For some people, Bitcoin is the only cryptocurrency worthy of consideration – such people are known as bitcoin maximalists. They would use this as a store of value (i.e. to save) because they believe that its scarcity and immutability are worth the investment. However, blockchain technologies have many uses. These are not always obvious and some aren’t able to easily demonstrate financial viability. They are however, definitely worth looking into. This is a completely new technology and use cases are being defined (pre-development) all the time.
| This is the fifth section of the Cryptocurrency and Blockchain awareness programme, How to Crypto. |
It’s worth your time to look for new and interesting blockchain ideas and concepts.
Use cases for Cryptocurrencies broadly fall into the following categories:
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- Store of Value
- Stablecoins
- Layer 1 Ecosystems
- Decentralised Finance
- Non Fungible Tokens (NFTs)
- Storage
- Metaverse
- Games
This is a scary list for people new to crypto – it’s a scary list for those who have been involved in crypto for years! They are difficult to keep up with since most are new technologies and still evolving.
Lets look at them in a little more detail:
Store of Value
Besides being a highly efficient form of payment, some cryptocurrencies are an excellent store of value. Such currencies are designed to be like Gold in that they are (or will be) more scarce over time. There are exceptions, but generally, the more scarce a cryptocurrency, the more valuable it will become. Bitcoin is the leading example of a Store of value cryptocurrency.
Bitcoin has, on average, increased in value by 200% each year since 2009. The reason we pay more for a bottle of milk now than we did 20 years ago is because the value of our fiat currency is less. There is more of it (especially after the COVID pandemic). Commodities that we purchase with fiat currency are just as valuable as they were in the past, but the pound/euro/dollar/yen isn’t, commodities will increase in cost over time if you use an inflationary currency to purchase them.
Depressingly, there are many people studiously saving their fiat currency in their bank savings account which is paying them less than 1% interest. Since inflation is currently around 8%, they are effectively losing 7% of the value of their savings.
Over the past 10 years, holding Bitcoin has been a proven way to secure the value of your investment with little risk. What puts people off is bad press and volatility. Such volatility elevates investment risk to unacceptable levels in the eyes of the average investor.
Stablecoins
This type of coin is designed solely to maintain a stable market price. Tether is a good example of a stablecoin – it is ‘tethered’ to the US Dollar so it’s value will not change no matter what happens – if inflation devalues the dollar, Tether coins will be devalued along with it.
In recent times it has grown in popularity because it is used as an on-ramp or off ramp trading mechanism for crypto investments. For instance, I might use my fiat currency to buy USDT (Tether Coin) because it is the only stable pair to buy the crypto token that I want to purchase (see the section on Buying and Trading Crypto). I would then trade my USDT stablecoins for the cryptocurrency of my choice on the relevant Central Exchange. Stablecoins are obviously more resistant to market volatility than other crypto currencies since they are tagged to fiat currencies (usually US Dollar). Being tethered in this way helps them avoid wild price swings.
Layer 1 Ecosystems
A layer 1 network is another name for a base blockchain. Bitcoin is a Layer 1 protocol as is Polkadot, Elrond, Solana, BNB and Ethereum. They are called layer 1 because they processes and finalizes their own network transactions. They also have their own native token/coin, used to pay for transaction fees (known as gas fees).
A layer 1 blockchain is very difficult to set up. It involves some very complex programming to ensure it is secure, that is, coins or tokens cannot be ‘double counted’ and that they can be easily transferred between wallets and services reliably. There are currently around 10,000 cryptocurrency coins and tokens but only a very small proportion are Layer 1. Most tokens use a Layer 1 blockchain to manage their transactions and smart contracts. It is much easier and very much cheaper for them to do this.
Layer 1 Coins are considered to be a stable investment because of this. If their network proves to be secure and easy to use, other projects will want to build on it. This is the main reason that Ethereum is so popular. It was the first Layer 1 protocol to use smart contracts and makes it very easy to develop applications and services on it’s ecosystem. Unfortunately for Ethereum, it was one of the first blockchain protocols of this type and suffers from a programming language that, in my opinion is really clunky, difficult and expensive (high gas fees) to use.
DEFI (DEcentralised FInance)
This makes borrowing and lending very much simpler and accessible. Decentralised finance applications utilise a complex but very logical set of actions called a ‘smart contract’ to enable quick and easy transactions to be completed without the need for banks and other financial institutions. Low fees, low interest rates and improved accessibility to funds are also greatly improved.
Because cryptocurrencies are cross border, the decentralised borrowing and lending processes can be conducted globally. Remember, there is no one person (or persons) determining your eligibility, this is done logically and without prejudice no matter your skin colour or location or status!
There are new projects setting up that will allow investors to share in the profits as a group for Liquidity Farming and Node production fees. These services are quite complicated to explain in terms of basic awareness. Essentially, Node as a Service (NaaS) and DEFI as a Service (DaaS) projects enable investors to group together to own nodes on a network that generate fees from validating transactions and minting new coins. They can also take part in liquidity farming which is a service whereby users invest their crypto in a liquidity pool that is used for buying and selling coins/tokens. in effect, they are lending their money to a pool and gaining interest (sometimes as much as 20%!).
However, please be careful! DeFI and NaaS projects are notoriously unstable. They are put together by many groups who are simply ‘having a go’ at generating funds for themselves without much care or attention to the ecosystem (i.e. it’s unlikely in most cases to be financially sustainable – in many cases, they can be considered a Ponzi Scheme). Even WORSE (and my personal pet hate for ALL of crypto) some of these projects are written by idiots who use poorly constructed, insecure code that is prone to attacks from hackers. Such projects may sound financially viable but if the underlying code is poorly constructed, users/investors could lose everything they invested because of a hacker exploit! – Do the due diligence and know your project before investing. Don’t just take a chance with DeFi.
Non Fungible Tokens – NFT’s/Tokenisation![]()
NFT’s have been making the headlines in the press for many reasons lately. Most of these are for the huge prices being paid for them…..
An NFT a Non Fungible Token (non-fungible means it is unique) is the digital representation of a real-world asset (for instance a painting or a building) or a wholly digital asset (e.g. a photo from a digital camera or a cartoon image). It can be a document, artwork, real estate or commodities, it can even be the digital representation of a website domain name (like ‘tonyfawl.crypto’).
The concept can even be developed even further. You could for instance, be an artist that paints a picture that is tokenized (in terms of ownership) to 1,000 tokens. Those tokens can then be bought and sold as NFT cryptocurrency tokens as part shares in the picture.
Check this out!
This NFT is part of a picture called Merge. The Merge image was made by a guy called Pak and was recently sold for a whopping 91.8 million dollars! Yes, I don’t know why either – it’s not even in colour! It’s strangely upsetting, like watching everyone around me is laughing at a joke that I don’t understand.
Worse still, to make it affordable to the masses, it was sold in little pieces:
“The NFT Marketplace Nifty Gateway launched Merge which is unique in that buyers are not buying actual NFTs. instead, they are paying for “bulk” tokens that will be combined into dynamic, unique NFT collectibles after the token sale. Pak’s prominent image and mysterious format clearly appealed to NFT collectors, as a total of 28,984 buyers spent a total of $91.8 million during the two-day token sale. According to final statistics provided to Decrypt (website) by the Gemini-owned marketplace, a total of 266,444 tokens were purchased, with some buyers accumulating (up to) 8,695 tokens. Existing Pak NFT collectors were given early access to the sale and could purchase tokens for $299 each, while the public sale began at $400 per token, with $25 increments every six hours. The final tokens were sold for $575 each.“ (from an article on ultcube.com).
NFTs are increasing in popularity and although most are completely worthless, all of us are able to create and own them without fear that they can be copied – i.e. that it’s authenticity is not in question. You can copy one of these as much as you like but you will never be able to prove that you own the copyright to the counterfeit because true ownership is recorded on the blockchain).
Other famous NFT’s include:
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 Sold for $23.7 Million |
Sold for $3.4 Million |
The two NFT’s above were sold at a high price because they have elements of the picture that are unique to other similar NFT’s. For instance, the Cryptopunk NFT, #8507 has a clean face and a bandanna – no other cryptopunk has a clean face, they either have a pipe, beard or mask etc. which makes them unique (scarcity adds value – a lot in this case).
The most important thing to remember about NFT tokens is that they can be transferable and traded very easily – in the same way as currency. As such, the value of the ‘currency’ can go up and down too.
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Available for $17.63 |
I bought it for: $988 It’s currently worth $95 |
Sometimes however, NFT’s can be very useful!
This website CryptoNET.org.uk is housed on a cloud server in the United States. The domain, cryptonet.org.uk costs around £20 per year for me to ‘rent’ – I don’t own it, if I don’t pay the rental fee when it’s due, I loose the domain name. I pay this fee to a managing agent that secures it for me – they do nothing else other than act as a custodian.
I also have two domains that are NFT’s one is called tonyfawl.crypto which points to this website. It costs a little more that $20 but it is a one-off fee. I don’t need to pay it each year, once I have bought the NFT it is mine until I sell it.
Even more useful, I have another NFT domain called tonyfawl.wallet which is set up so that if anyone wanted to send me some crypto, they could just enter the ‘To’ address as ‘tonyfawl.wallet’ rather than the long and complex crypto address (e.g. 0x706E4aF664183dcD4aF66A515E35ce93E3174aF6688). In my case, this address can accept crypto donations for Bitcoin (BTC), Ethereum (ETH), Avalanche (AVAX), Cardano (ADA), Polkadot (DOT) etc. Amazingly, as long as I have my NFT wallet domain configured to accept those currencies, I can accept donations from anyone and the currency will be deposited directly into my personal crypto wallet.
I purchased both NFT’s from Unstoppable Domains which has certainly made life a little easier. You need a special extension in your chrome browser to access .crypto domains in your web browser – the facility isn’t ‘built in’ just yet. But it’s a nice idea – I really hope the facility it is adopted into mainstream browsing.
Another useful aspect of Non Fungible Tokens is {normal asset} tokenization. This is an easy way to allow global buyers access to products or objects such as houses, painting, statues, documents etc. It’s immutable method of authenticity gives sellers the opportunity to add more liquidity to an otherwise illiquid asset.
A great deal of money was made by people buying and trading NFT’s in 2021. Alas, the losses from people FOMO’ing in to purchase junk hasn’t yet been calculated – I’d bet it’s considerably more – but who is to say, one mans junk is another mans gold!
Karen sent me a message with a link to a very useful webpage that explains NFT’s in a more understandable way. I found it very useful myself! Checkout: https://www.websiteplanet.com/blog/nft-guide/
Storage
There are some significant problems with the current centralised storage platforms and data centres. They are very expensive and suffer outages and security concerns. A decentralised storage option is becoming increasingly more attractive.
Data can be stored on the blockchain and any of us could rent some spare file space on their hard disk with a service such as Filecoin to earn a passive income. People could then offer to rent your storage space and pay you in the platform’s native currency (in this case Filecoin).
Metaverse
The metaverse is a virtual world. You can shop, socialise, take part in leisure, training and even gaming activities. Paying for these in a native metaverse token. There are some amazing marketing opportunities inside these virtual worlds such as office space, tourism etc. companies like Facebook…. Erm, now called Meta (the Facebook application is still called Facebook, but the company is now called Meta), is already gearing up to take advantage of these opportunities.
JP Morgan, a prominent US bank produced a paper (Opportunities in the Metaverse). They stated that, “The elements of a new digital age are converging at scale. The metaverse is the driving force bringing these elements together in a unified, immersive experience.” and they quoted that $54 Billion had been spent on virtual products in the last year alone – that’s almost double the amount that the world spends on music!
Games (including Play to Earn)
More is spent on Games than the whole of the movie industry. As gaming lines become more blurry (i.e. the increased popularity of, for instance, edutainment), the number of tokens on the gaming blockchains will increase. For instance, ‘play to earn’ gaming is increasingly popular and Axie Infinity, one of the first, is generating millions of dollars revenue for its users and developers. This game, though currently suffering a bit of a slump, was a lifeline for many players in poorer countries during the pandemic lockdown. They would play to earn money to feed their families and some of the better players became quite wealthy.
Some experts would go as far as saying that Gaming will be the mechanism that will promote mass adoption of blockchain technology throughout the world. I’m not sure sure myself but I personally have noticed a steady increase in the adoption of NFT gaming with other projects to bolster their use case and incentivise investment.
For instance, a blockchain finance protocol (also known as a DEFI protocol) project called THOR Financial has introduced a play to earn game in their ecosystem to help increase the way investors spend their tokens. This will make the tokens (THOR tokens) a little more scarce which should have the effect of increasing the price over time. Such mechanisms may prove popular although game competition is already fierce. This example for instance has a development team of 6 highly skilled game software programmers and graphics artists, they have even engaged an orchestra to play the music soundtrack. But, they have a very big hurdle to get over; it takes hundreds of similarly skilled people in other game companies (such as Activision-Blizzard that makes World of Warcraft), to make a good computer game and the Gods of Asgard will cost 10 to 20 times more to play.
I’m not expecting Play to Earn games to take over the world just yet. The most popular game for instance, Axie Infinity, is actually quite boring except for the earn feature.w
The world is awash with all sorts of Cryptocurrency and Blockchain projects. Some of a lot of fun, some just plain silly and some others have use cases that will make them invaluable.
Before you dismiss NFT’s and Metaverse as being unworthy, consider that MacDonald’s have recently spent a lot of money recently to purchase space in the Sandbox Metaverse – presumably to sell virtual Big Mac’s to virtual people who will pay with virtual money.
In section six we look at the most important currency in all of all crypto: Bitcoin – What is it and How Does it work?. We provide a basic history and explanation of the technology and use case.
This article is copyright 2022 by Tony Fawl, CryptoNET.
This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.
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