Deloitte, one of the big four accounting/consulting firms, conducted a survey in 2021 known as the Global Blockchain Survey, which found that 80% of the top financial industry executives “strongly agree that blockchain technology is broadly scalable and has achieved mainstream adoption.”
With so many high-level executives betting on blockchain, many have been left wondering, what’s the big deal?
Blockchain is disrupting nearly every industry and field, from data storage to art and content creation to banking. Comparable only to the early internet days (the late 1990s), blockchain technology is already becoming intertwined with global infrastructure.
Blockchain Technology, Explained Simply
A blockchain is a database that records transactions. Most blockchains are open and transparent public ledgers while also utilizing a group of different computers linked around the world for maintenance purposes. This is the most simple and straightforward blockchain and is what is most popular today. Corporations like J.P. Morgan have begun developing their own private blockchain, taking advantage of the security and scalability of the technology, while foregoing the transparency and decentralization aspects.
Not all blockchains are decentralized and “blockchain” is a broad word in itself. There are many ways a system can work, depending on the ecosystem and economy as well as the consensus mechanisms (the way in which each blockchain will actually determine real transactions and handle them). Some blockchains are decentralized and some are not, while some give the appearance of being decentralized when they are truly not.
Bitcoin is fully decentralized and operates on a Proof-of-Work consensus mechanism. Recording transactions on a public ledger for anyone to see, Bitcoin remains transparent and trustworthy. POW consensus mechanisms work by linking computers from around the world together. These computers work together in different groups (mining pools) 24 hours, seven days a week, attempting to solve math problems that only get more and more complex. As the problem gets more difficult each time, the process is kept fair and equal for all groups participating. The group that wins the equation, or the “block”, splits the bitcoin reward inside based on how much hash power or energy each group member contributed. Because of this POW system, Bitcoin has never been hacked or changed, and likely won’t.
Acting as a store of value cryptocurrency, Bitcoin is not supposed to be used to purchase day-to-day items. The great thing about Bitcoin is how simple the economics are, decrease the supply over time and the price should increase in tandem. With the annual incoming bitcoin supply being halved every four years and only 21 million total coins to ever be created, Bitcoin will remain a programmatically safe and secure holder of value. Bitcoin can be thought of as similar to digital gold.
Ethereum is the second-largest cryptocurrency and has received a lot of attention recently. Ethereum is almost trying to replace the internet. They are known as layer one applications, meaning they are building ground-level software for anyone to build anything off of. They offer Dapps (decentralized apps), domain names, NFTs and smart contracts, Defi services like lending and borrowing money and even launch other cryptocurrency tokens, known as ERC-20 tokens. These include projects like lending platform Aave, data indexer The Graph and even information aggregator Chainlink.
Ethereum operates using a Proof-of-Work consensus mechanism, although they are in the middle of a highly anticipated upgrade to a Proof-of-Stake consensus. Their specific POW system used up until now worked very similarly to Bitcoins. The new POS upgrade will switch from energy to staked coins to make decisions and validate transactions. This means anyone can hold their ETH tokens in a staking pool offering a certain percent APY and be able to vote on governance and other protocol decisions. Some argue that although POS is highly scalable compared to POW, it may forfeit some decentralization. Allowing those holding the majority of the coin to have the biggest impact on decisions could exclude smaller retail investors and put all the power in the hands of the top people.
Blockchains have introduced the concept of DAOs, Decentralized Autonomous Organizations. These organizations living on the blockchain utilize smart contracts to automate decision-making and allow community members to vote and have a voice in regard to things going on in the network. A new way to form a business structure, DAOs are a revolutionary idea with plenty of room to grow in the future.
What Are Smart Contract Blockchains?
Smart contracts are an automated function on top of blockchains used to execute contracts or agreements once predetermined conditions have been met. These simple programs are able to automatically run on their own, with no third party or intermediary. Participating parties can trust that this automated program will be fair and impartial, sticking to the original terms set in place.
Let’s say two people want to make a deal, as one is selling some documents. The buyer is typically uncomfortable sending money directly to the seller, for fear of not receiving the product. The seller is equally afraid that they will never receive the money if they send the documents first. A smart contract would allow the two of them to agree that once the program has collected the documents from the seller and the money from the buyer, everything would be released to its new rightful owner.
Smart contracts were a big step toward innovation that the industry needed, and are bringing in some interesting and exciting use cases. Smart contracts have created a secure and independent way to transact over the internet, without requiring trust on either end. Currently, they are being used primarily for lending and borrowing money or minting NFTs, although applications range from real estate to gaming and beyond.
From a business standpoint, utilizing smart contracts can be revolutionary. From minimizing transaction costs to keeping information secure digitally, these can be a corporation’s best friend. Reducing overhead and increasing efficiency all around is why companies are already switching over to disruptive technology.
How To Invest In Blockchain Tech
Before investing in blockchain or cryptocurrency, there are a few rules acknowledged by the entire industry that beginners need to know.
Rule #1 DYOR 100%.
“Do Your Own Research.” This is the most important rule because there is essentially non-existent regulation or any legal clarity around what is, and isn’t, allowed. This means some projects and companies are only complex scams. With basically no rules in the cryptocurrency space, there are plenty of bad actors fooling investors. Always do your own research fully and don’t put your money on anything you don’t 100% understand, understanding it well enough to explain it to an eight-year-old
Rule #2 Expect volatility in any immature and highly liquid market.
The cryptocurrency market is dominated by Bitcoin meaning when the Bitcoin price rises or falls, the rest of the market soon follows. Comparing the cryptocurrency market (worth less than one billion dollars today) with the global equity market (worth north of 100 TRILLION dollars), it quickly makes sense why prices are much less stable in younger, emerging markets.
Rule #3 Define industry language.
There’s some odd language used in the cryptocurrency and blockchain space, and it’s certainly worth getting yourself educated a bit before jumping in and being overwhelmed. Understanding the vocabulary is essential to fully understand what’s going on across the industry. Investopedia and Youtube can be some of the best resources for this.
Rule #4 “Not your keys, not your coins.”
This is a popular saying in the cryptocurrency space. This refers to whether your crypto is only accessible to you and often whether stored on a hot or cold wallet. When you hold your coins in your Coinbase wallet, Coinbase also has access to your coins and it is a similar situation to keeping money in a bank. Crypto is known for being anti-bank, and personal cold wallets are the perfect solution. A cold wallet, like a Ledger, is a physical, hard drive-looking, device. Your wallet, and crypto, are technically still online (it never comes off the blockchain, this is impossible), while your password for accessing the wallet is shown only one time when you receive the device to you only and is never repeated or stored anywhere. The process comes offline and without the seed phrase, it is nearly impossible to get into a cold wallet. Keeping coins in a centralized wallet is a much more likely way to fall victim to a scam.
Rule #5 Don’t trust verify,
This is close to a repeat of “DYOR” but it’s more than worth repeating. People and companies that look better than Google will feed you exactly what you want to hear. Without regulation, this is just an unfortunate aspect of the industry. Never trust the information you’re told or seeing, verify every single thing without a doubt left.
There are plenty of reputable centralized exchanges offering cryptocurrency investments as well as decentralized exchanges, known as DEXs. Centralized exchanges like Coinbase or FTX are the more popular route to go and are typically easier. Coins can always be transferred from an exchange wallet to a private wallet at a later time.
One of the smartest ways to invest in cryptocurrency is to DCA (dollar cost average), setting an automated weekly, bi-weekly or monthly purchase of a certain cryptocurrency and specific amount. This helps people ignore the volatility of the market and consistently invest over time, compounding their money.
Blockchain Adoption Underway
El Salvador made history in 2021 when president Nayib Bukele signed a bill making Bitcoin legal tender. The Central African Republic recently followed suit as well and became the first country in Africa to fully accept the dominant cryptocurrency into their economy. These countries are hoping that Bitcoin can bring financial systems to their unbanked populations, restore faith and fuel growth in their economies as well as increase citizenship and tourism.
Oil and gas giant Exxon announced recently that they have also joined the Bitcoin party. After running a yearlong test period of using their excess emissions to mine the leading cryptocurrency, they are planning to roll it out to even more plants. Mining Bitcoin is almost an obvious choice for some of the world’s biggest gas producers like Exxon. They emit these gasses into the air regardless with a negative impact on the environment. They can direct this wasted gas to power Bitcoin mining rigs, turning that excess into profits.
Blockchain ETFs and crypto stocks have recently been coming out, depending on who and where you are. This US is yet to legalize a solid fund including spot price cryptocurrencies for retail investors, while accredited investors do have the opportunity to invest in the Grayscale funds. Blockchain-related companies that are public do include Riot Blockchain (Bitcoin mining company), Coinbase (crypto exchange) and Microstrategy (holding a lot of Bitcoin). These companies will likely ride the growth of the crypto market with less volatility while being much safer investments solely due to the regulation implemented on public companies and required documents/public announcements by the United States SEC (Securities and Exchange Commission).
OpenSea, the leading NFT marketplace, reached well over four billion dollars of monthly volume at the end of 2021. Pretty good for a marketplace that’s barely six months old. NFTs have brought even more people into the blockchain space with the art and community aspects, and have blown up since becoming popular in June of 2021. NFTs offer a multitude of use cases on top of the blockchain, many of which have been tested already by major corporations like Budweiser, Visa, Coachella and plenty more.
Popular conferences and events like Bitcoin Miami and NFT NYC have seen attendance blossom over the past few years. Bitcoin Miami has had 5x the attendees year over year and NFT NYC has continued expanding the locations of its events. These events show the level of mainstream adoption and industry growth fairly well, as they are some of the largest conferences typically attended by beginners and major CEOs alike.
Blockchain Is Disruptive Technology
Blockchain is disrupting all industries across the board. In some aspects, every single business model is being disrupted by this technology. From the biggest banks in the world to the local artist to the young content creator, this technology is introducing opportunities never seen before.
From Walmarts supply chain to Microsoft turning video game characters into NFTs, the applications are endless. Transparency, security and ownership will be some of the largest drivers of brand trust, loyalty and recognition moving forward and those who accept, adopt and build around blockchain will be the winners.
With all the opportunities for additional revenue sources and long-term growth, blockchain will soon become the obvious answer to many problems we didn’t even know we had, both in the business world and in our personal lives.
For media, content or writing inquiries please contact Patrick Hagerty at PatrickJHags@gmail.com