By Rohit Talwar Futurist and CEO – Fast Future and Kapil Gupta – Crypto Specialist and Founder Nibana.Life
What key impacts could the rise of the crypto economy have on the economic landscape and the management of personal finances?
Alongside the continual evolution of the pandemic, one of the other big stories of the decade so far has been the rise of the crypto economy. In the space of 18 months blockchain technology and the underlying crypto assets (currencies and tokens) that it enables have risen up the agenda for individuals, investors, businesses, and governments.
Many people now know of Bitcoin – a digital currency launched in 2009 as a direct response to the financial crisis of 2007-08. Some are aware of its status as the fastest growing asset class in any ten year period in history. However, less people appreciate that the crypto economy now extends far beyond Bitcoin to cover a wide range of assets and applications.
In just 13 years we have seen the crypto economy rise to a market capitalization of over US$2 trillion at its peak in May of 2021. Starting with Bitcoin, a range of crypto assets have emerged utilizing blockchain as the core enabling technology for distributed and decentralized applications that cannot be controlled by any one entity. Of particular interest is the notion of smart contracts that allow transactions to be completed without any human involvement, thus enabling the emergence of decentralized autonomous organizations (DAOs) with no employees and governance controlled by the holders of the relevant crypto tokens.
The sheer scale of the opportunity is seeing market entry of large financial institutions, with a growing number of corporations adding crypto assets to their balance sheets and developing their own crypto token solutions. Countries like El Salvador are adopting Bitcoin as legal tender, and others like China and Ghana are piloting central bank digital currencies (CBDCs).
With an estimated 300 million+ global users, the field is still in its infancy. Concerns remain over the unregulated nature of the market, volatility, and the potential for fraud and manipulation. The largely tech-savvy crypto community have high hopes of disrupting the traditional financial system, helping take people out of poverty across the planet, and creating a fairer and more transparent marketplace for investments, savings, loans, and more complex products. Corporations, financial institutions, and governments in particular are torn by the desire to participate in and influence the development of the crypto economy while also worrying about the loss of control and the threat to their franchises.
The term crypto economy extends beyond Bitcoin and covers both assets and applications. Examples of both are presented below. The most commonly known crypto assets and applications are summarized below.
- Cryptocurrencies—A digital monetary asset like Bitcoin (BTC)—used as a store of value, a means to purchase goods and services, and as legal tender.
- Central Bank Digital Currencies (CBDCs)—Digital versions of fiat currencies such as China’s Digital Yuan and the proposed US Dollar CBDC. The goal is to streamline transaction processes, cut costs, improve social inclusion, and reduce the potential for illegal financial activities such as money laundering.
- City Coins—Fund raising tools such as MiamiCoin, which are designed to raise funds to support city investments while also delivering returns to the coin holders.
- Platforms—These are technology platforms such as Ethereum (ETH) that use a variety of different blockchain designs to create the core functionality used by others to build Decentralized Applications (Dapps)—such as the providers of Decentralized Finance (DeFi) products.
- Stablecoins—Asset-backed cryptocurrencies such as Tether (USDT). These aim to maintain the same value over time by tying themselves to a conventional asset like gold or the US Dollar.
- Utility Tokens—These are usually issued by applications that run on top of a blockchain like Ethereum—such as the VeChain (VET) supply chain management solution.
- Social / Personal Tokens—Tokens typically issued and controlled by individuals such as celebrities and influencers (e.g. Katy Perry) to enable their followers and members to purchase a range of (often exclusive) branded goods and services.
- Community Tokens—Tokens typically issued and controlled by a community, network, group, (e.g. $JAMM) and in some cases managed by a decentralized autonomous organization (DAO).
- Corporate / Brand / Ecosystem Tokens—Issued by companies to enable their customers, followers, and wider ecosystem to buy goods and services from the brand and reward them with tokens (e.g. Facebook Diem, Dance) as a form of loyalty points.
- Security Tokens—These are a digital or “tokenized” form of traditional assets such as securities and options that already have a market value.
- Asset / Commodity Tokens—These tokens facilitate the trading of physical real-world assets, which are often regulated commodities like oil or carbon.
- Privacy Coins— A category of cryptocurrencies, such as Dash (DASH), which enable anonymous private blockchain transactions, obscuring both their origin and destination addresses.
- Meme Coins—These are coins like Dogecoin (Doge) which generally have no specific utility but gain popularity quickly by spreading their message through social media.
The range of applications for which these assets might be used would include:
- Decentralized Finance (DeFi)—Blockchain technology has enabled the establishment of an ever growing number of decentralized ‘Automated Market Makers’ such as Pancakeswap (CAKE), offering a range of products from savings and loans to derivatives and liquidity pools.
- Blockchain Enabled Decentralized Supply Chains—Applications range from monitoring the flow and provenance of goods from producer through to market to the funding of agricultural smallholders.
- Non-Fungible Tokens (NFTs)—The creation of a range of uniquely identified digital assets ranging from an educational qualification certificate or the deeds to a property through to limited edition digital collectibles such as artworks and sports memorabilia.
- Content Distribution Using Blockchain—Decentralized social media platforms like LBRY.com that enable users to own and monetize their own content such as videos.
- Decentralized Artificial Intelligence (AI)—Platforms such as SingularityNET that enable end users to select and integrate modules to build their own AI applications.
- New Payment Methods—Business models that allow customers to pay using crypto assets and then gainshare with the vendor should the value of the crypto asset appreciate compared to the original purchase price in the underlying fiat currency.
The emergence of new crypto assets and applications is only likely to accelerate in the coming years if the acceleration of interest, adoption of cryptocurrencies, investment, and development is to be taken as a guide. In future newsletters we will be providing more insights on the future of the crypto economy and how it might evolve.
This article draws on a deeper exploration of the crypto economy in Fast Future’s forthcoming book Aftershocks and Opportunities 2: Navigating the Next Horizon