Cryptocurrencies are known for a unique feature: a long list of ALL transactions ever made with that coin. This feature is implemented through the eponymous blockchain, which is a digital public ledger of transactions that is very difficult to hack - because everybody keeps a copy of it.
Due to blockchain compromising of individual blocks, this brings extra security to the blockchain because if you wanted to hack it, you would need to hack all the blocks
This allows users to securely transact with one another - and in peer-to-peer fashion, this limits the interference of the government, banks or any other third party. The major appeal of digital currencies is that it is anonymous and independent of oversight.
It’s safe, anonymous, and independent of oversight.
Similarly to fake currency at a theme park, you’ll need to use real currency to purchase cryptos like Bitcoin, which are then used to access relevant goods and services, like non-fungible tokens. At its peak, the total value of all cryptocurrencies in the market was approximately $2.2 TRILLION.
A picture is worth a thousand words; in the case of bitcoin, it's worth nine million. Blockchain data shows that since 2010, Bitcoin has appreciated at a rate of 8,990,000%. As the best performing asset class in the history of humankind, it deserves recognition.
The First Layer
I bet you need to do something unique to become a Trillion-dollar company. In reality, FAANG companies are amazingly dull, and that's the point. Facebook brought human communications online, Amazon is an online department store, Apple digitized interaction, Netflix is TV online, and Google's YouTube is more online TV.
Bitcoin is digital property - it stores the world's economic energy. That's what a trillion-dollar market cap means. Functionally, first layer cryptos are no different from land - both increase in value over time. The difference is in scale: there is a finite number of buildings we can build on Manhattan, whereas Bitcoin can safely absorb all worldly goods.
The Second Layer
Mark Twain was right on the money when he said, "History doesn't repeat itself, but it often rhymes." That means that both forms of land, online or offline, are used for building. Until now, real-world constraints in terms of resources forced us to choose what to construct. Bitcoin, however, pushes boundaries with its infinite scalability.
Building a house is a collaborative endeavor. The same principle applies here, but how can you get billions of people to cooperate effectively? Can we trust a centralized body to govern our behavior? The last thing we need is another tower of Babel – history showing us that absolute power corrupts absolutely.
A contract facilitates group work. Its value comes from a mediator that holds both parties accountable. This innovation supercharges productivity in small communities. However, in larger social structures, scalable contracts (bureaucracies) are often described as parasites.
"Poor fellow, he suffers from files." - Aneurin Bevan.
As a collective, we feel the need to systemize trust. Projects such as Cardano and Ethereum use sophisticated crowdfunding to codify human commerce. These are multi-billion-dollar companies without a working product. There is no contradiction - these valuations demonstrate the immense demand for trust 2.0.
The Third Layer
Suppose the internet is analogous to smart contracts from an infrastructure perspective. In that case, services running on the world wide web resemble the third layer of cryptos - applications. What can two individuals accomplish in a system where trust is the default setting? Commerce, insurance, securing loans, and the list goes on.
Decentralized finance is simply an update to the legacy banking system. Let's not forget that DeFi is only one of the many parts of the crypto ecosystem but that’s a topic for another time.
Written by Arik Katrich, Crypto Consultant.