Crypto has arisen in an era when memories of the 2008 financial collapse are fresh and many people distrust the banking industry.
Crypto combines many elements into one: it is a currency that frees users from the big banks, it is a payments system with low fees, it is a technology based on a shared incorruptible database and, to wrap it all up in a neat bundle, it is an investment vehicle that fits the ever-evolving scope of the digital age. So how can a single use of blockchain technology, which is storing and transferring value in bitcoin’s case, address all the emerging use cases? Well, in short, it can’t.
Bitcoin itself took the blockchain and used it for a single purpose: as peer-to-peer decentralised electronic cash. That’s it.
Ethereum (ETH), Polkadot (DOT), Cardano (ADA) and many other emerging cryptocurrencies employ a blockchain just like bitcoin, but they aspire to do much more: they are competing to become general-purpose blockchain infrastructure capable of running complex operations in the form of smart contracts.
Smart Contracts use the blockchain to allow peer-to-peer transactions without the need for third-party verification and are responsible for the boom in non-fungible tokens and a new crypto-based financial system called decentralised finance, or DeFi, where innovative ways of lending, borrowing and earning interest on cryptos – all outside the traditional financial system – are already taking place.
“Cryptocurrency and the blockchain technology that powers it are every bit as revolutionary to global finance as the Model T was to transportation. They are also as foreign of a concept to most of the public as the Model T and mass production lines were 110 years ago,” explains Sean Sanders, CEO of crypto investment platform Revix.
“This is why a diversified approach to cryptocurrencies is absolutely essential. The technology is evolving at a furious pace, and there will be clear winners and losers. This is why it’s even more important to gain exposure to a diversified basket of cryptocurrencies rather than gambling on individual.”
The big debate in crypto has now turned to how to build a better blockchain, one that can process more transactions, is more secure, is environmentally friendly and more decentralised than the earlier versions. That debate is premised on the assumption that the original bitcoin blockchain is insufficiently fit for all purposes, something that is generally acknowledged to be true.
There are broadly six debates within the crypto community that will shape the future of cryptocurrencies and blockchain technology.
1. Decentralisation vs speed
The technical architecture of blockchains, like the one underpinning bitcoin, emphasises decentralisation and censorship resistance over speed when processing transactions. Bitcoin is the most decentralised blockchain network that has ever existed, but it can only handle about 4.6 transactions per second. Blockchains like EOS, by contrast, are far less decentralised but can handle over 2 000 transactions a second, about the same as Visa’s payment network.
“If you’re using bitcoin to buy a cup of coffee, the speed at which transactions are processed on the network is critical. The merchant needs to receive what you’ve sent in seconds as nobody wants to be sitting in a Starbucks waiting 20 minutes for a payment to clear. But if you’re holding bitcoin for 20 years or using it only for large-scale purchases like buying a house, the speed of that transaction is less important,” says Sanders.
Large parts of the community think blockchains must be designed for speed from the start, and that it’s worth sacrificing some degree of decentralisation and security to achieve this speed.
“True wisdom is knowing that nobody knows how this will turn out. Thousands of different approaches are being attempted, regulation being drafted, and the whole space is evolving rapidly over time. The debate is critical,…
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