Why Bitcoin, Litecoin, and Ethereum Should Matter to You
As an investor, you might be skeptical of Bitcoin and some of the other cryptocurrencies from the standpoint of being a viable investment vehicle.
True, the crypto market has delivered some wild returns over the past several years, but marked volatility and chaos has also come in its wake. And, as it currently stands, even the big guys on Wall Street don’t know, really, how to value cryptocurrencies and project that into the future in an effective, predictable way.
That leaves us here trying to figure out what to do. Yet, even if you don’t invest in cryptocurrencies, the technology underpinning them will likely impact your financial future in significant ways.
One thing that is often discussed in relation to Bitcoin, Litecoin, and Ethereum, among others, is the different technology platforms that each offers end-users.
Bitcoin is touted as the future of currency and a rejection of current fiat methods of payment, Litecoin is, more or less, the same kind of thing but at a much greater scale in terms of the total number of coins in the market.
Whereas the final number of Bitcoins is limited, Litecoins are more expansive as a payment method.
Both require something that is called “proof of work” and rely upon similar distribution systems. Ethereum, meanwhile, is nothing less than the future of contracts and financial applications.
The Ethereum network is powered through the cryptocurrency known as ether and it can be used in novel ways in contract execution as well as in novel financial products. On the surface it might appear to be much the same as Bitcoin, but, on a technical level, is so vastly different that it helps us understand just how deep the impact of blockchain technology will be on the future of finance.
Here are three main areas where cryptocurrency will change the financial world:
1. Future of Payments
As more and more vendors begin accepting cryptocurrency as payments, expect the values of the various coins to reflect that. Yet, beyond that, there are add-on effects for everyone from banks to credit card companies.
This development will not only impact how we do business but also any investment portfolios tied to the impacted industries. A huge benefit of cryptocurrencies pretty much across the board is that they provide a decentralized payments network thus eliminating the middle man – banking’s traditional role.
2. Future of Contracts
The elimination of the bank’s role as a middle-man in transactions doesn’t just impact payments and processing but also contracts. Think mortgages, car loans, and other types of financial instruments typically handled by banks.
Imagine a world in which you can get a loan for a car directly from the company making the car with your regular payments tied to a blockchain contract that eventually releases the vehicle into your ownership upon completion of the payment schedule.
Or imagine getting a mortgage directly from an apartment community. The possibilities in this realm are pretty much endless. Yet, you might ask yourself, doesn’t the end-user assume the risk like the bank does in these scenarios? The unique aspect of these contracts is that ownership can be stipulated as part of the blockchain contract: What constitutes ownership, how it is achieved, and who is participating.
Because of their transparent, secure nature, blockchain contracts are enforceable at the technological level through self-enforcing agreements “provide mechanisms for efficiently managing tokenized assets and access rights between two or more parties. One can think of it like a cryptographic box that unlocks value or access, if and when specific predefined conditions are met. The underlying values and access rights they manage are stored on a blockchain, which is a transparent, shared ledger, where they are protected from deletion, tampering, and revision.
Further, “Smart contracts, therefore, provide a public and verifiable way to embed governance rules and business logic in a few lines of code, which can be audited and enforced by the majority consensus of a P2P network.”
3. Future of the Digital Economy
As many crypto proponents are fond of saying, steam helped drive the first industrial revolution, and blockchain is the steam of the new digital revolution.
How is this so?
Mainly optimists envision a future where contracts are executed and payments processed between parties without the need or intervention of third-party networks and one in which ownership of a security, property, or what have you can be dispersed among many and varied participants. Think crowdfunding on a massive scale or retail investors participating in initial public offerings alongside Wall Street titans.
Though crypto might command a lot of attention now for its bubble-like valuations, its future extends far beyond mere speculation and into every corner of personal and corporate financial life.