Crypto Use Cases: Beyond Currency
|— Newbies often tend to think that cryptocurrencies are meant to replace for traditional currencies. |
— While cryptos are changing the course of the financial system, the use cases stretch far beyond that of regular currencies.
— The evolution of decentralized applications and proliferation of decentralized finance protocols have offered a multitude of additional use cases.
— Most cryptos have the potential to act as a currency when need be, but they also serve other intended purposes such as tokens for in-app purchases, a means of rewarding miners, a stable store of value, a tamper-proof representation of real and virtual items, and the list goes on.
— In this article, we will explore the various ways cryptocurrencies go beyond the notion of a currency and make Web 3 a far more disruptive space.
Crypto is powering incredible change across an array of industries – its utility is far more than just coins. Time to explore crypto use cases beyond the notion of currency.
Let us guess… you think that cryptocurrencies are meant to replace the regular currencies we use, right? You think that cryptos are some kind of anti-establishment technology that is built with only one purpose — to put banks out of business.
Not that you’re totally wrong there, but that’s only a part of the crypto story. The use cases of cryptos in the world of blockchain and decentralized applications are immense, and we will explore that today.
But first, what do you think is a currency?
What’s a currency?
A currency is anything we can use as a unit of account, a store of value, and a medium of exchange. Today, that mostly happens to be pieces of paper, metal coins and digits that we place our trust in. However, currencies have been known to evolve over time, and who would better know that than us.
The crypto revolution started back in 2009 when an anonymous person called Satoshi Nakomoto set out on the journey to offer the world a peer to peer digital currency and payment network, a revolutionary way of transferring value. Thus came Bitcoin with a cape and superhero mask to try and save the world from a crumbling financial system.
11 years and 6000 cryptocurrencies down the road, the overall value proposition of the ecosystem evolved and is far ahead of the initial ‘value transfer’ promise to become far more than just currencies.
But, wait… how can a currency function as more than a currency? Think of that multi-talented kid from your school who won medals in sports, topped the class, and also destroyed everyone in debates. That’s how.
Cryptos are disruptive and they are a key part of Web 3. Today, we’ll tell you how their use cases stretch far beyond that of traditional currencies.
Crypto going beyond currency
Over the years, many new blockchains have created unique infrastructures that support decentralized applications (dApps) and lay the foundation for a decentralized financial (DeFi) system. They allow you to enjoy various peer-to-peer services by removing third parties such as banks. Miraculous, isn’t it?
Most of these ecosystems have their individual coins or tokens that serve exclusive functions. We will explore four ways these cryptos go beyond the definition of currencies to make the digital world and Web 3 all the more interesting.
Blockchain technology forms the foundation for cryptocurrencies. It is a distributed ledger technology that relies on a set of rules to securely validate and write new transactions. Rather than a central entity, many nodes or miners distributed throughout the globe participate in these mechanisms to approve new transactions. What’s their incentive? Earn protocol coins as rewards.
Every blockchain network has its protocol coin. The network rewards nodes who help in validating new transactions and securing the network. The two best examples are Bitcoin and Ether.
Bitcoin or Digital Gold
While being a great store of value and medium of exchange, Bitcoin (BTC) is also the protocol coin of the Bitcoin network. Bitcoin miners who run high computational powered devices to operate the network gain freshly mined Bitcoins as a reward. Its scarcity and mining difficulty has earned its label.
Ethereum or Gas
Ether (ETH) is the protocol token of the world’s largest dApp blockchain, Ethereum. The miners on the network earn ETH as a reward for their contribution. Besides, every dApp on Ethereum offers its own services and token-economics. For every transaction on the network, users must pay gas fees in ETH.
You can say that ETH is the fuel, that you must pay on the in order to perform any kind of action, similar to how you put gas in your car for transportation or how you use gas to cook.
Let’s move on to another use case of cryptocurrencies.
As we previously said, dApps have their own native tokens. These tokens have different utilities within the blockchain’s ecosystem and are thus called utility tokens.
For instance, you can use native utility tokens to pay for several services within the ecosystem or participating in the Dapp’s governance, and so on. To illustrate this, let’s take a look at two very famous ones: UNI and BAT.
UNI is the utility token of the most popular decentralized exchange (DEX) Uniswap. DEXs like Uniswap allow users to trade and exchange cryptos without relying on a central entity. The platform depends on liquidity providers (LPs) to add token liquidity to the different pools, from where other users can borrow tokens. The LPs then earn a commission for their contribution. As a UNI token holder, you can also participate in the governance of the exchange and vote on decisions related to the platform or propose your own changes.
The Basic Attention Token (BAT) is the native token of the Brave browser. It provides people with freedom of choice and allows them to monetize their attention. Brave lets users opt into ads and blocks ads for anyone who didn’t opt in. Users who opt in will be rewarded with BAT tokens for doing so, then shown content that specifically matches their interests.
The prices of most cryptocurrencies could be volatile. Thus, they may not make the perfect case for an effective medium of exchange. For example, if you own a business, you might not like to accept payments in a currency whose value changes rapidly in a short time.
So, crypto believers created stablecoins, which are cryptocurrencies that are backed by a fiat currency such as the dollar or euro. This way, you can enjoy the security and speed of cryptocurrencies along with the stability of fiat currencies.
Two of the most popular stablecoins are Tether (USDT) and USDCoin (USDC). These coins are claimed to be backed 1:1 with the U.S. dollar, meaning for each USDT, there’s a dollar in the reserve of the network that created the coin.
Non-Fungible Tokens (NFTs)
Although a form of cryptocurrency, non-fungible tokens are by far the most radically different form. All tokens we discussed so far are fungible tokens. Even regular currencies such as the dollar are fungible. We can exchange them on a 1:1 basis or divide them into smaller units. This is because two banknotes of $5 or two coins of $1 always have the same value.
NFTs are the complete opposite. Think of them as digital objects. They all represent a completely unique or rare set of data/value and you may not be able to exchange them on a 1:1 basis.
In recent times, you may have heard of the NFT art hype. What this means is that artists are creating digital artwork, integrating their work into a non-fungible token, and selling them on NFT marketplaces. NFTs have also found a place in gaming, music, real estate, and other industries.
Into the crypto beyond currency future
Cryptos came with the promise of changing the financial system, but they’ve delivered way more than that. Just about seven years ago, cryptocurrencies only served as a means of payment and a store of value, but today, they are changing the way we interact with applications, use online services, and the concept of digital ownership.
With every crypto use case, we’re closer to one big goal: providing freedom and giving power back to the people.
Knowledge is power – so keep on learning! If you enjoy getting to grips with crypto and blockchain, check out our School of Block video Why the NFT Hype?