The world of digital currencies is penetrating ever deeper into real life. El Salvador, for instance, since the middle of the year the first country in the world to allow Bitcoin as a legal means of payment, has just doubled down on its bet on the cyber currency. The government is planning to build "Bitcoin City", a metropolis that is to appear from the air like a Bitcoin symbol. The starting signal is to be given as early as 2022, the project being financed by government bonds covered by the cryptocurrency. Digital coins as a means of payment are not by a long chalk all that the blockchain technology behind it can do, however. The ideas behind cryptos are extremely versatile, with buzz terms such as "smart contract platforms" and "decentralized finance (DeFi)" doing the rounds. These are all technologies that are predicted to offer immense potential.
To shed light on the cryptic – in the truest sense of the word – trends, the technologies are presented in more detail below. Smart contract platforms and their scaling solutions have a particularly important role to play. Smart contracts make it possible to handle all transactions in the network and keep them on the blockchain. Without smart contracts there would be no NFTs, for instance. These came into being with the launch of the digital currency Ethereum in 2014. A smart contract that allows the transfer of digital assets, for example, can be programmed on this token. They open up a large number of possible applications across an extremely wide range of sectors. To give an example, the rights of owners of digital assets can be managed using non-fungible tokens. While initially it was primarily the art world that showed an interest in these tamper-proof certificates, NFTs have now even reached the real estate market.
Smart contracts also form the basis for decentralized finance, or DeFi for short. This is a special ecosystem that enables the provision of many different digital financial services. DeFi is still overwhelmingly based on the blockchain Ethereum, on which decentralized applications that are tailored specifically to the financial sector are created. It allows gold to be borrowed, for instance, without the need for a bank. However, every participant can also offer a loan on the digital credit market and receive an interest rate for it. That is a long way from exhausting the potential of DeFi, though: the entire financial industry, from payment transactions through securities trading to financial products, can be brought decentrally onto the blockchain. In addition, every asset – whether cars, works of art or even a plot of land – can in theory be easily made accessible to anyone by tokenisation. Ultimately, DeFi paves the way for an open and efficient financial system for the general public.
The smart contracts, which are written in code, cannot contain all information themselves, however: they would also have to be able to access off-chain data. To enable more tamper-proof data from sources outside the blockchain to be sent to smart contracts, the blockchain project Chainlink was brought into being in 2017. The cryptocurrency is built on Ethereum, but also allows a secure connection to external data sources and payment systems to be established. Chainlink can, for instance, be used to verify whether the defined parameters of a smart contract are being met. To accelerate the development of what are known as hybrid smart contracts, the two projects Chainlink and Filecoin recently announced the start of a dedicated initiative (source: https://blog.chain.link/announcing-the-chainlink-and-filecoin-joint-grant-program/). The aim is to link the individual blockchain functions of the two cryptos.
Source: Defi Pulse
View more information on investment solutions on the topic “The crypto evolution advances”
