However, the crypto market is in a very nascent stage because it is only a decade old. New coins based on groundbreaking backend technologies are released every day. Still, new investors are drawn to this market because they want to earn some quick bucks. But the crypto market is still volatile, and most of the coins are seeking stability.
Governments have taken note of this rising trend and rolled out their own stable CBDCs. CBDCs work as fiat equivalent in the digital payment world and provide support to volatile tokens. If you are new to this market, here are a few things you should know before trading in cryptocurrencies.
What are cryptocurrencies?
Cryptocurrencies are digital assets that can be bought using government-backed currencies. Cryptocurrency in itself is not backed by governments. They are produced using a unique line of codes that cannot be copied.
Moreover, cryptocurrencies and tokens are decentralised, meaning they cannot be owned or controlled by a central authority. The record of every transaction is stored on a separate node distributed across the world.
Therefore, it is impossible to hack the entire system. You can use cryptocurrencies for trading and buying things online. Also, it is noteworthy that cryptocurrencies do not have a tangible profile. They are traded and managed online. Since each coin is backed by a unique code, it can be easily traced and tracked, which makes them safe and secure.
Difference between cryptocurrency and blockchain
Blockchain is the technology that has facilitated the existence of cryptocurrencies. Blockchain provides the framework to carry out digital transactions without the need for a central authority. It is a system of digital ledgers that keeps the record of every transaction of every currency ever made.
Each block on the blockchain holds the information about a currency which is then distributed across the globe. Therefore, if a new transaction takes place, it is added to the existing ledger of information on all the nodes. This makes it impossible to hack the entire system. Blockchain technology is the primary reason why many have dubbed cryptocurrencies the future of digital payments.
How to store cryptocurrency?
Cryptocurrencies are not tangible, so you cannot withdraw them from ATMs or banks. Instead, cryptocurrencies are stored in encrypted wallets. The wallet access is provided by entering a super-secure password, without which one cannot access his/her currency. A private key gives access to the blockchain that stores currency information.
How to buy cryptocurrency?
Cryptocurrencies are traded just like listed stocks. There are several platforms like Bitcoin Surge that provide the details of the listed currencies. You can buy or sell the currency just like the stocks. These forums provide a platform for trading and charge a minimal fee for every transaction. Using these platforms, you can even buy cryptocurrencies fractionally.
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Defining NFTs
NFT stands for non-fungible token and it represents a digital identifier, like an immutable serial number, for a piece of content or data stored on the blockchain-powered internet. Most applications of the technology today, focus on leveraging the public recording mechanism to provide a record of ownership over digital assets like property deeds, artwork, and other collectables and high-value assets.
Evolution Of Existing Software Architecture
Those familiar with current software systems and cloud computing will recognise the importance of IDs as a tool for software developers to create functional programs. NFTs’ unique property, as a result of being a blockchain tool for new cloud software, is that of being a common, shared, or publicly useful identifier for decentralised data coordination while maintaining privacy and security. Meaning that users of one software system should be able to transition to a second software servicing the same need without a massive effort to restructure their data.
How Is It Being Used Now?
Most applications of the technology today, focus on leveraging the public recording mechanism to provide notary services for collectables and high-value assets that can be represented digitally like property deeds, artwork authentication, shoes, handbags, and other luxury items; or to provide those same notary services to digital assets like collectables from brands, celebrities, artists, and video game ecosystems.
As of the last 9 months, we are starting to see more advanced applications of NFT utilisation under development currently, with social media, streaming services, and business saas primarily in the marketing and advertising space emerging as business use cases for the data management tool.
Segments Of NFT Business Models
When it comes to understanding the various segments of businesses and organisations that are utilising NFTs to derive streams of revenue and funding for their operations, it is most helpful to look at specific examples of some of the examples that have the earliest traction with early user adoption. To that end, we are going to explore the 2 most prominent forms of NFT application, digital collectables and public notary services, as well as the emerging decentralised big data marketplaces.
Digital Collectables
The digital collectables side of NFT business models revolve around selling deterministically scarce, and commodified, digital assets like media, in-game avatar customisations, in-game resources, and limited membership organisation seats.
A blockchain-powered video game that utilises its cryptocurrency as a token to purchase video game character upgrades and in-game resources like land, raw materials, and collectables that enhance the gameplay for the user. Just as games like Fortnite enable their users the ability to pay to customise their game experience, Decentralised is opening up that in-game economy and its collectables to financiers and other software engineers that would like to advance the game functionality in the future.
An online country club that sold a tiered membership system of 2,727 “Global” & 6,363 “Leisure” collectable NFTs that garnered $10.4M in 48 hours to purchase a Top100 golf course, with the NFTs acting as their key or membership identification to access the club. Presumably, the organisation would grow beyond its initial membership, and single footprint to make the online country club model more practical, which TopGolf or Equinox Gyms would serve as the best comparison.
Public Notary Services
Public notary services utilise the trustless, encrypted, public ledger technology to register physical asset ownership to the blockchain as NFTs and document the exchange of the physical items between parties with NFTs that represent the underlying physical assets.
Is building a public ledger to bring transparency and accountability to using NFTs to document chains of custody over the trade of individual rare metals, minerals, gemstones, luxury, and collectable goods transactions. It has many well-recognised institutions backing it from the World Economic Forum and the United Nations. The sourcing of many of these items is historically exploitative and they bring trust to brands that want to prove their supply chain is clean to their customers, which is an increasingly in-demand component to the sale of many of these items today.
Best known for being an online marketplace to exchange collectable sneakers and other fashion and luxury collectable items, providing verification and authentication services to ensure the integrity of the exchange. This company launched an NFT marketplace to tokenise exchanges occurring on the platform for users who wanted NFTs to document ownership of their collectables, provoking a lawsuit from Nike in the process.
Big Data
Advancing the use case and monetisation of digital assets are the companies leveraging the functional properties of NFTs to create more sophisticated digital assets, representing the products of many of today's existing data exchange products like advertising exchanges like Facebook or The Trade Desk.
This project, which is a spin-out from the highly successful decentralised finance platform, Aave, is a blockchain protocol focused on creating a decentralised social network by creating standard social graph objects as NFTs that can be managed via blockchain wallet software such as MetaMask. The tokenised ecosystem to provide users with profiles, content publishing, and audience engagement tools inevitably will lead to an advertising solution to support content creators on their network, as exists within current social media platforms.
Taking the opposite approach to Lens Protocol, which is taking a user-first approach to inevitably building an ad network, AdsDaX is taking the direct path of developing ad placement technology for both media buyers and sellers, facilitating the exchange using NFTs to represent both advertising placement performance and targeting related data. The advantage is trust, transparency, and standardisation which lends itself to easy regulation and governance over a presently unwieldy industry.
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1. Dollar destruction
The value of the dollar against Bitcoin highlights the effect decentralised currencies such as crypto are having in this arena. When you look at how much the dollar has devalued against Bitcoin over the last five years, it sits at 96.53%. It took 50 years for it to drop in value by 50% against gold. This is because of a global debt crisis. Chief economists say that printing and devaluing more of a nation’s currency is the easiest way out of a debt crisis. Of the roughly 750 currencies that have existed since 1700, only about 20% remain, and those that remain have all been devalued.
Another reason is inflation. It stands at a 40-year high. Many will look to the war in Ukraine and rent hikes for answers to gross inflation, however, many others disagree. These unpredicted events just happen to coincide with inflation after a record increase in printing dollars – 35% of all US dollars have been printed in the last 10 months. In practice, this means that as global economies begin to start up again after the pandemic, this record amount of dollar production is now catching up via inflation. This is also not a nuanced effect, nor endemic solely to the US, we are seeing it happening in the Eurozone too.
There is actually very little a country can do to combat inflation. Its main option is to print more money, making the physical currency more expensive to store and move. This increases interest rates and lowers growth. However, if the growth is low, it pushes you into recession. We are seeing this economic trend play out, with Deutsche Bank informing investors that they are expecting the worst recession in history to hit towards the end of 2023.
2. Age of exponentials and where to look
There are five areas of high growth that many investors should be looking at and these are Edtech, Medtech, Greentech, Space-tech and Fintech.
Obviously, these are all the major areas of tech that are disrupting and decentralising the current centralised systems. Society 4.0 is moving to Society 5.0, from the industrial to an age of impact. Societies are broken down into 1.0 – Hunter-gatherer, 2.0 – Agrarian, 3.0 – Industrial, 4.0 – Information. The transition is at first obvious but becomes embedded into our societal and economic systems, this is what we are currently seeing with big data. All of the fastest-growing companies and exponential technologies are now in this area.
When we look at this trend, what is really interesting is how much it has grown in the last 12 months and the projections over the next decade. ARK Invest, an investment management company, has researched the market growth of exponential technology. Their research shows that, by 2030, these sectors are on track to grow to $210 trillion from $20 trillion in 2020. But as these areas of technology that are seeing this exponential growth are numerous, choosing ‘your wave’ is crucial. One area that has interested me and I believe has advantageous benefits is utilising AI in business. As AI becomes more prevalent in the marketplace, it will improve a company’s reputation and valuation as its products will become more customer-centric and drive engagement. When looking at ARK’s research in this area, they suggest that this is on track to grow from $2.5 trillion in 2021 to $87 trillion by 2030.
Personal experience of leveraging exponentials specific to interests in investments and business are usually easier to research and put into action as the passion is already there. Exponentials represent numerous factions of a 5.0 society, and as we move into it, we must all look to what we can leverage personally, whether it be investments or integrations of other exponentials such as battery technology, cloud computing or blockchain, for example.
3. The digital decade
Everything that we do is being digitised and will encompass Society 5.0; in the digital decade, this will be apparent through a digital overlay on your day-to-day experience. Foresight and action have helped me as an entrepreneur stay ahead of this curve and pushed my interests into this field. We are now looking at partnering with some top-level partners for our ‘Metaversity’, which creates digital campuses for Edtech.
When we look at the history of the web, it is broken down into Web 1.0: accessible content was read -only, Web 2.0: the emergence of blogs and social media, the public was able to create content, Web 3.0: what we are now transitioning into – allows users to have ownership. For example, music was incredibly difficult for artists to monetise, but through NFTs, we are now seeing this being challenged.
The merging of our digital and physical lives will look at Social Spaces (what you build to interact with), Digital Objects (NFTs) and Wallets & Identity - people will need to know that you are real and that they can pass something to you, ie, assets through blockchain or currency.
What this means when looking at investing is that it will shift the paradigm. In the integration of Web 3.0, we must start to ask ourselves not just what we want to invest in, but also, what is the social group or economy we want to invest in? Right now, we are born into a nation with its own economy, so your assets and finances are by default, intrinsically linked. This is an incredibly important aspect, as Web 3.0 will negate citizenship and structured economies. Your wealth will not be linked to your physical citizenship, but to your digital citizenship. What this means in practice is that wealth will no longer be connected to place, but to purpose. Everyone will have the opportunity to build an economy around their individual purpose.
The 2022 Global Impact Investor Summit hosted on the edtech platform GenuisU, saw keynote speakers Roger James Hamilton, Founder & CEO of Genius Group, world-renowned investor Jim Rogers, Marcus de Maria, Founder & Chairman of Investment Mastery, Simon Zutshi, Founder of property investors network (pin), and Mark Robinson, Founder of International Academy of Wealth, share their top 10 investment trends for 2022-2023. Roger James Hamilton, founder and CEO of Genius Group offered his detailed analysis and the whole summit can be viewed online.
About the Author: Roger James Hamilton is a New York Times bestselling author and Founder and CEO of Genius Group, a multi-million dollar group of companies, headquartered in Singapore, which currently includes companies such as GeniusU, Entrepreneurs Institute, Entrepreneur Resorts and Genius School and has an acquisition plan to add in a further 5 companies in 2022 to the Group.
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Since the beginning of the year, Bitcoin has erased over half of its value, leading to increasing criticism for digital currencies, including from billionaire Microsoft co-founder Bill Gates.
Speaking at a TechCrunch talk on Tuesday, Gates described crypto and NFTs as “100% based on greater tool theory”, referring to the concept that overvalued assets will go up in price when there are enough willing investors. Gates joked that “expensive digital images of monkeys” would “improve the world immensely.”
NFTs are cryptographic assets on a blockchain with unique identification codes that set them apart from one another. Unlike crypto, they cannot be traded or exchanged at equivalency. NFTs are often touted as a means of proving ownership of digital assets, such as art. However, critics such as Gates view NFTs as overhyped and potentially damaging.
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This is because TRX recently experienced an 8.5% surge after announcing a forthcoming listing on a major crypto exchange. This latest upswing, which occurred on May 5th, represents the highest level that TRX has seen since the end of December 2021. In addition, the Tron prices development in early May also came in tandem with the launch of the USDD decentralised algorithmic stablecoin. As it stands, users can now stake USDD-TRX pairs in liquidity pools on exchanges for high annual percentage yield rewards.
Since its establishment in March 2014 and subsequent caretaking by the TRON Foundation three years later, TRX has hit all-time highs several times. This is why the token’s price predictions for 2022 and beyond have taken on even more significant meaning for observers.
What Is Tron?
Tron has been under the supervision of the TRON Foundation since 2017, the same year that the Singaporean non-profit organisation was founded. Created by Chinese entrepreneur and former Ripple (XRP) chief representative in the Greater China region, Justin Sun, the Tron ecosystem launched with uniqueness as its primary aim.
Initially starting as an Ethereum-based ERC-20 token in 2017, Tron (TRX) switched to its own protocol a year later. The Tron blockchain launched in June 2018, later integrating with peer-to-peer file-sharing network BitTorrent the following month of that year. Under the auspices of the TRON Foundation, Tron seeks to create a global entertainment system for digital content at great prices.
Tron’s operational functions are two-fold. The first is that it aims to be a global online content sharing platform. Secondly, the digital platform allows developers to create autonomous applications capable of operating without intermediaries.
Tron also functions via a three-tier architecture that includes storage, core, and application layers. The core layer houses several key modules, such as smart contracts and account management. All modules housed in the core layer directly provide Tron with a pathway for growth.
In December 2021, Tron became a fully decentralised protocol with a community-governed DAO. In an announcement that shed further light on its new-found status, the Tron development team said:
“TRON DAO is what distinguishes TRON from web2.0 tech companies as it fully demonstrates decentralisation, the essence of blockchain.”
Tron (TRX) Predicted Future Prices Movement
Tron’s native TRX coin is issued by the DAO and facilitates transactions and applications on the network. Before going global, Tron initially saw sparse visibility in a few Asian countries. However, data from August 2021 shows that the platform already custodies more than 50 million accounts.
As of May 9th, short-term technical analysis from CoinCodex showed an overwhelming bullish sentiment on the TRX coin. In fact, out of 29 technical analysis indicators reviewed, only one was bearish.
Over the next few years, algorithm-based forecast website Wallet Investor indicated a gradual increase in TRX price. Analyses covering periods from 2022 to 2025 suggest that Tron prices would approximately double. Furthermore, Wallet Investor also predicted that TRX price could increase by an additional 35% in five years.
Signs Of Increasing Acceptance For Crypto
But, in March this year, Goldman Sachs became the first major US bank to trade crypto over the counter. In a historic move, the bank traded a non-deliverable option with crypto merchant bank Galaxy Digital. Also in March, President Biden signed an Executive Order named Ensuring Responsible Development of Digital Assets. In a surprise move, Senator Elizabeth Warren even told reporter Chuck Todd on Meet the Press that the US should create a central bank digital currency (CBDC), also noting that crypto will need to be regulated - to avoid repeats of events such as the subprime mortgage crisis. These steps followed JP Morgan setting a similar milestone in February, by entering the Metaverse. While up to now most of the crypto activity has been dominated by pure crypto players like Coinbase, Paxos and Grayscale, with the recent flurry of activity many previously cynical financial services decision-makers are sitting up, and wondering if there is more to this crypto thing than they originally thought possible. Some are even playing catch-up as to what crypto even is.
Crypto Caution
Nevertheless, even with Presidential engagement, cryptocurrencies are still viewed as the Wild West and, to some extent, in the current state of play, rightly so. They can certainly be dangerous for rookie investors, with new types of cryptocurrencies or tokens fluctuating wildly, from soaring highs to collapse. Even those that are more established, with Bitcoin as the prime example, are volatile assets, subject to jaw-dropping swings in value. References and preferences by famous people can impact it massively. There are also fears about security and that crypto is used to facilitate terrorism and crime.
The cryptocurrency “movement” and blockchain generally were born of striving for better – a wish for a new way to do things. And it is a technology that has huge potential for decreasing friction, improving transparency, decentralisation and, ironically, for building more trust. The way most banks still operate is no longer fit for purpose.
In the short attention span landscape we now operate in, three to five business days for funds to clear is increasingly perceived as inappropriate and unacceptable by customers and they’re increasingly unwilling to tolerate paying hefty amounts with apparently foggy fee structures for a snail’s pace service in terms of payments, international transfers and so on. It's the consumer who suffers and pays for inefficiencies that seem prehistoric in today’s fast-moving environment.
And then are those that are underbanked or entirely unbanked. Many millions of people across the globe are denied access to financial services entirely. Even in America and Europe, where there’s a bank on every corner, still today we see that without tax returns, a permanent address or access to a physical branch, gaining loans or just opening a bank account, remains difficult or entirely out of reach for many. In developing countries, the problem is far worse - huge. Cryptocurrency has the potential to address this imbalance.
However, and here we come full circle, cryptocurrencies suffer from a reputation problem, in a way that banks don’t. And crypto can’t get the buy-in it would need from the wider population outside its early-adopter fan base that it would need. Older people, in particular, are likely to baulk at using them.
Is Crypto Dangerous?
It’s not actually true that cryptocurrency is fundamentally unsafe. Its underlying technology is, in fact, far more stable and transparent than that of many mainstream banks, which themselves have some fairly unstable, outdated technology. Bitcoin, as an example, has never been hacked, while many mainstream banks have lost the data of millions and suffered breaches that have compromised the privacy of their customers. Decentralised finance holds rich promise - if it works hand in hand with more trusted financial brands and within the established systems.
The Benefits Of Crypto
While some Bitcoin pioneers don’t want banks to have any role in the financial systems of tomorrow and linked the technology to an idealistic ideology, most people just care about transaction speed: how easy that transaction is to make, that it doesn’t cost too much, and that it is safe. Banks working with cryptocurrencies can deliver that. The technology is a game-changer, but to truly deliver, it will have to integrate with mainstream banking systems.
What’s in it for banks is simple. Banks hate losing customers, especially en masse. And lots of customers are looking in the crypto direction. If customers are wealthy and want a fully diversified portfolio for the best returns on investment, they likely aren’t going to want to miss out on the crypto potential. Likewise, if bank customers want to interact in the metaverse, it can’t be done without a crypto wallet, which currently their bank isn’t offering.
If you’re working in America and sending money home to family in another country, you don’t want to be charged 20% and upwards to transfer that money. Likewise, financial institutions are paying through the nose transferring money cross-border. Each transaction can go through several different banks and different gateways using the labyrinthine and only partially-automated and costly SWIFT system. Crypto can make the process faster and exponentially cheaper. Funds can be used to buy Crypto, transferred via a digital wallet and exchanged at the other end for a different currency. It’s like the difference between queuing on the highway for the toll gate or using an electronic pass on a tag in the window - a digital highway.
How Banks Can Keep Up With Crypto
Banks will increasingly need to create and offer infrastructure for cryptocurrency so that they keep hold of clients.. Say an institutional client or wealthy client has 100 million in a bank and wants a 20 million direct exposure to crypto - right now they couldn’t do it through a mainstream bank as no banks offer that service. So that customer now would have to take their 20 million and open an account at Coinbase. Money is walking. Coinbase has a 98 million customer base - larger than that of JP Morgan, which has been in business for over 150 years.
Banks need to at the very least start offering custody, key management and digital wallets. As brands outside of banking look to transact in e-commerce, NFTs and cryptocurrency in a more efficient way, there is an opportunity for banks to enable them to set up their accounts that could also be housed at a bank.
Going forward banks may extend into crypto investment and the areas of staking, liquidity pools and Defi as they grow in size and importance to the marketplace. Crypto mortgages for the metaverse are a big opportunity for banks. Such mortgages are already available elsewhere.
Banking is becoming an ambiguous term, as many new players such as Walmart come on board. There used to be lines drawn around areas of finance. Not so long ago, asset management was doing investments and managing people's money and banks were doing payments. Fast forward to today and the lines are blurred - there's no distinction anymore. Now banks are doing asset management, investment management, and payments. Tech companies are doing payments. And Walmart is doing mortgages. And fintech is doing asset management and old established banks are doing fintech. Banks need to stay relevant.
Final Thoughts
Look at the landscape in the mid-nineties. Some said you’ll be able to make calls via the internet, and they’ll be free. But that seemed decades off. Look at contactless payments, and voice recognition. All these seemed very new one day and shortly after, just the way we do things.
Regulation is on its way and this - along with the rise of the metaverse, with its huge appeal to the mass market - will bring down the final barrier to crypto’s natural place at the heart of an evolving financial ecosystem.
Cryptocurrency will become mainstream, and sooner than many think.
About the author: David Donovan is EVP, Financial Services, Americas at Publicis Sapient.
However, the days of blockchain maturation are still early—and Ethereum is facing significant scalability issues, including network congestion resulting in slow and expensive transactions.
One of the main causes that lead to congestion on Ethereum is decentralised applications, also known as DApps. These applications could vary from games to crypto exchanges to social platforms. Ethereum boasts over 67,000 daily active users on its blockchain, with more than 269,000 transactions in a typical 24-hour period in early 2022.
Moreover, the Ethereum blockchain is home to some of the largest non-fungible token (NFT) marketplaces. The most popular NFT marketplace, OpenSea, has more than 1.4 million users with nearly $23 billion in transactions.
It’s important to note that the Ethereum Foundation has been working on some technical upgrades to the blockchain, also known as forks. These updates are expected to help Ethereum’s scalability issues such as high transaction fees and network congestion, which result in the very slow and expensive process of transferring Ethereum’s native asset, ETH.
Ethereum’s Biggest Problem
In the context of Ethereum’s scalability hurdles, a major problem is Ethereum’s operating mechanism, known as Proof-of-Work (PoW). The model allows miners to solve complex math puzzles to verify a transaction on the distributed ledger and get a fixed amount of ETH as a reward (users need an Ethereum wallet to collect this reward). PoW is also used by the most popular blockchain, Bitcoin.
However, the PoW working mechanism consumes a significant amount of energy. The reason is that miners need to utilise powerful hardware to solve the blockchain’s puzzles, leading to unhealthy competition. According to Digiconomist’s analysis, Ethereum consumes an estimated 112 Terrawatts of electricity per hour.
As an alternative to PoW, the Proof-of-Stake (PoS) model allows a network of validators to stake the blockchain’s native asset in exchange for updating the blockchain with new transactions while earning rewards. PoS requires much less energy than the PoW mechanism, which helps to reduce the carbon footprint of the emerging technology.
Ethereum is planning to transition to PoS, through its upcoming Ethereum 2.0 upgrade. The upgraded version of the blockchain is expected to use approximately 99.95% less energy than the PoW working mechanism. It’s also easier to facilitate much faster transactions with the PoS consensus mechanism, which is expected to alleviate Ethereum’s scalability burden.
Chief Investment Officer of Bitwise Asset Management, Matt Hougan, believes that Ethereum’s transition to PoS is “a really big deal.” Hougan says, “I think non-crypto natives are becoming aware of the merge for the first time. There really wasn't much discussion of the merge outside of crypto channels until a few weeks ago,” Hougan told Fortune. “Now that the mainstream media is picking up on it, and institutional investors are hearing about it, people are realising what a big deal it is.”
Hougan says there are, however, some risks with Ethereum’s “very high stakes technological upgrade”.
The PoS model is less secure than PoW since there is no physical computational base to confirm transactions. In simple terms, PoS presents higher scalability while removing an extra layer of security. With the rise of crypto, many investors have jumped into the industry. An estimated 55% of all active Bitcoin investors started to invest in 2021, for example.
Last year, the number of crypto users in the world, according to Crypto.com’s report, surpassed 295 million—and is predicted to reach the 1 billion mark by December 2022.
Part of the reason for such a boost was crypto’s 2021 bull market. Both digital assets and traditional securities such as stocks noted significant gains. TSLA stock rose 55% in 2021, for example.
Yet digital assets have also become increasingly accessible. There are many approved cryptocurrency exchanges in the United States, but many stock trading apps have also added support for digital assets. Still, most stock apps don’t support a wide range of crypto assets or transfers outside of those stock trading platforms, which limits the use of those cryptocurrencies.
The Rise Of Ethereum Competition
While Ethereum users await the long-anticipated transition to 2.0, competitors have swooped in. These blockchains were built with PoS or other mechanisms from the start, able to provide cheap, fast transactions immediately upon product launch.
Yet this doesn’t mean they’re perfect. Here are Ethereum’s biggest rivals:
Solana (SOL)
Launched in March 2020, Solana was created to support DApps and smart contracts. The blockchain uses a combination of PoS and Proof-of-History (PoH) mechanisms for a faster and more reliable functionality with lower fees, according to its whitepaper.
Solana’s combination of PoS and PoH allows it to process tens of thousands of transactions per second while Ethereum typically processes only 15 per second. Further, more than 5,000 projects are underway for Solana with around 1,000 developers. Solana is also the network with the highest staked value at the time of writing. Solana’s total staked value is over $44.5 billion.
Terra (LUNA)
One of the biggest rivals to Ethereum is Terra with its native utility token, LUNA and its USD-pegged stablecoin, TerraUSD (UST). Terra was founded in 2018 with the aim to offer price stability with Bitcoin’s censorship resistance. Terra mainly focuses on algorithmic stablecoins with a fast-growing financial applications network.
Terra is the third-largest network in terms of staked value. Earlier this month, Terra flipped Ethereum to become the second-largest blockchain for a few days. Terra’s total staked value is over $33.3 billion at the time of writing.
Avalanche (AVAX)
Ava Labs created the Avalanche, a smart contract-based blockchain in 2020. It’s one of the most popular PoS operators with over $10 billion in total value locked (TVL). Moreover, its native utility token, AVAX, is the 10th largest crypto with a market cap of more than $24 billion. Furthermore, two of the most important issues that Avalanche is trying to fix are congestion and low fees. The blockchain can process around 6,500 transactions per second, much higher than Ethereum.
So Who Wins The Layer-1 Blockchain Race?
It’s clear that Ethereum is the most popular on the list and there are some notable mainstream names such as billionaire investor Mark Cuban publicly supporting it. However, Ethereum is poised to make a huge move toward PoS since its utility is much higher than what PoW can offer.
“We’re seeing a rush where there’s a lot of different blockchains that are competing,” Mark Cuban told CNBC Make it. “When they start to put smart contracts to work, that’s when we’ll start to see things really level out. It’s going to come down to applications and integrations.”
Although these so-called “Ethereum Killers” have been created with Ethereum’s scalability issues in mind, they still lack Ethereum’s decentralisation. Many of them offer much more centralised networks with lower transaction fees and higher transaction speeds. Another downfall is that the centralised design of these networks results in various outages.
It’s too early to say whether Ethereum could be replaced with all the support it gets from the community. If Ethereum can successfully pull off its upgrade to 2.0 and improve scalability, it will be difficult to see its user base go elsewhere.
About the author: Shane Neagle is Editor In Chief at The Tokenist.
DAOs
Decentralised Autonomous Organisations have a long and colourful history in the world of blockchain, the first emerging in 2016 following in the wake of Ethereum’s 2015 launch. A DAO is much like a corporate governance structure, albeit managed in decentralised fashion using blockchain technology and largely without the oversight of government regulation (for now). DAOs function by allowing holders of its tokens to vote on how funds within the DAO are directed.
2021 saw some big moves in the DAO space. Wyoming became the first state to formally recognise DAOs, granting them the same legal status as limited liability companies. ConstitutionDAO raised over $43 million to purchase an original copy of the American constitution at Sothebys. The DAO was outbid by billionaire hedge fund manager, Ken Griffin, but this episode clearly demonstrated the ability of DAOs to rapidly raise and deploy capital for a given purpose.
We can expect DAOs to soar to new highs in 2022, with many DeFi protocols now using DAOs to govern their future. Meanwhile, a host of new NFT DAOs are emerging to support collective investment in NFT art. Those looking to direct the future of DeFi or invest in a protocol’s future might consider investing in DAO tokens like Maker, UNI, AAVE or BitDAO. More interested in NFT art? Look into FingerprintsDAO, SquiggleDAO, and FlamingoDAO. Ownership of these DAO tokens will give the holder voting rights in the DAO.
Music NFTs
An NFT, or non-fungible token, is a unique blockchain record managing ownership of a particular digital product like a piece of art and is sometimes also linked to a physical representation. 2021 saw an incredible boom in visual arts NFTs and this has been a serious boon for digital artists. The refrain of digital artists not being able to get a break in the pre-NFT, infinitely copyable world of digital art has been rapidly changed by NFT tech that makes these digital goods uniquely ownable and tradeable.
While NFTs for visual arts have been around in their current form since 2017 (with many early, archaic renditions that predate even this) music is emerging as another hot NFT phenomenon to watch. Artists like 3lau, Nas and Mike Shinoda have all launched music NFT projects in recent months to high acclaim. Expect more established musicians to follow in their wake as the major record labels seek to wade into the NFT space.
Existing major NFT marketplaces are not currently well placed for this new world of music-on-blockchain as their browsing experience and product offering is optimised for visual arts, not music. As such, we are beginning to see a new breed of NFT platforms emerge to service this space, like Catalog, Zora and Sound.xyz. Another such platform is TokenTraxx, which is introducing a marketplace and mint platform for music NFTs this year. TokenTraxx’s deep relationships with the major record labels and its team of music industry personalities mean that it is well-placed to capitalise on this trend.
Layer 2 Blockchains
A layer 1 blockchain is an independent, standalone blockchain in the vein of Bitcoin, Etherem or Solana. All of these face the blockchain trilemma, that a blockchain can only effectively deliver 2 of 3 qualities: security, decentralisation and scalability. Most early blockchains, such as Bitcoin and Ethereum, value security and decentralisation over scalability. More recent blockchains like Solana sacrifice decentralisation for scalability.
The new, faster L1 blockchains that sacrifice decentralisation for speed will have their work cut out for them to compete against L1 heavyweights Bitcoin and Ethereum, however, because a new breed of so-called layer 2 blockchains have emerged to vastly increase their scalability and speed. A layer 2 blockchain acts in conjunction with a layer 1 chain by allowing transactions to take place much more cheaply and quickly on the layer 2, with an update to the underlying L1 happening at some time in future. The L1 becomes a sort of slow, expensive but incredibly reliable settlement layer, with the L2 providing the speed and low expense required of a blockchain fit for consumers.
With Ethereum fees regularly hitting new highs and L2 solutions beginning to hit their stride, the stage has been set for Arbitrum, Optimism and other L2 solutions to take off in 2022. Rumours abound that these L2 solutions will be offering their own tokens to help support their development and let investors gain exposure to them.
Increased Regulation
It certainly causes concern when adverts for shady altcoins appear on public transport in major cities across the world. Many activities that have been illegal in public equity markets for decades, such as wash trades, pump-and-dumps schemes, and unqualified advertisement of high-risk investments, have yet to be regulated in the realm of DeFi and blockchain. Regulators the world over are looking to get a handle on this and 2022 may be the year when we see firm guidance come from the USA’s SEC, Britain's FCA and other regulators on how financial regulation applies to blockchain.
Garry Gensler, chair of the SEC, has stated that while he has no plans to criminalise crypto, regulation is coming and that crypto markets “need more investor protection.”
Enforcement will doubtlessly become more robust and increasingly invasive scrutiny of blockchain participants can be expected. Blockfi’s $100m settlement with US regulators, the SEC’s first enforcement action against a crypto lender, will not be the last such action we see this year.
Stablecoins, privacy coins and DeFi products are the strongest candidates to find themselves within regulators' crosshairs. Stablecoins are attracting attention because of the risk of them not being properly backed by liquid assets, or the risk of an algorithmic peg breaking. Privacy coins that mask the addresses of senders and recipients in financial transactions are a natural haven for criminals, making them a top regulatory target. With DeFi, the regulatory concern is that most investors are not sophisticated or tech-savvy enough to understand if promised returns are possible, and many DeFi protocols are not as decentralised as one might imagine, making them open to abuse by a bad actor.
Conclusion
While no one can tell for certain what 2022 will bring, it’s likely that DeFi and blockchain will continue to evolve at a breathtaking pace. The market remains young but rapidly growing, and as many millions of new users are on-boarded to DeFi and blockchain by new product offerings from major tech companies like Coinbase and Meta in 2022, this is a space that can be expected to continue to boom.
Decentralised finance (DeFi) is booming, with the total value locked – the overall value of assets deposited in transactions – having risen from $700 million in December 2019 to over $200 billion at the beginning of 2022, equivalent to Greece’s 2017 GDP.
Having spent 15-plus years in the FinTech sector and as CEO of AQRU, a company that offers secure platforms for users to easily access the decentralised markets, I’ve experienced both sides of the coin first-hand. This has allowed me to identify three main factors fuelling the growth of DeFi: accessibility, ease of use and yields. These drivers stem directly from the way DeFi is built which is why, before deep diving into each one of them, we must take a step back to understand the basics of DeFi.
The building blocks of DeFi
DeFi is the use of the blockchain, the technology upon which Bitcoin and Ethereum are based, to create an entire financial ecosystem that doesn’t rely on a central authority, such as a bank, to validate transactions. Instead, all activity is recorded in ledgers stored across millions of computers, each capable of verifying every transaction to ensure it matches the records.
However, there is not much point in a digital currency if there is nowhere to spend it. DeFi makes Bitcoin, Ether, stablecoins and other cryptocurrencies worth having as it enables users to gain interest from lending cryptocurrency (also known as yield farming), buy insurance, and save and send money anywhere in the world – if it can be done in traditional finance, it can be done in DeFi. Now that we’ve covered the building blocks of DeFi, we can move to the three factors driving the growth of the sector.
A system accessible to all
One of the initial goals of crypto and DeFi is to promote financial inclusion by ensuring the 1.7 billion people worldwide who don’t have a bank account and nearly half the world’s population without an active bank account can access the same benefits – paying bills, accessing insurance and creating a pension pot – as those participating in traditional finance.
To do so, blockchain technology has been designed in such a way that it is accessible to anyone with a smartphone. With 91% of people worldwide owning a smartphone, this design has opened the door to thousands of people considered ‘unbanked’. And in countries such as Venezuela where exchanging currencies is difficult, it has also allowed people to protect their savings from inflation by exchanging their fiat for crypto.
As simple as tapping on a smartphone
As well as opening the door to millions of ‘unbanked’ people, DeFi has attracted a lot of interest because of how easy it is to use. Crypto and DeFi first started as an intimidating sector, the exclusive domain of the tech-savvy. However, things have changed – we’re now seeing many platforms, such as AQRU, that allow investors to easily exchange their fiat into cryptocurrency and access the high yields available in DeFi.
While these platforms initially focused on retail investors, new solutions are also being designed to allow institutional investors to easily access the decentralised market, maintain close oversight over their investments, and remain compliant with any relevant regulatory and security requirements.
Sky-high returns
For investors, one of the most appealing parts of decentralised finance is the yields. In DeFi there are no intermediaries between transactions, all of them take place peer-to-peer. By eliminating all the steps in-between, it means the lender can take almost all of the yield.
To give an example, let’s compare it to a bank. A savings account with a bank returns 0.5% per year if people are lucky. The bank may well have made 10% on loaning customers’ money, but by the time they have covered their costs and taken their share, there’s not much left for the user. DeFi’s main cost is the upkeep of the website, which has attracted users looking to maximise their returns.
The road ahead
The building blocks of DeFi are what has made the sector so popular. However, for DeFi to become a true competitor to traditional finance, it must reassure customers that their money is just as safe in DeFi as it is in a bank.
Over the last few years, there have been some high-profile incidents where online wallets, when external companies manage customers’ cryptocurrency for them online, have been hacked. Not to be deterred, the DeFi sector has developed innovative solutions to bolster anti-hacking protections and close weaknesses in the system’s code. Indeed, some DeFi platforms are now equipped with bank-grade security software, providing reassurance to DeFi users that their money is safe.
Additionally, DeFi can improve investor and consumer confidence through regulation. This is not to say that any regulation would work – ill-thought-out rules would limit the sector and stifle innovation. Instead, governments should work closely with DeFi businesses to understand how regulation can be implemented in a way that does not compromise the system’s speed, efficiency or yields.
While the potential returns and simplicity of DeFi have enticed millions to join the sector, there is still some way before DeFi equals and exceeds traditional finance. As the sector works with regulators and develops innovative security solutions to reassure users that their money is safe in DeFi, we can expect consumers to become more confident and give DeFi a larger role – maybe 5-10% – in their investment portfolios. Traditional finance is outdated. DeFi is coming for it – it must be terrifying.
About the author: Philip Blows is the CEO of AQRU, an incubator specialising in decentralised finance. He has held management positions in FinTech and asset management for the last 15 years. At Moneycorp, he established an asset-management and trading division and established robust management systems to track business performance. He was previously the Sales Director at Wealth Wizards, which is a UK-based robo-advice platform, and his first book, ‘The Money Triangle’, was published in 2020.
The move by India was prompted by the country’s rapid adoption of digital coins, bringing it closer to regulating such investments following several warnings about the risks of terrorism and money laundering from the central bank. The move also follows China beginning CBDC trials in numerous cities, while the US Federal Reserve and the Bank of England are exploring possibilities for their economies.
On Tuesday, Finance Minister Nirmala Sitharaman said in her budget speech that income from the transfer of any digital assets will be taxed at 30%.
“There’s been a phenomenal increase in transactions in virtual digital assets,” Sitharaman said. “The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.”
Sitharaman also announced the launch of a central bank digital currency for the financial year beginning in April, to attract more efficient and more affordable currency management.
Powered by blockchain, financial institutions such as JP Morgan and Goldman Sachs were experimenting with the technology at the time. Since then, the former has launched its own blockchain initiative system called Onyx, while Goldman Sachs co-led the first public digital issuance on Ethereum public blockchain for the European Investment Bank.
Perhaps most strikingly though, major powers like Russia and China have introduced their own digital currencies since Lagarde’s statement, signalling a potentially seismic and irreversible shift towards blockchain-based payments, particularly for those taken across borders. But how exactly does this technology work and why are financial institutions and countries alike seemingly so eager to move towards it?
Blockchain explained
First things first, let’s recap what blockchain actually is. Blockchain is a kind of database that gathers data in groups called blocks. All of these blocks have a fixed storage capacity, and, when filled, are chained onto an existing block to create a chain— i.e., the term blockchain.
A key feature of this is that, once a block has been filled, it is given an exact timestamp of when it was added to the blockchain. Every event that happens on it is recorded on a public ledger, which is essentially a record-keeping database that ensures the participants’ identities are kept secure and pseudo-anonymous. They can only be identified by private keys, which are strings of letters and numbers needed to make a blockchain transaction.
An example: Bitcoin
To demonstrate blockchain in action, it makes sense to look at the most famous example of a technology that uses one: Bitcoin. The cryptocurrency exists on a blockchain across thousands of computers worldwide, all operated by different groups of people. These computers are called ‘nodes’, each of which has a record of every transaction that has taken place on it.
This has many benefits, with perhaps the main one being that, if one node has an error in its data caused by a fraud attempt, the blockchain can reference the other nodes to correct the database. Consequently, every transaction is accountable, secure and irreversible, with no de-centralised organisation being able to control things either.
To make a Bitcoin transfer, you need two Bitcoin addresses (known as public keys) to send the crypto to and from. The person transferring it is required to sign a message using their private key, which contains the input, output and amount being sent. This transaction is then broadcast to the rest of the Bitcoin network, with the nodes checking whether the person’s private key is able to access the input by matching the public key number. After doing so, mining nodes will add the transaction to the blockchain.
How does blockchain facilitate global payments?
People can use blockchain to send money across the world as they would for transferring cryptocurrency to one another. For example, companies like Stellar and Tempo offer 1:1 backed fiat tokens (also called stablecoins) that individuals and companies can convert their government-issued currencies into and send via a blockchain. The receiver can then accept the digital currency and convert it back into their own currency.
Blockchain is rivalling conventional transfers
This type of system allows people to enjoy the benefits of blockchain-like more secure and transparent transactions. It, therefore, has significant advantages over conventional cross-border payments, which are often costly, slow, opaque and dogged with security issues. Because of a lack of standardisation between countries, transfers tend to require a number of intermediaries to carry out tasks like verifying a sender or receiver’s identity and creditworthiness. This is not only time-consuming but adds extra costs. What’s more, these transactions often take place on outdated legacy systems, potentially rendering those involved vulnerable to security breaches. So why exactly is blockchain increasingly considered a better alternative?
Why are financial institutions moving towards blockchain?
It’s more cost-effective
Instead of paying transfer fees to multiple intermediaries, those using blockchain only pay a nominal fee to a financial institution or nothing at all. Deloitte estimates that business-to-business and person-to-person payments with blockchain are 40% to 80% cheaper than the standard transfer process.
It’s quicker
In the same study, Deloitte revealed that blockchain transactions are also astronomically quicker than conventional cross-border transfers due to being near-instantaneous. On average, they take around four to six seconds, compared to two to three days, with none of the hoops around intermediaries to jump through.
It’s more secure
When records are maintained by one central authority, such as a bank, they are vulnerable to hacking and other threats. But all transactions within a blockchain are tied to previous transactions, as well as being protected by cryptography. Consequently, a hacker would have to also hack every other transaction on the ledger, making it nigh-on impossible to infiltrate.
It’s more transparent
Considering a blockchain is a public record of digital transactions, it is a lot more transparent than traditional banking. Each party has an identical copy of the ledger, which is continually updated by the connected computers. This also removes the risk of discrepancies between different records, unlike with financial institutions which each have different databases that may not feature matching data.
What does the future hold for blockchain in the global payments system?
While blockchain is certainly gaining traction in the global payments sphere, it’s unlikely to replace the traditional payment system in the near future. International transactions must meet complex regulatory, compliance, finance and operational requirements, making it hard for independent companies to offer blockchain-based cross-border payment systems. Rather, we’re more likely to see an increasing number of banks use the technology themselves to provide blockchain transactions through their existing payment systems.
Stan Cole is the Head of Financial Institutions at Inpay.
As we head into 2022, companies are preparing by pivoting their focus toward digital transformation to boost value for their customers and their bottom line.
Here are 4 trends to look out for in 2022.
1. Contactless services
The challenges created by the coronavirus pandemic have caused a major shift in consumer behaviour. Suddenly needing to adhere to social distancing guidelines and other rules, companies shifted their operations with rapid speed. According to The Visa Back To Business Report, nearly 33% of businesses now only accept contactless payments, while 48% of customers said they would not shop at a store that only offers payment methods that involve contact with a cashier or a shared machine such as a card reader. This shift toward contactless services is set to stick around in 2022 and the years beyond as the pandemic continues and customers become increasingly accustomed to simpler and faster ways of paying. As such, businesses that want to keep up will have to make the shift in line with the rest.
2. Digital Society
Society is becoming increasingly digital, with almost 15 billion mobile devices operating worldwide in 2021. While a decade ago cash made up 60% of payments, 2017 saw debit cards overtake cash for the first time. Covid-19 has undoubtedly pushed an increasing number of people toward digital payments options, but even before the pandemic, cash was set to make up just 10% of payments by 2028.
Digital wallets are also playing a major role in the increasing popularity of digital payments. According to an annual Worldpay Global Payments Report, digital wallets are set to represent half of global e-commerce sales by 2023, meaning we will likely see their popularity grow in 2022.
3. Automated Processes
It’s no secret that manual services are often time-consuming and not always the most efficient option for businesses. While automation can carry a hefty upfront cost, in recent years, many companies have started to invest in automating business processes in finance from payments, to lending, to front-end services, and back-end core functions. According to predictions by Gartner, the worldwide market for technology that enables hyper-automation is set to reach $596.6 billion in 2022, up from $481.6 billion in 2020.
Automation not only boosts efficiency for businesses but also improves client satisfaction by accelerating the pace of communication. Furthermore, in the long run, automation is also likely to reduce a company’s operational costs.
4. Blockchain
Currently, blockchain is often discussed in terms of its connection to cryptocurrencies. However, in 2022, we will likely see much more of blockchain’s true potential. Blockchain, fundamentally, is a secure system that allows for transactions, financial and otherwise, to be carried out. Such technology can be used by banks to handle remittances for lower costs and greater productivity, upping the efficiency of transactions without compromising security. As a second example, blockchain technology can also be used to support peer-to-peer lending solutions. PwC projects that, by 2025, the P2P lending industry will reach $150 billion.
Final Thoughts
Thanks to the pandemic and technological advances, major shifts are coming for finance. These 4 trends are set to have a significant impact on the sector in 2022 and will likely set the standard for many more years to come.
