What Will the Future of Crypto Look Like?
Neither this post nor any other on cryptofal.com should be considered financial advice. It is not.
In many ways, we have yet to see even close to the true potential that cryptocurrency and blockchain technology can provide. While there will likely be benefits we can’t yet imagine, there are some positive aspects of this tech that are already showing potential. From its quicker p2p transfer process to the endless possibilities presented by smart contracts, this technology has the potential to revolutionize the way we think about finance, and a myriad of other industries as well.
Before we can discuss the potential, it’s important to understand what cryptocurrencies and blockchain are. According to Investopedia, “A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.”
As we said earlier, these currencies are easier to transfer than moving money through the traditional system and blockchain technology allows it to be more secure by not having a central point of failure. These create the potential for a more efficient and transparent financial system. Not only is every transaction traceable on the blockchain, but these transfers of money also aren’t limited by the logistical obstacles set forth by the fiat system.
The transactions are much quicker, and significantly cheaper. This revolutionizes (or destroys, depending on who you’re asking) the remittance payment industry. With cheaper and more efficient payment options available than the traditional ones, the traditional companies will likely be forced to adopt blockchain tech or risk obsolescence.
The peer-to-peer aspect of cryptocurrency will change the way we view financial custody as well. In the fiat system, custody for both liquid funds and assets is often maintained by a third party with specific licenses. This third party could be a bank for liquid funds, or a broker and/or bank for other types of less-liquid assets.
With cryptocurrencies, all you need is a wallet to maintain custody, more specifically a cold storage wallet to maintain autonomous custody. While you can indirectly maintain custody through hot wallets and exchanges, to maintain complete control over and access to the funds in your wallet, a cold storage solution is best. It is very possible that this type of self-custody for individuals could vastly change our relationship with liquid capital and its custody.
While it’s very likely that institutions will still require custody solutions, blockchain tech could lead to a point where the need to keep our money in a bank in the traditional sense becomes less pronounced. Especially when businesses and individuals alike can maintain custody and control of their funds on their own without the need for a third party in-between. This can help reduce fees for both businesses and individuals while increasing efficiency overall. When you couple this with the opportunities presented by smart contracts, it’s not too surprising when someone labels the potentials to be almost limitless.
The long-term potential that smart contracts have is truly hard to imagine when you understand what these blockchain-based contracts bring to the table. Different blockchain protocols provide different benefits. They have the ability to revolutionize financial interactions as we know them. Not only can smart contracts be used to create other blockchain protocols on that coin’s network (like with ecosystem tokens, like ETH), they can also be used to help dictate the terms of cryptocurrency transactions.
These contracts can dictate how the transaction occurs. Oftentimes, these blockchain-based smart contracts use Oracle protocols, or APIs built on the blockchain that help input information into smart contracts. In more basic terms, these oracle tokens/protocols help translate values from the real world into something the smart contracts can understand.
The combination of these oracle protocols with smart contract technology allows for unparalleled levels of accuracy in finance. Smart contract technology can be used to set terms that must be met for transactions to take place, etc. For institutions, this could be monumental as they learn the benefits of using smart contracts. Not only can it help eliminate human error, but it could likely increase productivity as well so manpower can be focused elsewhere. The transparency of blockchain tech is another feature that will change the way we keep records of money and its movement.
Blockchain technology provides a public ledger that anyone can access. This ledger keeps a record of every transaction that occurred on the blockchain. These transactions can be viewed on blockchain scanner websites or sites that provide openly accessible transaction details. You can view details of specific transactions including both wallets involved in the transaction, when it occurred, how much of the currency the transaction contained, etc. Certain scanners for certain blockchain protocols can even say which exchange those wallets may be affiliated with as well.
This type of transparency allows the general public unparalleled access to what transactions occur on a specific blockchain protocol. If the broader financial system goes this route, it will be much harder to hide transactions from the general public in the ways the traditional financial system allows for. This feature will be especially useful for the tracing of public funds and investor funds. It can help prevent fraud, larceny, etc. Companies and governments alike will likely be instituting cryptocurrency-oriented policies for tracking the movement of funds. This can help with public trust and transparency for both governments and brands alike. Companies and governments can publicly identify their wallet addresses so anyone can watch the transactions taking place.
The NFT space in the future will likely be larger than we can even predict. It will change the way we create art, the way we release music, and so much more. The NFT space has two current limitations that will likely be significantly less prevalent in the future.
The first is the lack of knowledge regarding NFTs that the general public has. NFTs are still in their infancy so it’s understandable that much of the public has yet to have a firm grasp on the topic yet. When people understand that NFTs can be almost any type of file (under a certain file size), they can really start to realize that the possibilities are endless. From fine art to memberships to exclusive communities, to proof of verification using the blockchain, NFTs will likely act as a useful medium in a variety of ways in the future.
The other limitation is more of a logistical one. Currently, gas fees are a large problem on layer-1 blockchain protocols. These transaction fees are high which can automatically limit accessibility to the space when both purchasing and selling an NFT can have gas fees that are more expensive than the NFT itself. When most of the NFT space achieves layer-2 efficiency, many of the issues with gas fees will be solved, or at least significantly cheaper.
One of the best features of NFTs is how creators can receive royalties from sales. This feature uses smart contract technology to make sure that a percentage of each sale can be set by the creators upon minting that dictates the percentage that the project creators receive with each sale. This means that artists and creators will be compensated every time their art or project is circulated, creating a passive income for artists and creators alike. We’ll likely see this used for a variety of creators from musical artists to graphic designers.
The potential for change that blockchain technology provides is limitless. They provide solutions to a myriad of logistical issues with the traditional financial system and they will likely provide solutions we can’t even begin to comprehend yet. It’s going to be interesting to see where the cryptocurrency and blockchain space takes us.
This is an excerpt from out December 2021 Newsletter. Read the rest here: https://www.cryptofal.com/daily-reads/december-newsletter