The decentralised world is lively yet mysterious. Tag along with Bread as we navigate through tangled webs of blockchains and uncover invisible nuggets of digital gold – cryptocurrencies.
“Yeah I know about blockchain”, I said with a knowing smile as I shook my interviewer’s hand. I had just landed my first gig in a crypto exchange and my confidence was sky-high. Dogecoin was soaring, Satoshi Nakamoto was my imaginary uncle, and I was a “blockchain expert”. Life was a bull market.
A week later, I realised that I had almost no clue about what blockchain and cryptocurrencies really are. And buying 428 Dogecoins because of a meme with the caption “1 Doge = 1 Lamborghini” just meant that I was another routine sufferer of FOMO.
The point is that blockchain is a complex technology. It’s often misunderstood or dismissed as a scam, but many of us including myself have a superficial understanding of this new and rather esoteric infrastructure that’s powering cryptocurrencies.
While the world has been experiencing an explosion in technological advancements, blockchain rattles the very foundations of society’s reliance on centralised systems. Its disruptive potential goes beyond the enigmatic bitcoin, or the multi-faceted ether.
Decentralisation essentially means that a global network of individuals and organisations can exchange information and transact with one another without relying on an intermediary. No central authority can regulate the network, and decisions are enforced by the community.
A simple example would be an everyday transfer of money between two parties in different countries. This transfer is verified by banks that act as financial intermediaries. International transfers can take days, and a hefty fee is usually incurred.
With blockchain technology, costly intermediaries can be removed, since both parties have access to the same network, which holds a single version of records that can be collectively verified.
This is also why the technology can be applied to a whole host of industries. Decentralised Finance (DeFi) is a budding concept made possible by blockchain’s borderless nature.
Alice from Singapore can now bypass a bank and lend Bob from Switzerland cryptocurrencies directly via a liquidity pool (a “pool” of crypto assets), enabling her to earn the full amount of interest. The DeFi protocol can automatically liquidate Bob’s collateral if price volatility causes it to be worth less than the loan.
It’s a trustless environment without human middlemen, with transactions self-executed by smart contracts on the blockchain once the terms of the financial agreement are met.
Confused about how JPEG files are selling for millions? So am I. But NFTs (Non-Fungible Tokens) are more than just about seemingly worthless digital art. They’re unique digital tokens on a blockchain that signifies provenance, with its value derived from the attached asset.
While it establishes ownership rights in the digital space, it also represents a paradigm shift in our understanding of physical asset custody.
This means that in theory, it’s possible to mint a NFT that represents the exclusive rights to a piece of real estate. The purchase and sale of a property can occur without intermediaries and paper contracts, since the deed can now be collectively verified on the blockchain.
Hence, the technology has the potential to create a more liquid market for previously illiquid assets (e.g. art and real estate), as it enables the exchange of value to be quickly executed without bureaucracy.
Investing in cryptocurrencies might seem like a gamble; a simple bet on red or black, with the white ball possibly clattering to a stop at double-zeros. Excluding middlemen from the party might not bode well, and they’re already trying to gatecrash it. But understand the potential and utility of blockchains and you might just be compelled to stay on.
It’s a whole new parallel universe with extraordinary surprises and curiosities. So stick around while we unpack the industry’s jargon for you. We’re excited, and just as mesmerised.