Crypto is all about ‘use cases.’ If a cryptocurrency has an application it has a value, if it doesn’t it is valueless.
Bitcoin got its use case from being first. The first use case being as a prototype of a cool idea. This was a limited use case and it was worth pennies because of it, just like collecting pokemon cards has a currency. Then the economic darkside got busy and ‘poom’ suddenly it was worth $100 a coin. The black hats always commercialise great technology first, its an inevitable part of the cycle. Then come the early adopters and off we got to $1000 a coin. Now Bitcoin’s use case is easy to use money, easy to store and move asset and that moves it out of the deep shadow into the grey zone that is still part of the Crypto scene today. Dollar bills are of course the king of this zone and as acceptance and understanding of Crypto grows the smear of dodgy dealings with Bitcoin wears off and it is accepted as just another form of spendable.
Bitcoin’s usecase is increasingly becoming a hedge against inflation, the so called ‘digital gold’ use case. I am a believer in that and I like the fact I can buy and sell way faster than I might gold coins.
The future of Bitcoin as the reserve Cryptocurrency is its fate and will create appreciate because of it.
The next Crypto, the Queen of Crypto if you like, is Ethereum. It plays Apple to Bitcoin’s Microsoft. It use case is that it is a virtual computer which prints its own money to pay for its operation, that fuel is the Ethereum coin and that coin pays for the Ethereum distributed computer and its blockchain database to do whatever computing task set for it. Its an amazing thing, but it will turn your brain into putty, like most hard-core computing things when you dig into it. It’s an extremely powerful idea with a barely explored new frontier of possibilities.
Just like old school compters, Ethereum is awaiting its ‘killer app,’ the software that drags the mainstream screeming and sobbing into having to use the new technology because it is so compelling people just have to ‘get with it.’ For the PC the original ‘killer app’ was the spreadsheet and word processor, for Apple it was Desktop publishing (if I remember correctly that far back.) Killer apps break cool technology into the mainstream and Ethereum seems to be on the cusp of having its first, Defi. Distributed finance.
There are other blockchains which pretend to Ethereum’s crown in the same way there are plenty of Bitcoin-alikes, but Ethereum is the Brand leader by far. It is so easy to vanish down Crypto rabbit holes when discussing the potential but to avoid confusing the picture I will avoid talking about others and stick to the £24 billion market cap Ethereum as the core Defi platform.
Defi works like this.
Ethereum is a network of computers on the internet running the Ethereum blockchain (blockchain = database) there is a computing layer you can run programs on that write to the blockchain and its all secured by Cryptography so anyone who has Ethereum coin to pay for it can do their thing from anywhere on the internet without having to ask permission to do so and without the ability to mess with anyones elses stuff. The blockchain prints its Ethereum money to pay the ‘miners’ who administer all the computing that’s going on. Again, anyone can be a miner and its all secured by encryption and no one needs permission to join the party. Ethereum is convertible to money and you can buy thereum with money on a whole bunch of places and use it like Bitcoin to buy stuff or use it on the blockchain to do computing stuff.
So a bunch of kids can write a game on the Ethereum blockchain or the could write a bank.
Writing a bank is Defi.
Buy Ehereum with dollars, put it in a computer program that some kids wrote on the Ethereum blockchain which lets some one borrow it and pay interest, now you have a lending platform.
How that system manages to make that process safe and looks after your money and your interest is an explosively growing chunk of Defi and that is going to be the tip of the spear for a wave of killer financial apps that will wash over the Ethereum blockchain.
This is all powered by ‘stableccoins’ which are the EFT’s of Crypto. A Tether coin will keep roughly $1 in value a the Tether people will buy Tether with dollars to keep it at par and will mint new ones and sell them if the price goes over 11 cents. In can get choppy in wild markets but by and large you $1 stablecoin keeps its value pegged. Other stable coins have come along and now you can flip you BTC or ETH or DOGE in and out of stable coin dollars. You can borrow them on a Defi platform and sell them and take your ‘fiat’ dollar to town and spend it. This means the Crypto world can now save and lend its Ethereum and Bitcoin and borrow it and turn it into cash and spend it and the mainstream consequentially gets tugged closer to the Cryptoworld.
If Ethereum was a company, you would buy the stock. But you cant, because there is no ownership, the whole point about blockchains is that they are a phantom that morphs away from attempts to control or shut it down.
The way to own the ‘stock’ is to own the coin. The coins issuance is constant so as use grows the value of the coin goes up. It issue about $4 billion in new coins every year, but in the world of money or even computing this is a drop in the bucket when the US has just grown its M0 by 30% or about $1000 billion from February to May of this year.