So far, 2022 has proven to be a rocky year for investors, with all the major markets seeing substantial sell-offs against a backdrop of high inflation, persistent supply chain issues, global conflict, and tightening monetary policy. Particularly hard hit have been those assets considered “riskier,” like tech stocks and crypto.
Considering these drawdowns, it’s understandable that some investors-particularly the nearly 60% of crypto investors who only just got into digital assets in 2021, when the market was at historic highs-are wondering, “Is crypto the future or just a fad?”
It should, of course, be noted that no investment is without risk-nor is past performance a guarantee of future performance. And in full transparency, some crypto projects are unlikely to survive the current bear market (though many experts believe this is ultimately good for the industry). That being said, there are some pretty compelling reasons to believe in the future of crypto as a whole.
To help answer the question, “Is cryptocurrency the future?” we’re taking a closer look at:
- How crypto market cycles have historically played out
- Blockchain, the technology underpinning crypto
- The benefits of blockchain technology
- Nine use cases for blockchains and smart contracts
Making Sense of Crypto Market Cycles
Despite their volatility, worldwide crypto markets seem to function according to somewhat predictable cycles. What we’ve seen lately is the rundown or “bear-run” phase of the cycle where the prices of many major cryptocurrencies like Bitcoin and Ethereum have dropped to two-year lows.
While there are many different factors that affect these price cycles-such as market sentiment, government regulation, and popularity-the long-term value of crypto will be decided by one primary factor: utility.
As an article in the Harvard Business Review put it, the long-term usefulness and promise of Web3 assets lie in the blockchain technology at the heart of Bitcoin and other cryptocurrencies. Simply put, blockchain is a universal, distributed, and immutable record of digital assets. It can be used to maintain and verify records of all transactions made using these assets, including cryptocurrency trading. The utility of this technology lies in its potential to make global trade more transparent and often decentralized.
What Are the Unique Features of Blockchain Technology?
Most blockchains (including popular ones like Bitcoin) are also completely programmable. This means that the ledger itself and the assets it holds can be programmed to behave a certain way when triggers are set off. Let’s take a closer look with the help of an example.
Owing to its blockchain’s programmability, crypto token X can be programmed to pay the original owner (the miner) a certain amount of “tax” each time it is transferred to people. Here, the token being transacted with is the trigger that results in payments being transferred to the miner’s wallet.
This unique ability of blockchains to become malleable to business processes makes possible the existence of smart contracts. Smart contracts are instructions written into a token’s blockchain, which govern its trade. They ensure the automatic fulfillment of specified conditions every time a token is traded. What does this mean for users? Monetary transactions can now be monitored without the need for governing third parties, i.e., banks and federal reserves. Simply put, smart contracts have the potential to make global trade more functionally and legally efficient.
It’s important to note, however, that smart contracts are currently only capable of processing simple “triggers” and executing rudimentary steps such as transferring a specified amount of money from one account to another. While research is underway, these contracts are still a few years away from being able to factor in subjective criteria such as the presence of commercially reasonable efforts when actual legal requirements remain unfulfilled by a party.
Are smart contracts enough to establish long-term utility for cryptocurrency? To a large extent, yes. Smart contracts’ revolutionary potential and impact on cryptocurrency’s future can be better understood with the help of real-world use cases.
9 Blockchain Use Cases that Suggest Crypto Is the Future
Given the relative nascency of crypto, the use cases for blockchain are too numerous to list in this post. Truly, imagination is the limit. That said, here are nine promising use cases for blockchain and smart contracts that give many reason to believe crypto is the future:
1. Improving Supply Chains
Smart supply chains complement smart contracts with Internet of Things (IoT)-powered devices to govern real-world objects’ functioning using blockchains. These devices, termed “oracles,” are used to collect real-world data, which is uploaded on the blockchain. The contracts are triggered when the value of a certain parameter exceeds a set value.
A great example of this is a smart lock that only unlocks when a vendor makes the payment for the shipment using crypto tokens. This can also be used in the opposite way, where radio frequency identification (RFID) readers count the number of shipments received by a vendor. The final payment is only triggered once all shipments are received by the vendor.
Apart from this, smart contracts can be used to automate the tedious task of maintaining and checking ledger entries. IoT devices directly feed the required real-world data to the blockchain, where smart contracts trigger automatic payments and record them on the blockchain itself or on an external database.
Additionally, blockchain has the potential to greatly improve supply chain traceability, which could lead to greater safety monitoring for perishable goods and pharmaceuticals, faster recalls in the event a food source has been found to be contaminated, and even prevent counterfeit goods from making it to market.
2. Streamlining Healthcare
Americans spend a LOT on healthcare. In fact, healthcare makes up 20% of the United States’ gross domestic product, as it touches almost all of our lives. It’s also wildly inefficient in terms of waste, billing errors, and fraud; expensive (for patients AND providers); and vulnerable to cyberattacks-to name just a few of the many issues plaguing the current US healthcare system.
Blockchain, with its distributed ledger system, immutable and incorruptible records, and data encryption methods, has the potential to address all of the issues mentioned above while simultaneously facilitating better data sharing among those who need access-patients’ healthcare teams. It’s also shown to be a viable option to the current, messy systems used in most places, with the country of Estonia serving as a case study for blockchain in healthcare. (The North European nation became an early adopter back in 2012.)
3. Enabling Decentralized Finance (DeFi)
DeFi, or decentralized finance, is a financial model that leverages the democratic, decentralized nature of cryptocurrency. This revolutionary system is based on a simple core idea-being able to make truly personal financial transactions without the involvement of any third party.
The personal and organizational transactions we make today are mediated and regulated by several third parties, such as currency exchanges, federal reserves, brokers, and banks. DeFi seeks to use smart contracts to eliminate the need for these third parties, including central regulatory bodies, that determine the value of a currency. With cryptocurrency, the value of a token is decided on the basis of supply and demand, and transactions are governed by embedded smart contracts that allow for truly private and secure trade.
4. Democratizing Gaming
Over the course of the last decade, video games have adopted the concept of a ‘game economy’-a full-fledged finance ecosystem that exists and operates within the confines of a game or series of games. The most popular of these is EA Sports’ FIFA games, where players are required to purchase FIFA coins and tokens in order to make other in-game purchases. This allows gaming companies to retain greater control over the trading of their in-game assets.
NFT games merge this game economy concept with Web3 by minting these in-game assets on crypto tokens. Smart contracts can be used to govern how these assets function within the ecosystem. Revolutionary new games built on this technology, like Gods Unchained, provide completely democratic user experiences where players are given “full ownership” of their in-game assets. The players become the owners of NFTs they purchase and earn in the game, and they are free to lend or trade these assets on the open market beyond that particular game’s ecosystem.
Need further evidence of crypto’s growing involvement with gaming? Consider that the famed venture capital investment firm Andreessen Horowitz recently launched a $600 million Web3 gaming fund.
5. Rewarding Sustainability Practices
The Green World Campaign, founded by the EarthWays Foundation, a non-profit working toward fighting climate change, is an excellent example of the innovative use of smart contracts in diverse fields. Like smart supply chains, the campaign makes use of hybrid smart contracts that are informed by real-world data. The campaign employs on-field cameras, sensors, and drones (and even partners with some terrestrial satellites) to detect and reward sustainable agricultural and infrastructural practices.
For example, if a company pledges to complete the construction of 10 passive houses, sensors monitor their construction and feed data onto the blockchain. Once all the required criteria are met, smart contracts trigger the payment of a reward/grant to the company. Ideas like Automatic Incentives for Reforestation Stewardship (AIRS) would automate the payout and management of government-offered grants and rewards for reforestation, a process that would otherwise be tedious and time-consuming owing to bureaucratic complexity. Using smart contracts, government bodies can funnel grants directly onto the blockchain that would automatically disperse them to deserving candidates.
6. Revolutionizing Real Estate
With the right bespoke algorithms, it’s likely that in the future, smart contracts will be used to replace legal contracts in many fields, including real estate. Beside the obvious applications in virtual real estate in the metaverse, smart contracts are also being used to register and govern the ownership of real-world land.
The Republic of Georgia has been working on developing a fully blockchain-based land registry since 2016-a measure taken to prevent fraud, theft, and mortgage defaults. Smart contracts will govern all legal transactions related to property registered on this blockchain-based land registry. More recently, a Tampa-area home became the first to be sold as a non-fungible token (NFT) when it sold for 210 Ethereum back in February 2022.
While the contracts themselves are fairly basic as of now, they can still trigger automatic payments on monthly rentals, taxes, and maintenance fees. These contracts could also help homeowners avoid paying hidden costs that they discover only after purchasing a property.
7. Making Advertising More Efficient
Have you ever seen half of a commercial air before abruptly cutting into a TV show or other ad and wondered whether the company whose ad that was had to pay for the full air time? While it may not be a big deal to regular viewers, it can be a big deal to marketers, especially if they paid for a high-dollar time slot.
In his book Quantum Marketing, Mastercard’s global chief marketing and communications officer, Raja Rajamannar, details how a blockchain-based system could be used to track all advertising efforts. This, he explains, could lead to not just more efficient tracking of ads and their results, but also prevent businesses from paying for ads that did not display correctly.
8. Empowering Content Creators
One of the biggest challenges any content creator faces is that of getting paid for their efforts. Musicians come to mind as one of the most obvious examples. When Napster and LimeWire came around, many were upset at what amounted to lost revenue. And while downloads are no longer the concern they once were due to streaming services, artists-particularly fledgling artists-cannot monitor every corner of the web to ensure that a fan hasn’t, say, uploaded an entire album to YouTube or some other site against their wishes.
While not there yet, by encoding elements of NFTs into audio, video, and images, and then tying those to the blockchain, it’s possible to track and collect micropayments for individual listens, reads, watches, and so forth. In effect, micropayments could provide a much-welcome alternative to content subscription models, as they would allow you to pay as you go rather than for the right to access something you might not.
9. Providing a Store of Value
Using crypto tokens as a “store of value” is an idea that has been fairly questioned because of the volatile nature of the crypto market. But it also depends on the digital asset’s supply. Some cryptocurrencies, such as Bitcoin, have a finite supply, meaning there is an argument to be made in favor of crypto truly being “digital gold.”
Time will ultimately be the deciding factor, but Bitcoin may prove far more valuable than gold due to its versatility and increasing–or shall we say, currently underutilized?-utility. Bitcoin is also much easier to store, carry, and transfer than gold and many other store of value assets currently available. This makes it a go-to option for investors looking to trade in value-based assets.
Invest in Crypto’s Long-Term Potential Using Your Tax-Advantaged IRA
Market fads come and go but market trends that stand the test of time involve assets that display usefulness and value. Given their malleability, convenience, and utility, crypto assets have the potential to make (and are already making) existing real-world systems and processes more seamless and accessible for everyone.
And as with more conventional growth assets, like stocks, you can even invest in digital assets with the tax advantages of a traditional, Roth, or SEP IRA.
Alto CryptoIRA® enables you to buy and sell more than [acf field=”crypto_number” post_id=”options”] coins and tokens on the Coinbase exchange using IRA funds contributed from your bank account or rolled over from another IRA or old 401(k).
Create an account today for the opportunity to invest in the long-term potential offered by crypto, blockchain, and smart contracts.
Alto is an administrator of IRAs, is not a fiduciary, and does not provide investment advice. Nothing herein shall be construed as financial, legal, or tax advice or a recommendation or solicitation of any particular investment, security or cryptocurrency. All information in this article is solely for information purposes. Investors are responsible for conducting their own due diligence regarding all self-directed IRA investments.