Buddy Cuan may feel that there are only two things in the crypto asset ecosystem: blockchain technology and crypto coins. However, is Buddy Cuan aware that it turns out that the crypto world is wider than that?
Along with the times, blockchain technology has turned out to have given rise to new innovations such as a decentralized financial system (Decentralized Finance/DeFi) to a “twin” of crypto coins called tokens.
So, what are the meanings and benefits of all these technologies? And how can these innovations be created?
Why is the Cryptocurrency Universe So Vast?
When it was introduced in 2009, blockchain technology and the first cryptocurrency (namely Bitcoin) did function as an alternative to fiat currency as a means of payment in the digital realm. Various blockchain technologies and alternative coins, or altcoins, that emerged after Bitcoin also follow a similar function to Bitcoin.
However, the situation changed drastically when the Ethereum network introduced a smart contract feature in 2013. Smart contracts are programs that allow the execution of certain commands on the Ethereum blockchain to run automatically.
To imagine the function of a smart contract, Buddy Cuan can imagine buying drinks from a vending machine. You just put money into the machine, press the button for your drink of choice, and later the tool will understand your “order” and take the drink you want.
With a vending machine, the process of buying a drink becomes simpler. Because, you only need to interact with a machine that has been programmed to take a drink and you don’t need to meet or act as an intermediary.
Well, that’s exactly what the smart contract mechanism looks like. You only need to interact with computer programs to carry out various activities on blockchain technology without going through intermediaries.
Due to the presence of smart contracts, the function of blockchain technology has also developed, no longer as a ledger that only records transactions in a decentralized manner. With smart contracts, users can carry out financial service activities without intermediaries. In fact, it can create new crypto products only by utilizing blockchain technology.
The following are examples of innovations in the crypto world that have come thanks to the presence of smart contracts.
Getting to Know the Variety of Cryptocurrency World Innovations
1. Decentralized Applications (dApps)
Decentralized applications (dApps) are digital applications that are a combination of smart contract technology and user interface technology.
As the name implies, dApps are applications that are not controlled by any single organization. When a user uses dApps, all the commands he gives will be processed according to the logic written in the smart contract. Thus, no individual is able to prevent or prohibit other individuals from using the application in question.
One of the popular dApps projects is Cryptokitties, a game application where players can buy, raise and raise virtual cats. This application is the first project where blockchain technology is used for entertainment purpose.
2. Decentralized Finance (DeFi)
Decentralized finance (DeFi) is a nickname for a variety of financial products and services that can be freely accessed by the public — as long as they are connected to the internet.
DeFi consists of activities similar to conventional financial services, such as saving and lending. The difference is that users do not deal directly with intermediaries (such as banks), but through certain logics written in smart contracts.
Now, in the absence of these intermediaries, everyone can take advantage of financial services without fear of being deemed unfit to access them. This means that this technology can help those who do not have access to banking (unbanked) to obtain financial services freely and without obstacles.
In addition, users will feel safe carrying out financial service activities in the DeFi ecosystem because they do not need to provide personal data to access it.
This is different from accessing financial services in banking, where the institution will ask for personal data to determine customer eligibility. If there is a human error, the data can be leaked to irresponsible people and misused.
Token is a unit of value that is used by the public in conducting transactions on a decentralized platform. Tokens function similarly to cryptocurrencies, right? But, make no mistake, Friend Cuan, because both have fundamental differences.
Cryptocurrency is a coin that is used to transact on a particular blockchain network. For example, Ether (ETH) is the original coin used on the Ethereum network.
Meanwhile, tokens can only be used on platforms built on a blockchain network. However, it cannot be used as a transaction medium on the main blockchain network. So, the use of tokens is more limited than cryptocurrencies.
Some examples of popular tokens include LINK, USDT, and UNI.
4. Non-Fungible Token
Non-Fungible Token (NFT) is a digital asset on the blockchain network that has a unique identification code and metadata. In other words, one NFT unit with another is not identical. Therefore, they cannot be exchanged for each other.
These tokens are called non-fungible because they do not have the functionality characteristics found in digital assets in general. Functionality itself means that the value of a crypto asset can be replaced with other objects that have similar units.
An easy example is like this:
You borrow 100,000 rupiah from your friend and he gives you a 100,000 rupiah bill. Then, when you pay it off, you replace it with five pieces of Rp. 20,000 denomination. Of course that value is the same as one Rp. 100,000 bill, right?
That’s roughly the concept of fungibility, which is not owned by NFT. But the question is, if it’s not fungible, why is NFT present in the crypto scene?
NFT is a token that is used to represent tangible assets that exist in the real world. Usually, the objects are unique, such as exclusive artist merchandise, paintings belonging to famous painters, modified cars, and others.
Well, in this case, NFT can help people to have these objects without having to have a physical form. Hence, most of the NFT prices tend to be expensive.
Of all the crypto innovations above, which one is your favourite?