Cryptocurrency, DeFi, and NFTs have been trending in the media for the last two years. For people who have spent their lives entrenched in the legacy banking system, the big wide world of crypto can seem daunting. However, its potential cannot be ignored. The financial world is changing for users and creators and becoming a revolutionary space where we can reimagine how we hold assets and transact online.
What is Cryptocurrency?
Cryptocurrency is a type of money that exists solely in the virtual world. Unlike digital money, which is the digital form of physical money, cryptocurrency does not originate from a physical form. There are many different cryptocurrencies including Ethereum, Dogecoin, Solana, and the well-known Bitcoin. The foundation of cryptocurrencies is a unique public ledger technology known as the blockchain.
The blockchain is a virtual chain of blocks. Each block contains data on transactions and other information. Once a block joined the back of the chain, the data on it cannot be altered or deleted. If there are changes required, a new block will have to be written and attached to the chain. The immutability of the blockchain ensures the transparency, integrity, and security of all the data stored on it.
Cryptocurrencies are managed by a network of volunteer computers that can span the entire globe. These ‘nodes’ each store a copy of the blockchain ledger and act as a failsafe. Data is constantly checked across all nodes and any discrepancies are quickly corrected. Because there is no single source of reference, the blockchain ledger is extremely difficult to corrupt compared to the records of the conventional banking system.
What is DeFi?
DeFi is short for decentralized finance. It is an umbrella term that refers to financial services for cryptocurrency aimed at disrupting the global financial system. DeFi applies the public ledger technology of blockchain to power complex transactions and financial use cases. Users of DeFi can do most of the things that they can with traditional banks such as trade, borrow, lend, invest, and earn interest.
Because DeFi is independent of major financial institutions and governments, it offers freedom from centralized systems. The blockchain technology that forms the backbone of DeFi is typically more secure than legacy banking systems as the data is stored collectively across several entities and locations instead of being in the control of a single source. Hence, there is potential for users to participate in a fair and free financial market without having to pay fees to intermediaries.
The hallmarks of a DeFi application are that users are required to connect their cryptocurrency wallets but ideally not required to submit any personal information such as a real name or address. DeFi applications should offer users full and direct control over their assets while providing the capacity to perform sophisticated transactions in a matter of seconds. There should be only smart contracts and no human middlemen involved.
What is an NFT?
An NFT is a non-fungible tokens. Non-fungible means that each item has distinctive properties and is not interchangeable with another item. NFTs are a type of cryptocurrency asset that allows holders to prove ownership. They can be anything from an image, an audio clip, a domain name, or even a tweet. Because NFTs exist on the blockchain, all transactions are recorded and ownership is immutable.
NFTs are also virtually indestructible. The tokens are stored on the blockchain instead of on a central server or the owner’s computer. Therefore, they cannot be deleted or replicated. Many digital artists are encoding NFTs to record the ownership of their artwork. Digital art is often shared freely online. With NFTs, even if the artwork is shared by the public, the artist holds irrefutable proof of ownership.
This likewise adds value for people who want to collect or trade digital art because each transfer of ownership, including the trade price, is recorded on the digital ledger. Tokens can be authenticated immediately without third-party involvement. When someone buys an NFT via a smart contract, they instantly and automatically become the owner of the token. The company or creator of the token cannot claim it back later.
What is the Future Potential?
As people become increasingly aware of the potential of the crypto and DeFi space, we can look forward to more innovative applications of the technology. Charged Particles is an NFT protocol that integrates the principles of DeFi with NFTs. Through their proprietary technology, users can deposit and store digital assets inside their NFTs, turning the NFTs into multi-layered assets that can increase in features and value over time.
Meanwhile, games and multiverses are being developed to package a range of functions into a single NFT project. Holders of NFTs can become members of DAOs (Decentralized Autonomous Organizations) with voting rights to influence collective decision-making. Projects have also taken play-to-earn further by allowing users to combine their assets in exchange for scarce items. This focus on community building is the heart of the new DeFi NFT market and has unlimited possibilities for the future.