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The future of cryptocurrencies and blockchains
This is a fast-changing world we live in today. And the future of blockchain and cryptocurrency is something many investors often speculate about. Despite being relatively new to the financial market, the future of blockchain and the future of cryptocurrency both look promising.
The future of cryptocurrency
Analysts predict a great many things as they look into the crystal ball to study the future of cryptocurrency. The possibility of crypto being traded on exchanges, much like equity stocks, is one possibility that seems to be of great interest among analysts and investors. In addition to this, there are three key emerging areas that hold great promise - CBDC cryptocurrency, NFT cryptos, and staking.
An acronym for Central Bank Digital Currency, CBDC essentially refers to a currency that is backed by a central bank. So, CBDC cryptocurrencies are cryptos that have the backing of an apex bank, like the Reserve Bank of India (RBI). As you may have seen in the previous chapter, cryptocurrency is currently a decentralized asset, meaning it is unregulated and has no centralized authority.
But to give it some weightage and draw in more users and investors, some kind of central backing may be necessary. CBDC cryptocurrency attempts to do just that. The balance also tilts in favor of the banks that back crypto, because it allows them to be a part of the future of money. In other words, CBDC cryptos offer a win-win situation for the virtual currency itself, and for the central bank that regulates it.
While no country has officially launched any CBDC cryptocurrency as of July 2021, there are several countries that have launched pilot programs to pursue this solution. Among these are the Bank of England, People’s Bank of China (PBoC), Bank of Canada (BoC), and the central banks of Thailand, Uruguay, Sweden, Singapore, and Venezuela, among others.
NFTs - or Non-Fungible Tokens - have seen a sudden burst in popularity this year. Non-fungible simply means irreplaceable. NFT cryptos are units of data stored on a digital ledger- or blockchain. They represent real-world assets like photographs, videos, audio, artwork, and other such things. NFTs have been around since 2014 or so, but it’s only now that they are propelling into the limelight, mainly because they have become a convenient way to trade artwork. Data shows that around $174 million has been spent on NFTs since late 2017.
NFTs are different from regular cryptocurrencies, which happen to be fungible - or replaceable. For instance, you can replace one Bitcoin with another, right? But one NFT, which may represent a specific video or artwork, cannot be replaced with any other NFT.
Bitcoin is a Proof-of-Work (PoW) cryptocurrency. It requires mining - aka solving equations - which is work. The downside to that is Proof-of-Work is very energy-intensive. So, staking is an alternative way to create cryptocurrency that’s fast gaining ground because it uses much less energy.
Here, instead of actually doing intensive work like equation solving, the participants need to lock in the cryptocurrency they own. In return, they get to mine new coins. Simply put, people stake the crypto they own, for more crypto. This is a far more environment-friendly way to generate cryptocurrencies, and it may be where the future is heading.
The future of blockchain
Blockchain as a technology can be seamlessly integrated into various existing business processes. It’s because of this that the future possibilities of using blockchain are practically endless. Some of the processes and industries that blockchain technology is expected to disrupt include:
- Cross border payments
- Supply chain management
- Real estate
- Cloud storage
Clearly, the coming years hold great promise for blockchain and cryptocurrency. As this new-age tech disrupts more industries and propels us into the future, be sure to keep an eye out for investment opportunities in the crypto market. And if you’re looking for more unconventional options, investing in startups may just fit the bill. Check out the details about this in the next chapter.
A quick recap
- There are three key emerging areas that hold great promise - CBDC cryptocurrency, NFT cryptos, and staking.
- An acronym for Central Bank Digital Currency, CBDC essentially refers to a currency that is backed by a central bank.
- NFTs - or Non-Fungible Tokens - are units of data stored on a digital ledger- or blockchain. They represent real-world assets like photographs, videos, audio, artwork, and other such things.
- Staking is an alternative way to create cryptocurrency that’s fast gaining ground because it uses much less energy.
- Here, instead of actually doing intensive work like equation solving, the participants need to lock in the cryptocurrency they own. In return, they get to mine new coins.
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