When many people think of cryptocurrency, they think of Bitcoin and its headline-grabbing price swings. They might also think of using crypto to send or receive electronic payments, similar to other services like PayPal.
However, many people are still unaware of the vigorous pace of innovation in the crypto space. The world of cryptocurrency has moved far beyond digital payment systems or stores of value.
In this article, we’ll explore some of the common use cases for cryptocurrency and where it’s heading in the future.
What can crypto be used for?
The unknown creator of Bitcoin, Satoshi Nakomoto, released a whitepaper in 2008 that outlined a vision for a new financial system – free from centralized governance. It would enable people to conduct direct, peer-to-peer transactions with anyone in the world.
It proved to be a revolutionary idea and spawned a thriving industry dedicated to the advancement of cryptocurrency. Every day, new projects are being developed that demonstrate cryptocurrency’s increasing relevance to our lives. Crypto has evolved beyond digital cash to include the use cases listed below.
Payments & Transactions
Using crypto to pay for something online is still one of its most common uses. Cryptocurrency’s inherent characteristics make it safe to use and protect the user’s privacy.
For example, when you conduct an online transaction with crypto, your private information isn’t attached to the transaction. As a result, your data can’t be sold to advertisers, banks, or credit agencies. This reduces the risk of identity theft or personal data leaks.
Crypto is especially well suited to sending large amounts of money across borders. Suppose you wanted to send money to a relative in a foreign country using a bank or remittance provider. This process requires extensive verification, potentially large fees, and waiting for up to a week or more for processing. With crypto, your funds can be deposited directly into your relative’s account in minutes and cost minimal fees.
However, there’s still a long way to go before you can use crypto to pay for cereal at the supermarket, and an increasing proportion of cryptocurrency transactions now occur within the crypto world itself. Most native tokens on a blockchain like Ethereum have specific uses within that platform. They’re used to pay transaction fees, distribute rewards, and perform other utilities.
Governance
Since a central authority doesn’t govern public blockchain networks, how do participants agree on upgrades or platform developments? The answer is governance tokens. By holding these tokens, participants can vote on decisions that determine the future of a crypto project.
The idea of community governance is essential to many decentralized finance platforms. When a protocol implements this form of decision-making, it’s referred to as a decentralized autonomous organization (DAO).
Network Fuel
To be self-sufficient, blockchain networks need to incentivize participation and pay for on-chain transactions. That’s where network fuel comes in. Just like an automobile, the network requires a power source. Users pay for the computing resources needed to power the network in the form of transaction fees.
For example, if you want to execute a smart contract on Ethereum, you’ll need to pay the associated gas fee. The fee amount depends on the size of the transaction and is paid in ETH or GWEI, the network’s native tokens.
Store of Value
Gold reserves no longer back fiat currency. This means centralized banks can print as much money as they want and can result in high levels of inflation.
In contrast, cryptocurrency is often seen as a hedge against inflation because many coins have built-in mechanisms restricting inflation and preserving scarcity. Bitcoin, for example, has a supply cap of 21 million BTC. Since it’s such a scarce resource and has significantly increased in value over time, many refer to it as ‘digital gold.’
Stablecoins, such as USDC or USDT, are pegged to the value of the US dollar. As a result, they can be used as a savings mechanism or used for trading across blockchains.
If you’d like to learn more about what makes cryptocurrencies valuable, check out this article.
Decentralized Finance
Decentralized finance, or DeFi for short, has revolutionized the financial industry. It’s an umbrella term for financial products or services that exist on the blockchain. The main goal of DeFi is to get rid of the intermediaries that are abundant in traditional finance using cryptocurrency.
The growing ecosystem of DeFi apps is primarily built on the Ethereum blockchain. These apps offer lending or borrowing services, platforms for earning interest, smart contract facilitation, and much more.
For example, with DeFi, you no longer need to go through lengthy loan approval processes or submit mountains of paperwork. Instead, DeFi platforms allow you to lend or borrow cryptocurrency almost instantly. In some cases, you’ll have to put up crypto as loan collateral. Other experimental options like flash-loan applications offer the possibility of no-collateral loans.
Incentivization and Rewards
Incentivization is key to the overall success of cryptocurrency. Without users, the peer-to-peer, decentralized system breaks down. Popular blockchain networks encourage user adoption by implementing protocols like Proof of Stake (PoS) to secure the network and validate transactions.
Proof of stake requires participants to buy into the network and ‘stake,’ or commit, their tokens to contribute to its operation. In return, participants earn staking rewards in the form of transaction fees paid out in cryptocurrency.
Staking allows crypto holders to earn rewards with just a small amount of cryptocurrency. In contrast to low-interest rates found in traditional savings accounts, annual staking interest rates are often in the range of 5%-20%. This makes it an attractive passive income stream that contributes to the security and efficiency of cryptocurrency projects you support.
To learn more about staking, we have a more in-depth article here.
Storage
Most people are familiar with cloud storage providers like Dropbox or Google Drive. However, centralized storage platforms can have privacy risks, high fees, or experience server outages.
In response, several cryptocurrency-based decentralized storage platforms have emerged, such as Filecoin or Storj. These platforms offer a peer-to-peer storage solution secured by blockchain technology and distributed across a global network. Essentially, anyone with free space on their hard drive can sell storage to the network and be paid in the platform’s native cryptocurrency.
What are the most used cryptocurrencies?
There are thousands of cryptocurrencies out there, and many of them have similar purposes. Here are some of the most commonly used cryptocurrencies with a short description of their utility.
· Bitcoin (BTC)
A peer-to-peer electronic payment system primarily used as a digital store of value.
· Ethereum (ETH)
The largest global, open-source network for building decentralized applications and deploying smart contracts.
· Tether (USDT)
A stablecoin that is pegged to the value of the US dollar – used for storing value and cross-chain trading.
· Cardano (ADA)
A decentralized blockchain built to be a scalable alternative for smart contracts and other decentralized application deployments.
· Ripple (XRP)
A global payment solution intended to move money faster and more efficiently between financial institutions.
Where is crypto adoption the highest?
According to research, global currency adoption is booming. In 2021, the global crypto adoption rate jumped 880% over the previous year. This represents an incredible opportunity for the cryptocurrency industry. After all, without users, crypto is practically worthless.
Cryptocurrency is particularly taking off in countries where many people may not have access to traditional financial institutions. Vietnam, India, Pakistan, Kenya, and Venezuela are just a few countries near the top of the list of cryptocurrency adoption rates.
The inherent decentralization, privacy, security, efficiency, and mobility of crypto make it an attractive asset. Combined with rising inflation rates and decreasing trust in government-backed fiat currency, crypto presents an alternative to the traditional financial system that many find compelling.
In June 2021, El Salvador became the first nation to adopt Bitcoin as legal tender officially. The long-term effects of this move are yet to be seen. However, it demonstrates the undeniable rise of cryptocurrency and establishes a precedent for other countries to follow.
How can crypto be used in the future?
The crypto industry is still in its relative infancy. Many of the most significant blockchain projects have only been around for a few years. However, based on the current level of interest and resources directed towards crypto development, the future is promising.
One recent development that has exploded in popularity is blockchain-based NFTs. They give creators control of their output, establish financial value, and facilitate sales. It’s just one way that the tamper-proof qualities of blockchain have made it into real-world applications.
For most people, increased support for cryptocurrency will make it easier and cheaper than ever to conduct digital transactions and send money worldwide. We could be getting closer to the peer-to-peer financial network envisioned by Satoshi Nakomoto and other pioneers in the crypto industry.
Cryptocurrency has already proved that it can disrupt global financial systems. The only question that remains is how far it can go and whether regulatory frameworks will limit its reach.