Is there really a purpose to crypto? Is it all just a load of hype and has no real world purpose? This articles delves into why it is essential and necessary.
According to skeptics and naysayers, crypto serves no practical purpose; it’s useless, it’d be better without it, and it’ll all go to zero?
The last of those points, that it will eventually lose all value, is reliant on the first point: that it has no purpose. In the end, crypto critics say, all you’re doing is playing a hot potato game with an empty proposition.
The longer that bitcoin and crypto stick around and grow, the less likely that proposition becomes, and it’s startling to see some commentary, thirteen years after bitcoin’s creation, still making comparisons to tulip mania, even though it has a market cap of over $380 billion and is actively being used.
It is, however, worth emphasizing crypto’s functions, as not only is its utility clearly evident, but crypto is an essential and timely creation in this digital age as it moves with increasing speed.
Identifying the Key Areas of Crypto
As a catch-all term, crypto works, encompassing all areas of blockchain technology. However, at a more accurate level, it’s necessary to distinguish between the key areas of the crypto world.
Most prominently, there is Bitcoin, and its staunchest advocates will inform you that Bitcoin is not crypto. This is confusing because bitcoin definitely is a cryptocurrency. In fact, it’s the biggest and most important cryptocurrency, but the purpose of drawing a line between Bitcoin and crypto is to stress a distinction: Bitcoin is so focused on its intent that it requires a category of its own.
Ethereum and alternative Layer 1s should then be regarded as connected but separate because they share many qualities with Bitcoin, but also have some different aims.
Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.
In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.
Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal Obligation Brokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.
Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018.
NFTs are a new and widely misunderstood area that is also distinct, in that, as the name (non-fungible) suggests, these are cryptocurrency tokens that are unique, rather than interchangeable, and each NFT can be traded as a one-of-a-kind asset.
At a foundational level, bitcoin’s utility is stark and has been laid out many times: a peer-to-peer, decentralized currency that can also (as is a requirement of all stable, functional currencies) operate over time as a store of value.
This is simple and straightforward, and while it can be argued that bitcoin has not achieved this utility yet, it is plainly inaccurate to assert these potential utilities simply don’t exist.
What’s more, even the claim that utility has not yet been achieved looks questionable. There are real transactions taking place over the Bitcoin network, every day.
The Lightning Network is a second-layer payment protocol that operates on top of a blockchain-based cryptocurrency. It enables fast transactions among participating nodes and has been touted as a solution to the Bitcoin scalability problem.
This framework features a peer-to-peer (P2P) system for making micropayments of cryptocurrency via a network of bidirectional payment channels without delegating custody of funds. Transactions on the Lightning Network are only added to the blockchain when the two parties that are involved in a payment channel open or close the channel. Therefore, multiple transactions can be sent within a single channel without requiring the consensus of the entire blockchain, making the transaction process considerably faster.
Normalized use of the Lightning Network involves the opening of a payment channel by committing a funding transaction to the relevant base blockchain or first layer. This in turn is followed by making any number of Lightning transactions that update the distribution of the channel’s funds without broadcasting those to the blockchain.
Additionally, these may or may not be followed by closing the payment channel by broadcasting the final version of the settlement transaction to distribute the channel’s funds.
How Does the Lightning Network Affect Everyday Users? For example, one Lightning Network user, Jim, can open a payment channel with a local corner store and deposit $100 worth of Bitcoin in it. Every time he visits the store, he can use his balance to instantly buy whatever he pleases. At the same time, Jane, another Lightning Network user, has opened up a channel with the cafe next to the corner shop. She also buys things from the corner shop. Because Jim has opened a channel with the corner store, Jane can also use the Lightning Network to pay for things there. Similarly, Jim can use the Lightning Network at the cafe.
The claim that bitcoin is not an effective store of value is also not compatible with the increase in bitcoin’s purchasing power over the last decade. The first ever BTC purchase of real-world goods was in 2010: two pizzas for 10,000 BTC. Twelve years later, a single bitcoin can buy you a new car. By comparison, the purchasing power of the dollar now is roughly 74% of what it was in 2010.
Project forward ten or twenty years, and if you wanted to protect your personal or corporate wealth, which would you bet on, bitcoin or the dollar?
Crypto Necessity in a Digital Age
We have spent the past few decades surging forward into immersive digital environments which encompass the social, commercial, financial, education, business and other areas of life.
To forego the digital online world, nowadays, would require concerted effort, and yet, it is not until recently, as cryptocurrencies gain in mainstream awareness, that questions of ownership, freedom and personal sovereignty, in a digital context, have started to come to the fore.
In the real world, we have control and ownership of ourselves and our physical assets. When we traverse public spaces, we don’t sign a contract and agree to terms and conditions. There are social norms and laws, but, assuming you don’t live in a dictatorship, these are democratic, emergent and formulated through negotiation.
If we are to switch vast areas of our business, both personal and commercial, to a digital setting, then it is essential that the fundamentals of an open, democratic, non-dictatorial society are also transferred into the digital realm.
Core to an optimal environment is property ownership and freedom from erratic, top-down rule-making. Up to now, we have not had these things in the digital space. Digital property could only be owned with the cooperation and approval of private platforms, while online spaces are under centralized control and subject to terms and conditions.
With crypto, we have a way to safeguard digital civil liberties. Bitcoin takes care of the monetary aspect, allowing us to control our own funds, while Ethereum and other Layer 1s develop the architecture upon which decentralized web applications can be constructed, removing the possibility of overbearing authorities.
With NFTs, we have the next piece of the puzzle: full personal ownership not only of digital currency but of any digital asset in the same way that we can take private ownership of any real-world asset.
This does not mean that digital assets replace physical assets, but simply that digital ownership becomes practicable, in parallel.
If we are moving further online and we want to carry across and protect the freedoms we take for granted in the real world, then Bitcoin, crypto and NFTs are essential to the process.