The economic crisis following the COVID19 showed us how fragile our economy can be. Governments across the world are scrambling to fight inflation and poverty the only way they know – by printing more money.
But in the long run, this destructive monetary policy might deepen the crisis even more. Inflation is rising, and the purchasing power of every individual is shrinking by the minute. This has led institutional investors to buy bitcoin massively, which in turn, gave cryptocurrency the legitimateness they needed to be considered sound investment assets.
In this article, we take a look at how cryptocurrencies could help the global economy and allow humanity to build a better future. To this end, we take a look at Bitcoin, altcoins, and the decentralized financial ecosystem that has been in full growth mode for almost two years in a row. Let’s get started.
Bitcoin and altcoins – brief history
Satoshi Nakamoto created Bitcoin in 2009 to provide an alternative to the traditional and flawed monetary system we are currently using. His goal was to provide humanity with a decentralized currency that would help us distance from financial institutions and lessen the grip of corrupt governments on our monetary system.
The answer came with Bitcoin, the first global currency that was issued without the interference of a governmental agency or central bank. Instead, bitcoin reload on the blockchain, a distributed ledger of transactions, and mining, a mathematical process that allows the issuance of new coins.
The success of this original cryptocurrency jumpstarted an entire industry of decentralized payment networks powered by alternative cryptos called altcoins. However, the biggest update to this system came with the release of smart contracts and the launch of the Ethereum network in 2015.
This allowed us to deploy decentralized applications on the blockchain, creating a new financial ecosystem devoid of any third-party meddling. This decentralized finance, or DeFi, offers users the possibility to enjoy financial products such as lending, borrowing, or interest gains in a strictly peer-to-peer environment.
What are cryptocurrencies’ advantages over traditional money?
With that said, you must be wondering what the big deal is. Why do many people consider cryptocurrencies to be a better form of money than FIAT? Let’s find out.
- Limited supply – many cryptocurrencies, Bitcoin included, have a capped supply of coins. So unlike FIAT money, no one can continue making new bitcoins once the supply cap is reached. This feature plays in favor of crypto, as scarcity is introduced to the system. As time goes by and demand rises, the supply is reduces increasing the price of cryptocurrencies in the long run. This is why Bitcoin is considered to be one of the best stores of value at the moment, surpassing gold in flexibility, scarcity, and growth.
- Permissionless – to use cryptocurrencies or their derived products, you do not need to ask for permission, as there’s no intermediary involved. This means that anyone, anywhere in the world can access the decentralized finance ecosystem just by creating a wallet.
- Increased privacy – blockchain addresses are not linked to a person’s credentials. While they are transparent, the name of the participants remains hidden. Moreover, there are privacy-focused coins that provide even more anonymity features, where even the amount and the addresses in the transactions remain hidden at all times.
- User control – finally, because cryptocurrencies are independent of a central governing body, no one can shut them down. Governments can criminalize their usage but in reality, crypto transactions are beyond their reach and are controlled by the users of the network.
How cryptocurrencies are creating an alternative financial system
As we previously mentioned, smart contracts enabled us to deploy decentralized applications on the blockchain. This provides a verifiable and secure environment for automated financial transactions.
Consequently, an alternative financial system was created, a decentralized finance ecosystem (DeFi) where users can interact directly with each other through the power of smart contracts.
This allows people worldwide to access complex financial products and make profits from their crypto holdings. Crypto users from third-world countries with limited access to financial services can lend their crypto and gain interests for the service they provided. Others can borrow these funds using crypto as collateral, and access quick cash in countries where it would be impossible for them to get a line of credit.
Also, because cryptocurrencies are borderless, these actions are globalized. For example, a user in South Africa can seamlessly lend their tokens to someone in Venezuela. This allows for global economic inclusion for everyone with an internet connection.
Cryptocurrencies have come a long way since the release of Bitcoin in 2009. With institutional interest rising, their presence is being solidified on a macroeconomic scale. Mass adoption is on the way, and thanks to the numerous advantages they bring, cryptocurrencies can help us build a better, more sustainable economic system.