Services

Services

What You need to know
about Cryptocurrency

by Juan Vivanco, Senior Front End Engineer

August 10, 2022


Share via


What you need to know about cryptocurrency

From Bitcoin to The Metaverse*
*This article is based on my own research and experience. I adhere to and implore you to follow the axiom: DYOR (Do Your Own Research). Avoid scams; be wary of people who invent and publish theories to persuade unsuspecting investors to put money in bad (not profitable) crypto assets. Make your own decisions based on your own research.

To understand the current state of cryptocurrency assets and how the movement became so huge, we need to look back to 2008, when Satoshi Nakamoto created Bitcoin, the “original cryptocurrency.” Nakamoto’s vision for the first blockchain currency promised a revolution against the banks and financial institutions that controlled and took commissions on any payment they processed. 

Since Nakamoto’s invention, the decentralized blockchain technology behind Bitcoin has given rise to another 20,000 cryptocurrencies. Likewise, a vast blockchain industry has emerged comprising cryptocurrency wallets (hot and cold), cryptocurrency exchanges, NFT (non-fungible token) markets, virtual land aggregators, decentralized autonomous organizations, and value and reserve funds. In the last two years, the business world has changed in response to the rise of crypto. Companies increasingly offer to pay employees in crypto assets. Paying salaries in crypto lets the employee receive their salary anywhere in the world, whenever they want, without bank approval or processing. 

A maximum of 21 million Bitcoins can be issued, and we are already at roughly 19 million. As opposed to traditional currencies, Bitcoin is a finite asset, and therefore inherently deflationary: each coin’s relative value will increase as the overall availability of coins decreases. In consumer terms, as the number of Bitcoins goes down, Bitcoin owners could theoretically buy more with each coin than when they initially purchased them. In 2011, Bitcoin cost $1, it rose to $1,000 in 2013, then $20,000 in 2017, and, in early 2022, reached $70,000.

Yet Bitcoin has its limits. Bitcoin is ultimately a payment system and, as a digital currency, operates as a store of monetary value. Recognizing these limits, in 2013, Vitalik Buterin expanded the possibilities of blockchain technologies when he conceived Ethereum. Launched two years later, in 2015, Ethereum offered a proprietary, decentralized blockchain, its own token, and a programming language.

Ethereum sparked the next generation of cryptocurrencies and expanded crypto from just a simple payment system. Now, developers have the tools to create entire blockchain programs, known as “smart contracts,” which are automatically executed when trying to interact with the blockchain. Similar to any paper contract, blockchain, “smart” contracts can be used to take out a mortgage or loan, or to trade stocks or bonds. They operate through digital rules, i.e., pieces of code that automatically execute actions if the smart contract meets certain parameters.

Following the development of Ethereum, in 2018 the price of crypto began to surge. At this point, multimillion-dollar companies started seeing and seizing the opportunities of crypto. Developers, investors, and companies now wonder: Is it possible, even necessary to replace the traditional financial system with a decentralized version? And they saw blockchain as the way to bring about a new system of DeFi (Decentralized Finance).

DeFi offers advantages over centralized financial systems. DeFi is more efficient, eliminating intermediaries and making processing financial transactions more fluid. Crucially, DeFi costs less: The commissions typical centralized finance organizations take are often much higher than in DeFi applications. With the lower costs and fewer intermediaries, industry leaders–Elon Musk, Changpeng Zhao, and Merav Ozair, Ph.D., to name a few–now view DeFi as a more open and democratic financial system.

But DeFi is not just for billionaires. DeFi’s openness means anyone with internet access can use DeFi applications without opening a bank account, providing financial tools to the roughly two billion people globally without ties to banks. For the first time in the history of modern finance, people can contract loans and insurance, invest and make derivatives, crowdfund, and even bet without having a bank account. If you’re curious to make the leap yourself, but find yourself tied up with banks, rest assured, it’s never too late to “Unbank Yourself.”

For example, let’s say you want to raise funds for a charitable cause. In today’s centralized system, you have to use a third-party crowdfunding platform to collect funds from donors. Additionally, all parties–you (the fundraiser), the donors, and the charitable organization — need bank accounts (or credit cards tied to bank accounts) to move any money. When you reach the funding goal, you then extract them from the platform, transfer them to a bank account, and deliver them to the charity. On the other hand, the DeFi (crypto) system eliminates all intermediaries, the banks as well as the SWIFT system, the third-party platforms, and payment gateways. The fundraising happens directly with the smart contract. Upon reaching the funding goal, the contract would automatically send the money as crypto assets from the person raising money to the charitable foundation.

Similarly, loans become easier and more direct in DeFi systems. Processing any loan with a traditional financial institution requires completing and signing what can feel like countless forms. Then you need to wait for approval, hoping to be one of the people the lender chooses as “suitable” for the loan. By contrast, in DeFi, as long as users offer adequate collateral to the lender, anyone with an internet connection can get a loan in seconds. Though both traditional and DeFI loans use collateral and are an exchange between two parties, DeFi loans differ in two ways: they are anonymous and do not involve physical property as collateral. Any crypto token can be exchanged as collateral for borrowed cryptocurrency. Smart contracts then facilitate transferring or depositing the currency equal to the loan amount.

Today we see the possibilities of crypto being explored on the “metaverse,” a platform aimed at connecting people to a virtual reality paralleling the “real world.” In the metaverse, you can shop, buy a virtual apartment, or get together with friends. Observers and experts estimate that the metaverse will ultimately generate twice as many jobs as the total number created today, all of which can be remote.

Other Blogs

by Paul Dermody

May 21, 2023

What's the Big Deal with Blockchain Anyway?

Are you interested in our staff outsourcing services? Check our frequently asked questions to find out more about us.

Our FAQ

Discover our Client Referral Program - Earn commission for your business while also helping companies in your network build their technology dream teams with Stateside.

About Referrals

If, after one month, you're not satisfied with the quality we deliver, we will void the first invoice and terminate the contract free of charge.

Hire Tech Talent