Blockchain is all the hype. Its initial claim to fame – and still its best-known use case – stems from it being the technology behind bitcoin. When bitcoin made its first public appearance over a decade ago, it was a new and revolutionary concept. Naturally, word spread as fast as an ASIC miner’s hashrate, and before we knew it, it was widely known that blockchain and bitcoin were worth keeping a close eye on. But few had the vision and could predict the potentially high return on investment. This is why today, we often hear people say, “I wish I had bought bitcoin when it first came out” – In 2009 when it first appeared, one bitcoin was worth $0. As these words are written, the – rapidly-fluctuating – value is around $20,000. But blockchains can be – and are – used for much more than just cryptocurrency. In this article, we will explore some of the top use cases.
DeFi
Sticking to its pecuniary contribution, let’s focus on how blockchain is implemented in the financial world. Specifically: DeFi, short for Decentralized Finance. Yes, the digital, distributed and decentralized blockchain ledger has paved the way for a whole new financial system.
DeFi uses decentralization, cryptography and blockchain to provide well-known financial services such as payments, lending, borrowing and trading. It offers a number of benefits and makes up for the inherent flaws in traditional finance. DeFi is more efficient in that it provides immediate settlement regardless of distance between parties or country-specific laws and regulations – hence “decentralized.” Most DeFi protocols run with almost no human involvement. DeFi is also fairer as it is permissionless and censorship-proof. No need to have your identity or income verified; all you need is internet access and a browser. No parties can deny access to services, no single high authority can make decisions on behalf of users (e.g., investors) on shutting out trading or bankers on interest rates. DeFi is also more open as anyone can build new applications on top of the existing protocol. And everything is transparent and visible on the blockchain.
More and more services and vendors accept cryptocurrencies as a means of payment, including. car dealerships, luxury goods retailers and tech companies. Crypto exchanges have partnered with payment-processing companies like Visa and MasterCard to offer crypto debit cards that work like regular debit cards. The customer pays in the crypto of their choice, and the vendor receives the payment in fiat currency. Crypto ATMs being implemented all around the world is another indicator of DeFi making its way into the financial landscape.
DeFi is not limited to cryptocurrencies with volatile values, as there are also stablecoins that track the value of fiat currencies. DeFi may imply more people with access, but it also means more responsibility to the user. And traditional finance will most likely tap into DeFi in order to adapt to its undeniable benefits and progress. DeFi is definitely (no pun intended) becoming the new backbone of finance.
NFT
The Ethereum blockchain was first released in 2015. Ethereum eventually evolved into the second largest cryptocurrency after bitcoin, called Ether. It also became the Genesis of another scorching (and probably overhyped) buzzword – NFT. Non-fungible token. Which is what, exactly?
Well, a good or commodity that is “fungible” is interchangeable and indistinguishable. Commonly used items, like a 20-dollar bill or a kitchen knife, are fungible. Accordingly, “non-fungible” basically means that something is unique or irreplaceable. A one-of-a kind work of art, a signed first edition of Ulysses or an ultra-rare, numbered, limited-edition Penny Hardaway trading card. All are non-fungible. The idea behind NFTs is to have cryptographic tokens that represent ownership of unique or scarce goods. NFTs are unique, with different properties stored in metadata, provably scarce and verified on the blockchain, and indivisible. They guarantee asset ownership, whether digital or real-world asset, and they are easily transferrable and fraud-proof. NFTs have value and can be sold, traded, and be used in a number of DeFi situations.
Smart contracts
Next up: smart contracts, which are also part of the blockchain terminology. The term is somewhat self-explanatory. A smart contract is a public computer-intelligent agreement between parties. It is a set of coded rules that determine and self-verify conditions to run transactions between two parties that previously agreed on the terms. Smart contract programming on blockchain enables numerous real-life service and commercial operations to run between different entities.
In insurance, for example, smart contracts allow customers and insurers to handle claims securely and in total transparency. Invalid or fraudulent claims would automatically be eliminated. From auto insurance to health insurance, smart contract insurance helps prevent fraud in a more efficient way, empowers automation, builds trustworthiness and facilitates operating in a highly competitive environment thanks to the low cost of smart contract transactions. Ethereum launched Etherisc, which offers insurance products on a decentralized insurance protocol. Its most popular policy is the one for flight delays.
Another interesting example of a blockchain smart contract application is Digital Identity Management. Blockchain-based digital identity systems can provide a unified, interoperable and tamper-evident infrastructure with significant advantages for users, companies and IoT management systems. On Ethereum, for example, the technology enables users to create and manage digital identities through decentralized identifiers, identity management and embedded encryption.
Smart contract programming enables many other transactional systems, such as voting, real estate and supply chain management. Smart contracts are essentially the DNA of blockchain-based organizations called DAO (Decentralized Autonomous Organizations).
In traditional ballot voting systems for example, two of the most crucial challenges are fraud prevention and transparency. Whether electronic or physical, the centralized polling station model makes it very difficult to mitigate fraud and accuracy issues. People like Donald Trump or, more recently, Brazilian president Jair Bolsonaro, have even publicly expressed their distrust in the voting systems in place. One right after losing the presidential election, and the other having his approval rating falling in the opinion polls as the elections approach. Imagine blockchain as a digital decentralized voting solution, whether for traditional national elections or for internal business decisions. Every voter would have a copy of the entire tamper-evident ballot. No cheating possible, and no way to refute the system. Plus, voters who change their mind after depositing their own ballot could actually append and update their decision before the voting deadline.
Today more than ever, in an increasingly global world, where travelling, business, and communication across the planet have become almost trivial aspects of our daily lives, borders and distinct governmental restrictions still stand strong and continue to establish barriers between individuals and enterprises. Blockchain, by providing decentralized and tamper-resistant tech solutions, may very well be tomorrow’s new global key to circumvent governmental burdensome restrictions and solve online identity-related issues, for smoother communication, as well as reinforced privacy… and hopefully, more sustainable and eco-responsible alternatives for businesses and individuals.