Many people once disregarded the blossoming potential of Bitcoin and other forms of digital currency a decade ago. But since then, cryptocurrency has come a long way and now cements itself as the premier digital asset set to disrupt traditional fiat currencies.
What is a blockchain?
Blockchain is a distributed database where transactions occur from one party to another. It’s a decentralized, transparent, democratic space – making it incredibly difficult to hack, alter, or cheat the system. All of these transactions among peers are visible and recorded in public ledgers as time-stamped, digital transactions.
In regards to cryptocurrency, blockchain allows cryptocurrency to operate without relying on banking institutions or a third-party intermediary.
5 Use Cases for Cryptocurrencies
1. A Digital Banking Alternative For Developing Regions
Cryptocurrencies like Bitcoin can serve as growth instruments for developing nations across the globe blockchain. According to recent studies, more people from countries like Nigeria, Vietnam, and the Philippines find transacting through cryptocurrencies favorable over dealing with intermediaries for international transactions. This is to avoid additional fees and low currency conversion rates curtailed in e-wallet services and traditional banks. While many of the transactions in developing countries are cash-driven, more users are gaining access to mobile phones and the internet.
With limited access to financial services, coupled with high internet accessibility, this could make cryptocurrencies a better alternative. In order to buy cryptocurrency, you have to sign up for a crypto exchange like Independent Reserve.
2. A Decentralised Network For Applications And Smart Contract
Also unofficially referred to as the world computer for decentralized applications (dApps), the popular cryptocurrency Ethereum was the proponent for pushing crypto to the front lines for initiatives that weren’t solely based on financial value. This blockchain cryptocurrency brought forth the following innovations:
- The popularisation of smart contracts
- The introduction of the ERC20 standard for tokens
For smart contracts popularisation, in particular, the use case boasts practical application for a wide variety of benefits. For instance, these smart contracts are capable of acting as substitutes for traditional contracts that deal in mortgages, insurance claims, payments, and national bonds. These smart contracts allow for a smoother and faster transfer without needing a broker or intermediary to manage it.
3. Power Machines In The Internet Of Things (IOT)
IOTA, which is another advancement of regular blockchain architecture, powers machines to interact and exchange resources with one another. IOTA is the first open-sourced ledger built to act as an environment to employ machine trade resources and services.
How it works: IOTA uses a network structure called the Tangle to provide an avenue for the machines to resource from each other. All the transactions under the IOTA network are validated by the network of users who are looking to validate their own transactions as well.
As of now, one of IOTA’s partnerships includes a prominent car manufacturing company, which tests smart wallet technologies run on car-connected services. Aside from that, IOTA is also a provider for decentralized, sustainable electricity. This project led by IOTA aims to improve the electrical sustainability of the energy-positive community of Trondheim – an old city in Norway.
4. Asset Backend Tokenisation – Digitising Physical Assets
Unlike third-party blockchain utility tokens, asset backend tokens contain value linked to a respective physical asset.
The tokenization of physical assets in the blockchain disrupts the traditional perception of the inflexibility of certain assets. Instead, it promotes the real-world liquidity of the asset by way of digital tokens. Since no intermediaries are involved, sales and acquisition of physical assets under tokenization become smoother and easier to supervise. Not only that but the digital token can also be equally distributed, unlike their physical counterparts.
And one more thing. Asset backend tokens also make the idea of owning investments more accessible to the average person. Whereas financial institutions bar clients who have insufficient capital, tokenization allows people to invest regardless of the amount they intend to allocate to the digital storage.
5. Pegging With Strong Fiat Currencies
Another type of blockchain currency established to eliminate the rampant volatility of cryptocurrencies is Stablecoins. This Stablecoin is pegged at the value of a traditional fiat currency.
For the prominent U.S. dollar, for instance, the cryptocurrencies that are pegged include Tether and USD Coin. However, pegging can affect much more than just fiat currencies. Real-world assets (commodity-backed) and other forms of cryptocurrencies (crypto-backed) can also be pegged by a stable coin.
But why? The existence of this type of cryptocurrency serves traders who want an easy way out from the volatility that naturally exists in the cryptocurrency space and instead switch over to a more stable asset. Moreover, stablecoins can also provide value transfer and participation in the global financial exchange for developing world citizens. This is especially useful in locations where financial backing from institutions is not readily accessible.
REFERENCES
BitPanda Academy. 5 Use Cases for Cryptocurrency. Retrieved at https://www.bitpanda.com/academy/en/lessons/five-use-cases-of-cryptocurrencies/
BitPanda Academy. What is IOTA Retrieved at https://www.bitpanda.com/academy/en/lessons/what-is-iota/
