017, Bitcoin was the second most searched word on Google’s Global news category. Therefore, knowing how this innovation works and how to take advantage of it is of great importance. This article shares with you what cryptocurrencies are, and how you can invest in them. However, before we get into details on how and why you should invest in cryptocurrencies, let’s understand what cryptocurrencies are.
Cryptocurrency is a digital asset or currency. It was invented by an anonymous fellow named “Satoshi Nakamoto” in 2009. It’s pertinent to note that while Bitcoin is the most popular of all cryptocurrencies in the world today, it’s not the only cryptocurrency in the world. Cryptocurrencies are digital assets built on a secure internet network known as the blockchain. The blockchain is a ledger that records every transaction carried out on it.
Cryptocurrencies can be referred to as the 8th wonder of the world with the way it has revolutionized the financial industry. For instance, large corporations and SME owners are now proposing the use of cryptocurrency as a means of payment & this is highly commendable because it has multiple benefits compared to the traditional system of payment.
Altcoin (Alternative Coins) are the other types of cryptocurrencies apart from Bitcoin. Examples are Ethereum, Ripple, Dogecoin, and TRON, etc. One of the amazing features of cryptocurrencies that have made them widely adopted today is their decentralized nature. Unlike fiat currencies that are controlled by the governments, cryptocurrencies are not controlled by any entity. They also cannot be traced. Hence, that makes it easy for people to transfer funds anonymously without going through stiff regulatory compliance as required by traditional financial institutions. The cryptocurrency market at the time of writing (23/5/2021) has a market capitalization of $1.3 Trillion as against the $85 Billion market cap at this same time in 2017 as seen on CoinMarketCap. This growth is due to the wide adoption of this new innovation by many individuals, companies, and institutions.
With the growth of the ecosystem, several projects have sprung up that have hampered people’s investment in the market. These projects (otherwise known as shitcoins) are created by people with the aim of scamming people and making people lose their investments. It is therefore important that one should be careful and do due diligence before investing in any cryptocurrency project.
What are Shitcoins?
Shitcoins are altcoins/cryptocurrencies that are presumed not to offer any value or have an immediate purpose. Therefore, investing in them would lead to a loss of investments. Instead of investing in shitcoins that could make you lose money, you could as well save your money in Stable Coins.
What are Stable Coins?
According to Coindesk, one of the most visited cryptocurrency website in the world;
‘‘A Stablecoin” is a type of cryptocurrency whose value is tied to an outside asset, such as the U.S. dollar or gold, to stabilize the price’’
So, while investing in other cryptocurrencies could lead to a fluctuation in the value of your investment, having a stable coin preserves its value. An example of a stable coin is the USD Tether.
Why Invest in Cryptocurrencies?
This section of this article highlights cogent reasons why you should invest in cryptocurrencies.
- Incredible ROI: Cryptocurrency can give a high return of investment (ROI) when you invest in quality projects with important use cases. For instance, Bitcoin has increased in price value from less than a dollar in price value in 2010 to $30,000+ at the time of writing (23/5/2021). However, while investing in cryptocurrencies could generate a high return of investment, it’s a volatile market. Hence, It is pertinent to do due diligence on the cryptocurrency projects before investing in them.
- Low Barrier-to-Entry: Investing in the cryptocurrency market has a low barrier to entry compared to other kinds of investment like stock, bonds, and other complicated traditional investments. Cryptocurrencies are digital and decentralized. Therefore, its activities do not require the signing of certain documents or strenuous regulatory compliance.
- Independence of funds: As a cryptocurrency investor, you’re in total control of your assets. All decisions as regards your funds are in your hand. Hence, one of the reasons for the growing worldwide adoption of cryptocurrencies. Also, you can transfer your funds or make payments to anybody in the world without restriction.
- High Liquidity: Cryptocurrencies have high liquidity, that is, it is very easy to buy and sell your cryptocurrencies at market price, and the technological organization of exchanges that serve as trading platforms allows for a wide variety of tools and tactics.
The most relatable explanation for blockchain is the foundation of a house. For a house to stand, the foundation must be solid. In the same vein, the blockchain is the building block that powers cryptocurrency.
According to IBM;
“Blockchain is a shared, Immutable ledger that facilitates the process of recording transactions and tracking assets in a business network”
Blockchain is a very important aspect of cryptocurrency. The blockchain network is very fast and transparent. Hence, it’s ideal for carrying out business transactions. It is also efficient in tracking orders, making payments, collating accounts, and also providing security.
Characteristics of a Blockchain
- Distributed Ledger Technology
Anybody that belongs to the network has access to information unhindered and the system helps eliminate the duplicability of records which is common with the traditional business network.
- Immutable Records
These characteristics help eliminate fraud as a participant of the network cannot tamper with the transaction after it has been recorded to a shared ledger. Simply put, every transaction done on the blockchain cannot be deleted or modified after it has been recorded on the network. In the case of error during the entry of records, a new entry will have to be made and both transactions will be visible.
- Smart Contracts
Smart contracts help to speed up transaction time. This can define conditions for corporate bond transfer.
Benefits of Using Blockchain for Investment
The blockchain revolution is not only in the financial sector, it’s gradually creeping into every major sector in the world today. The sports sector is considering using it to pay for tickets, and the effect is great. A number of football clubs have launched their own cryptocurrencies as well. For instance, Paris-Saint-German and Juventus have cryptocurrency tokens listed on several exchanges, i.e., Binance, etc. The following, therefore, are the benefits of using blockchain technology for investment.
- Transparency: The first barrier to trust is transparency, once people see your business or your person as transparent, you have gained their trust. The technology behind blockchain is almost open-source. It makes duplication or alteration of data very difficult, people can easily see if there is any alteration somewhere. Although users and developers can modify it if they deem it fit to do so, this act will not be secretive as others can see what you have done.
- Reduced Transaction Cost: Since blockchain technology is decentralized and no systematic way or third party is needed before a transaction can take place, this reduced cost due to bureaucracy that might have been associated with the traditional way of doing things.
- Decentralization: The decentralization of Blockchain technology makes it a hot-cake for investment and business owners. The need to be afraid of regulation or rules from people in authority has been eliminated. Since individuals transacting on the network have their proof of validity and data cannot be compromised, it helps to reduce cyber fraud.
- User-Controlled Networks: Cryptocurrency enthusiasts seem to fall in love with the idea of the controlled aspect of blockchain technology. Rather than having a third party controlling the network, users and developers are the ones calling the shots.
- Faster Transaction Time: The transaction on blockchain technology is always faster compared to the traditional method that takes days to settle.
Decentralized Finance: The Future of Finance
DEFI is the acronym for decentralized finance. It is a variety of applications and projects in the public blockchain space that is innovated towards disrupting traditional finance operations.
The advent of cryptocurrency has opened the eyes of many to the opportunities that abound in the financial sector. Traditional finance institutions are also looking for ways to incorporate cryptocurrencies into their day-to-day operation and with public corporations looking at accepting cryptocurrency as a means of payment, it is safe to say DEFI is the future of financial services.
A number of people are still pessimistic about DEFI taking over. However, they just need to look at the history of money and know that the present financial structure they are accustomed to, is not always the norm. The history of finance dates back to the time of barter, cowry, cash, cashless policy, and now crypto. Every generation has had its way of life disrupted by a better or generally accepted to be a better way of doing things.
Decentralized finance has opened a plethora of opportunities about how to achieve transparency in the financial world without giving control to an organization or individual. The beginning of the DEFI revolution in financial institutions started in 2017 with projects facilitating more functionalities in addition to just money transfer. However, a lot of people believe that it started in 2009 with the invention of Bitcoin.
The Future Is Digitalization and Tokenizing Real-World Assets
With the advent of blockchain technology and the wide adoption over the years, the future is digital and more tokens are about to be seen in the market over the years. Like a popular witty saying “You can kill an idea whose time has come”. With Blockchain, it’s either you join the train or be left behind, there is no middle ground.
Non-Fungible Tokens (NFT)
NFTs, otherwise known as non-fungible tokens, are a type of cryptocurrency that is created from the Ethereum platform. They were described by CNN business as “Cryptocurrency that transforms digital works of art and other collectibles into unique, verifiable assets that are easy to trade on the blockchain”.
The buzz around NFTs in social media keeps increasing daily, all thanks to the possibility it offers across all industries. The CEO of Twitter, Jack Dorsey offered to sell his first tweet and this is done via the NFTs platforms. In the sports industry, a lot of athletes are using it to sell relics. For instance, the NBA is looking at a way to sell match day tickets via NFTs. This is something that was not thought of 5 years ago, this shows that with the increase in the adoption of blockchain technology a lot of innovations will spring up.
FIAT and other cryptocurrencies are fungible since the values remain the same when traded. Ethereum Blockchain supports NFTs, although they are supported by other Blockchains as well.
Majorly, NFTs like physical artifacts collection but in digital form. Instead of getting a physical artifact or a sculptor that can be displayed in the museum or around the house, the arts are presented in digital form. The beauty of NFT is that you get the original form and have the priority right to the arts bought.
Blockchain and Artificial Intelligence
Artificial Intelligence (AI) is changing the way things are done in the world, from voice recognition, using face recognition to unlock phones, face search, etc. It has opened up a plethora of opportunities in the business world allowing for the smooth operation of work and switching the attention of human workers to tasks of importance and complexity.
AI has been used to treat patients in the hospital and ensure data mining and privacy and solving complex criminal cases in law. The integration of Blockchain and AI is a beauty to science and technology. Let’s take the area of security as a case study. AI needs to process a large amount of data for the purpose intended to be effective, Blockchain on the other hand is a securely encrypted worldwide database that can provide artificial intelligence with unlimited and reliable information. It is hard for criminals to hack into the blockchain due to the cryptography algorithm embedded in the blockchain technology. Imagine a financial institution or security outfit using a combination of both.
The only constant thing in the world is change. The blockchain revolution era is here and it might be the turn of another technology platform a few years from today. So, it’s not a debatable matter that Blockchain has changed the way we live our lives.
The potential that Blockchain technology possesses has not been exploited to the fullest as a lot of applications are expected from it soon. A lot of people that invested very early in cryptocurrencies are presently making money and have become pioneers in the industry.
Therefore, it’s important that every individual or corporate organization should not overlook the plethora of opportunities that blockchain technologies present. Instead, they should invest in the ecosystem and contribute to the future.