The first name that comes to mind when you think of cryptos is bitcoin, but the cryptos don’t start and end with bitcoin. The core idea of cryptos is distributed ledger, a database transcending proprietary servers. A database is a very boring but essential element of any computer system. The difference here is that the computer systems running on distributed ledgers extend beyond borders in a way that they can be called world computers. Anybody can connect to and leave these systems at will. The idea is borrowed from peer-to-peer network except that, to bring some order, a few computers take up bigger roles as validator nodes. The job of these nodes is to verify and authenticate the data entering a distributed ledger in a decentralized manner. Since these nodes span across the globe and have no friendship with each other, they verify and authenticate data entering the distributed ledger in a trustless manner. Trustlessness requires nodes to stake something precious to prove their sincerity towards the higher goal of maintaining the integrity of the distributed ledger, and, of course, they get rewarded if they act honestly. However, there are some centralized distributed ledgers too, especially those set up by banks, corporate, and government. In these distributed ledgers, nodes are indeed friends, but people in crypto world see such friendships with suspicion, and rightly so because they have seen many such friendships in the real world leading to cronyism. The distributed ledger is the core idea, but it can lead to and has indeed led to development of ecosystems offering alternative ecosystems to the users. However, the same has also created an opportunity for traditional ecosystems to change and adapt.
The biggest revolution is happening in the financial ecosystem. Decentralized finance or DeFi is challenging the traditional systems of banking and investing. Bitcoin, however, is not responsible for it. Bitcoin, in fact, wanted to challenge the central banks by replacing fiat currencies with bitcoin. To me, this attempt has failed. However, DeFi, the outgrowth of Ethereum blockchain (blockchain is a kind of distributed ledger), which allows the use of blockchain for multiple data types through smart contracts, is evolving. Smart contract is a software program that allows for self-execution of the contract and registration of data in reference to the contract in the blockchain for eternity. This obviates the need for entering into legal contracts and registering them before registrar after paying stamp duty (not all contracts need registration; most financial contracts don’t; however, stamp duties need to be paid). Furthermore, it cuts down processing time from days to a few minutes or even seconds. The fees payable is just the transaction fees for using the blockchain. These smart contracts can be made complex so as to develop applications running on the blockchain, commonly called dApps. Number of such dApps have developed on the Ethereum ecosystem to provide almost an entire gamut of financial services ranging from deposits, loans, & investments to derivatives, insurance, & synthetic assets. Not only Ethereum, but other blockchains like Binance Smartchain (BSC) have also developed such DeFi ecosystems. In fact, there are many blockchains trying to provide interoperability between Ethereum and other blockchains. So, the DeFi as a concept is indeed emerging as a universal interconnected ecosystem in cryptos challenging the traditional financial systems. But, of course, DeFi has a long way to go before it can replace traditional finance.
The second ecosystem is that of digital collectibles. It is rather a new phenomenon and may even be a fad. The ecosystem of digital collectibles span the entire gamut of entertainment, sports & art (including tweets). The digital collectibles are issued in the form of non fungible tokens (NFTs). Most of the NFTs are issued on Ethereum, but other DLTs are catching up. NFTs are not challenging any traditional ecosystem as such even though physical art has started getting converted into digital art and NFTs. The NFT space has mostly grown in the digital world. Most of the NFT dApps are associated with the gaming world. NFTs allow transportation of digital assets created in one game to another game. The buyer of the asset can use it across gaming platforms after owning it as an NFT. This is like owning a capital asset in the real world. Such NFTs have a definite utility, albeit in the virtual gaming world. Another original development of NFTs is digital art, whether in the form of videos, audios, or pictures. Anything unique fetches high premium even if it is just a tweet. Many famous artists have started launching their artworks on digital platforms through NFTs. NFTs are also smart contracts and can carry conditions allowing privileged access to the art and the artist. Many artists have, therefore, started issuing NFTs allowing privileged access to the NFT holders in their semi-private lives and live physical concerts. This though not being a collectible per se, is, nevertheless, a unique experience, which can again be converted into an NFT (I don’t know if anybody has attempted it till now). Fan tokens of sports teams can also be issued as NFTs. These can allow fans a say in team decisions as per the conditions set out in the smart contracts. The precious sports moment can be captured in the form of digital art and converted into NFTs. The possibilities in the world of NFTs are unlimited. Any unique experience is capable of getting converted into an NFT. The field has grown well and is flooded with some genuine collectibles as well as some outright trash. Will this space grow further or die down as a fad is anybody’s guess.
The above two ecosystems have already shown some good growth. Further growth is happening in a variety of areas mostly as partnerships with the real world players. For example, Ripple is offering remittance services as a competitor to Swift and many banks have partnered with it. VeChain is providing supply chain solutions to industries. Cardano has partnered with many African governments for providing governance solution. Fantom has partnered with Pakistan government similarly. However, most of the development in this space is happening through permissioned and centralized DLTs, where corporate and governments are utilizing distributed ledgers (mostly blockchains) to set up either proprietary ecosystems or service solutions akin to technology companies. These applications span entire business and governance ecosystems including cyber security (Guardtime, REMME), healthcare (MedRec, Gem), government (Followmyvote.com, Govcoin), manufacturing and supply chain (Jiocoin, SKUchain), real estate (Ubiquity), transport (Arcade City), tourism (Webjet), media (Ujomusic), etc. This is actually the true exploitation potential of distributed ledgers, which, fortunately or unfortunately, is happening in a centralized manner. Bitcoin is the world’s most secure blockchain and most of these exploitations should have actually been happening on Bitcoin through sidechains. I reckon if Bitcoin is not exploited soon for this potential, it will die and many other cryptos will also die along with it.
Data sharing and e-commerce are two other ecosystems that are shifting from traditional systems to DLTs. Filecoin intends to create a new internet. Bittorrent has introduced incentives for file sharing in its peer-to-peer file sharing through BTT tokens. BAT is changing digital advertising dynamics. Cryptos like Binance and Crypto.com have launched Visa Cards. Dfinity’s Internet Computer Protocol (ICP), a newly launched crypto, promises a decentralized internet making web publishing faster & easier; it takes data sharing to another level by making data sharers the internet servers. Data sharing and e-commerce is an evolving space with great potential. I think this space will see the biggest growth in the future.
The idea of cryptos is in its nascent stages. Cryptos are generally identified with bitcoin, which, I argue, tantamount to undermining crypto innovation. Bitcoin is probably the simplest form of blockchain. It comes nowhere in comparison to the innovation in Ethereum 2, Polkadot, Solana, and Cardano. Directed Acyclic Graph (DAG) technology being used in Nano, Fantom, Hedera Hashgraph, etc, is also more innovative. People don’t yet appreciate the potential and innovation underlying cryptos. bitcoin’s (the token) appellation as digital gold creates confusion because of its volatility. Indeed, it is rejected as a bubble by many. Then the crypto warriors start protecting bitcoin as if it is the start and the end of everything. This reduces the whole crypto debate to bitcoin, which is unfortunate. The extraordinary focus on bitcoin actually disparages the crypto world. The kind of growth this world can see is beyond imagination. Furthermore, since most of the cryptos are decentralized and permissionless, this space promises freedom to the enslaved mankind. Of course, those in power will try to kill cryptos, but the survival of cryptos is inevitable with or without accommodation of naysayers (as and when they shed their doubts). However, the looming threat to cryptos is Bitcoin/bitcoin. The moment it is attacked, the whole crypto world falls along with it at double the speed. Bitcoin is akin to an ailing king who is being challenged repeatedly for a duel by sturdy enemies. The king is too important to die as the rule requires the whole kingdom to surrender on his death. However, the rule has not been framed in the crypto world. The inherent rebelliousness of the crypto world is expected to snub this rule sooner or later. The sooner, the better.