Bitcoins’ release in 2008 marked the genesis of an alternative, decentralized, and peer-to-peer (P2P) currency, namely cryptocurrency. Leveraging the wide applications of blockchain technology, their usability has diversified over time. The market value of all cryptocurrencies has grown exponentially since the initial launch of Bitcoin, even surpassing the $2.08T mark in August 2021.
Such a remarkable boom is primarily due to blockchain technology’s disruptive potential, which touches almost every business domain. There isn’t a sector - from finance to education - where blockchain technology hasn’t enabled unprecedented avenues for innovation.
Despite their broad scope, digital currencies are still the most widely adopted outcome of blockchain technology. In this article, we will highlight some of the most significant use-cases of cryptocurrencies.
Payment & Transactions
Cryptocurrencies are commonly used as a means for payments and transactions. Especially when sending and receiving funds internationally, using crypto is a lot more efficient compared to traditional methods. They eliminate the need to rely solely on a centralized authority or intermediaries, such as banks. Cryptocurrencies represent a fast, secure, and cost-minimizing method for completing a variety of financial transactions.
Notwithstanding day-to-day payments, crypto is well-suited for cross-border transfer of funds. While traditional methods require 7-10 days to settle international transactions, crypto-based payments can be settled within 10-40 minutes or less. In addition, algorithmic automation and the absence of intermediaries enhance efficiency while reducing bottlenecks and fees. It’s also worth mentioning that the development of blockchain and crypto has enabled people around the world who cannot open bank accounts through traditional financial systems to access crypto as a payment method to easily send and receive funds across borders with less bottlenecks involved.
Even in the initial days of crypto adoption, tech-savvy merchants globally began accepting crypto-based payments. Today, several mainstream retailers and brands, including Wikipedia, Microsoft, AT&T, Burger King, KFC, and Subway accept crypto-based payments.
Bitcoin’s BTC, Ethereum’s ETH, Litecoin’s LTC, Ripple’s XRP, and Stellar’s XLM are some cryptocurrencies that are predominantly used for payments and transactions. However, almost every existing cryptocurrency has this functionality, even if for a secondary purpose.
Governance
In the absence of centralized authorities, blockchain networks adopt a community governance mechanism for executive decision-making. This is achieved through distributed voting by members, which secures and stabilizes the networks.
Although cryptocurrencies are usually referred to as governance tokens, in order to determine voting rights and to ensure that voters have their skin in the game, several blockchain ecosystems employ their native tokens. In general, network members acquire voting rights in proportion to governance token ownership. Varying from protocol to protocol, governance tokens can be distinct assets or the network’s native cryptocurrency. The DOT token, Polkadot’s native crypto, is predominantly a governance token. However, it also has market tradability as an additional purpose. Polkadot users need to stake their DOT tokens to participate in the network’s decision-making process for upgrades and bug fixes. Additionally, several Ethereum-based protocols require users to stake their ETH tokens for governance rights. The network requires staking ETH in order to keep its system secure. Once you have staked 32 ETH, you will also be able to run a node.
Network Fuel
Blockchain ecosystems need to be financially self-sufficient while participants are adequately rewarded for their efforts. In other words, there have to be mechanisms of settling in-platform transactions without involving additional third parties.
Ethereum was the first platform to adopt and introduce this crypto-economic model. By leveraging the Ethereum Virtual Machine (EVM), it enabled decentralized computing for the development of Smart Contracts and Decentralized Applications (DApps). To execute these contracts and to deploy DApps, developers need to pay for “gas”—a form of transaction fees. Commonly, this is referred to as ‘fuel’ for the network and is payable in ETH tokens or its sub-denominations, GWEI. Over time, other blockchains that facilitate smart contracts and DApps have also adopted this model. Among them, Cardano (ADA) and EOS.IO (EOS) are popular. Similarly, Chainlink—a platform enabling on-chain-off-chain interactions with Oracles—also enables users to pay for in-platform services using the LINK token.
Savings Mechanism
The volatility of prices has been a persistent complaint against cryptocurrencies in general. Despite facilitating high-risk-high-return trading and speculations, such volatility hinders the use of ordinary cryptocurrencies for long-term savings. To meet these demands, among other factors, collateralized stablecoins have steadily emerged on the scene.
Proportionally pegged to fiat, stablecoins ensure non-volatile prices. In turn, this makes them viable as a savings mechanism and various cross-chain interactions. Tether (USDT), which is pegged in a 1:1 ratio with USD, is one of the most popular stablecoins. At the time of writing, USDT’s market capitalization is over $64.2 billion, thereby proving its wide adoption.
Generating Passive Income
With the crypto market on the rise, it has become one of the main sources for generating passive income for many. There are several ways you can rely on this type of income; however, like any other form of investment, it has its ups and downs. Mining is the oldest method for generating passive income in the crypto world. Essentially, you don’t even need to hold any cryptocurrencies, you can just provide power for the network. This method isn’t very green and that’s why staking is becoming more popular than mining. With staking, you can keep certain funds in your wallet for the duration of your choice. Staking is used for validating transactions on the respective blockchain, which results in receiving rewards for the stakers. It sometimes requires the funds to be added to a staking pool with several trading platforms providing this service for their clients. Thus, you can enjoy earning crypto without doing much. You can also lend on P2P platforms and collect interest payments later. Platforms such as Hodlnaut and Celsius offer such services.
Incentivization & Rewards
A crucial aspect of blockchain ecosystems’ self-sustenance is the incentivization of user participation. Cryptocurrencies are often used to provide incentives or rewards to developers, validators, lenders, and content creators. In December 2019, Twitter announced the launch of its “BlueSky” project, which aims to create a decentralized social network. The system will allow its users to benefit from hosting, governance and monetization. Several other social media platforms, such as Steemit and Read.cash are also rewarding their content creators with crypto as well. Contrary to platforms where its users’ data is rampantly misused for profit, this represents a user-centric and just model.
Dogecoin (DOGE) is a cryptocurrency that was originally created as a joke and then became an incentive for meme-makers and entertainment content creators. However, it has grown in popularity since and is now the fifth-largest cryptocurrency by market cap. DOGE is also used as a tipping currency, circulated on Twitter, Reddit, and Twitch, among others. Furthermore, the Dogecoin community is known for donating large sums of money for philanthropic activities worldwide. It has become more and more popular since Elon Musk’s tweets about the coin.
Platforms like Lolli have also implemented a system that when you make a purchase on selected websites, the platform rewards you with Bitcoin.
Although being a store of value is still their most common use, digital currencies are now being leveraged to meet diverse needs. Evolving greatly since their inception, cryptocurrencies are no longer limited to just being methods of payment or investments.
Decentralized Finance (DeFi) is increasingly emerging as a holistic and multi-dimensional financial framework centered around blockchain technology and cryptocurrency. Mitigating the persistent perils of traditional and centralized financial systems, crypto is paving the road to the future of finance for people and businesses globally.
To become a part of this journey, buy, sell and trade over a dozen different cryptocurrencies on NDAX.