Cryptocurrencies are gradually enmeshing themselves in the fabric of business, commerce, and economics as a decentralized alternative to fiat currencies. Bitcoin, the first cryptocurrency created in 2009 was designed to be a” a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution” according to the original paper by Satoshi Nakamato.
However, in the last couple of years, the impracticality of Bitcoin as a means of facilitating transactions has become particularly obvious. At the current trading price around $6,400 and its gut-wrenching volatility, Bitcoin isn’t particularly the best means of buying coffee at Starbucks. More so, merchants are often worried about the ease of cashing out cryptocurrencies to fiat.
Nonetheless, a couple of other altcoins such as Ripple and Bitcoin Cash are trying to serve the transactional purpose of Bitcoin. This piece however, provides into three practical applications of cryptocurrencies beyond payments.
1. Store of value and speculation
People often store their wealth in assets such as gold, artworks, land, or hard currencies such as the USD. Cryptocurrency, Bitcoin in particular is shaping up to be a smarter means of storing wealth without the added stress of security or fear of government seizure. You can practically move hundreds of millions of dollars in Bitcoin across borders without making any suspicious transfers or loading up a plane with suitcases filled with money. Of course, the volatility of cryptocurrencies might make you think twice about their use as a store of value; however, the fact that Bitcoin soared about 1,400% last yeas suggests that the volatility might not necessarily be a bad deal. Bitcoin is only down 54% so far this year.
2. Digital alternative to offshore capital
High net worth individuals and corporations typically store a large part of their wealth in offshore accounts in places such as Switzerland, Cayman Islands, and Panama. One of the main attractions of offshore accounts is the discretion and privacy that they promise; yet, in recent years, it is becoming obvious that offshore accounts are not as discreet and private as one would have imagined.
In contrast, cryptocurrencies such as Zcash and Monero provide a digital alternative for keeping your money in offshore capital of sorts. For one, the aforementioned cryptocurrencies are privacy-driven; hence, it is practically impossible for a government or its agents to trace the funds held in such assets to you.
3. Securitization of assets
Cryptocurrencies are generally subdivided into utility tokens and security tokens. Utility tokens are designed to provide access and for use within a blockchain platform. Security tokens also provide access to platforms but they also serve the dual purpose of conferring equity rights to owners. Cryptocurrencies can be a valuable tool for the securitization of assets such that you can encode the ownership of traditional assets in smart contracts.
Securitization of assets can make erstwhile illiquid assets as such real estate, artworks, IP rights, mortgages, and seed-stage startup funding among others. Security tokens can make it easy to invest in a fraction of these assets, exit the investment by selling the tokens to another investor, and facilitating new possibilities in crowdfunding. In addition, the market can leverage smart contracts to convert financial contracts such as escrows, loans, titles, derivatives, and wills into value wrapped in contractual code.
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