Follow along with Justin as he becomes crypto-literate. This blog is part 2 of 6 in this crypto education series.
The term "cryptocurrency" was coined (ha!) when Bitcoin was created back in 2009, and it describes what Bitcoin does best: letting people send or receive value from anyone, anywhere in the world.
Since then, other cryptocurrencies have appeared on the scene.
These new players have different uses, some so different in fact, that the "cryptocurrency" label may not fit them very well. For this reason, all non-Bitcoin cryptocurrencies are referred to as altcoins.
In spite of having different uses, Bitcoin and altcoins all use blockchain technology.
So, in this blog I'll be focusing on:
• Two common altcoins (Stablecoin and Ethereum)
• The blockchain
Because there are over 10,000 different altcoins in existence, we'll only take a look at a couple. I'll also throw in some specific examples where applicable.
Stablecoins are any form of cryptocurrency whose value is pegged to some external reference (like the US dollar or Swiss real estate). They do this in an attempt to maintain a stable value, hence the name "stablecoin". Whatever external reference they are pegged to, they are "collateralized" by. A coin that is collateralized by the US dollar, for example, would keep an inventory of US dollars equal to the number of stablecoins in circulation.
Some stablecoins are not backed by currencies or commodities. These non-collateralized stablecoins are called "algorithmic," and maintain their stability by controlling their supply. They're programmed to mint new coins when their price is high (increasing their supply, and lowering the price), and to destroy coins as they're "sold" when the price is low (reducing their supply, and increasing their price).
Popular stablecoins include:
• Paxos Standard
This chart published by Forbes shows that crypto users generally view crypto as an asset rather than a payment method.
Stablecoins will play a major role in the future of cryptocurrency because of their ability to hold their value. This makes them particularly suited to be used as payment––an area use case where crypto has plenty of space for growth. And, it will allow people to use crypto as consumers (who will use it to make day-to-day payments) rather than exclusively as investors (who purchase crypto and hold it for longer periods).
Ethereum is a decentralized global software platform that uses blockchain technology. It has a native coin––the currency used on the platform––which is also called "Ethereum". Ethereum (the altcoin) is the largest altcoin out there. And Ethereum (the software platform) is a network that allows developers to create smart contracts using blockchain technology.
Quickly––what are smart contracts?
IBM defines smart contracts simply as "programs stored on a blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss." The full article is worth your time, and you can check it out HERE. Smart contracts can be created and operate autonomously on the blockchain, and the possibilities with smart contracts are endless and constantly evolving.
When the internet was born, people were finding new ways to use it every day––though some thought it was just a tech fad. Similarly, people are finding new ways and spaces to use blockchain technology every day. And similarly, the blockchain has forever changed how we process, store and share information. One day in the future, we'll be unable to imagine a world without it.
Here are a few ways that the blockchain is changing the game:
Decentralized finance uses the blockchain to create a decentralized and autonomous financial intermediary. This technology can help you manage your financial portfolio, automatically managing your investments, moving your money to gain the highest returns, and more. Decentralized finance is a very broad use case for blockchain technology, and is expanding quickly.
Supply Chain Management
By using the blockchain, companies are able to track exactly which batch of food was contaminated and making people sick. Or track a t-shirt from the cotton field it was harvested at to the rack it was placed on at retail.
Internet Bandwidth Distribution
Another company has figured out how to distribute internet bandwidth on a peer-to-peer network by using blockchain technology, which could nearly eliminate the need for large and expensive content distribution networks. Many believe this to be the next step in the evolution of the internet.
Non-Fungible Tokens (NFTs)
NFTs are digitally-unique items that are validated and distributed on the blockchain. Rare physical art has counterfeits, but NFTs cannot be counterfeited since they are validated on the blockchain. Artists are creating digital art or music and using NFTs not only to validate its authenticity, but also to ensure they will always be paid royalties for the purchase or trading of their content. NFTs can also represent documents that need validation, like the deed to a home, car or even a skyscraper.
Another real world problem that could benefit from blockchain is voting. Can you imagine a world where every vote cast in an election was undeniably true and accurate because it was automatically recorded and distributed on a public and transparent blockchain? No matter who wins or loses an election, someone is going to blame someone else of cheating. With blockchain voting, there would be no need for recounts or lawsuits––just simple transparency and confidence in the system.
Though it was first used to revolutionize how we send and receive payments, blockchain technology has had an equally large impact across multiple industries. The use of this technology is advancing and expanding daily, and will only continue to do so as we discover new uses for it.