A decentral future
In part it was the injustice of governments around the world bailing out banks with taxpayer money that led to the rise of bitcoin. The idea: stash away your savings in a currency that has a limited supply (~21M BTC). The greatest thing about it — no single person, entity or authority can change this limit.
Why? It’s decentralised. No central authority has control over what happens. Everything needs to be voted on and agreed upon via consensus before it gets implemented (this is how it works for Bitcoin).
Usually the largest holding of tokens or the miners with the biggest hashpower have the biggest say in what features are to be developed and deployed, not just one government authority. In your typical democracy you can vote for a representative, but you typically don’t have a say on specific topics like how much money is going to be printed to save an over leveraged bank from going bust.
Quietly, with this in mind, Bitcoiners have taken their fiat currency and traded it for a decentral currency with limited supply. They believe in the properties of Bitcoin, being a scarce store of value.
The process of moving money into crypto currencies is very hard to stop as long as a large enough number of people believe in them and they fulfill the purpose of a medium of exchange (ie. they can be traded).
Due to the creation of Bitcoin and it’s rise to a market cap of more than 1 trillion USD, the traditional monetary system is revolutionised from the sideline without really touching or interfering in anything traditional. More and more people believe in its properties and thus join this decentral currency avoiding the inflation fiat currencies bring. But there are more areas where decentralisation will have a massive impact.
Everything is changing
Organisations, financial exchanges, AI platforms, financial applications and even our identities are decentralised. Built without interfering in the existing system, these technologies are picking up momentum and will eventually, once a critical mass of users is reached, lead to a revolution or a replacement of the old.
Take market makers in the traditional finance world; searching through order books, defining their price to get a piece of the spread. Uniswap, a decentralised exchange on Ethereum has implemented a very successful automated market maker, replacing the traditional market maker (very good summary).
decentralised exchanges are exchanges running on the blockchain instead of being hosted by a single company like Coinbase. Like with cryptocurrencies in general, at a decentral exchange there is no single owner.
The automated market maker is quite dumb, but it get’s the job done simply running in a smart contract at very low fees (aside from Ethereum gas fees).
A smart contract is a piece of coding that gets executed when certain conditions are met. Say it could pay out a fund to a predetermined address, when a collateral is posted into the contract).
Gas refers to the unit that measures the amount of computational effort required to execute specific operations on the Ethereum network. It is paid to the miners executing the transaction
This is what ultimately makes it competitive and once more assets are tokenised the traditional markets will start to really feel this competition.
Why run a business with hierarchies of managers and centralise decisions in corporations if the rules of an organisation can be written into a smart contract. DAOs (decentralised autonomous organisations) become competitive by running things as code and thus saving money.
Take the crypto currency project Decred, which is described as “bitcoin with robust open source governance”; the project has a DAO set up to manage development funding. 10% of the block reward of the currency are going into a project fund and from there are managed by consensus voting of stakeholders using their own platform politea. So if a new feature is approved (by consensus of the stakeholders) a developer can be hired from anywhere in the world to do the actual implementation.
No middle managers, status calls, HR Teams or company politics required.
Tokenisation of real estate
I currently live in Sydney and housing is quite expensive. For a normal income it is almost impossible to buy a house and thus get exposure to this booming real estate market, let alone diversify into multiple apartments/houses. There is simply too much debt one would need to put on to get in and earn a piece of the pie.
Once the legal details have been worked out, tokenisation could be an answer. Think about slicing a piece of real estate into very small tranches using tokens to represent their ownership. A piece of real estate is bought by issuing a bunch of tokens and whoever is interested can buy a bunch and then trade them.
The smart contract and the blockchain take care of tracking transfer of ownership of these tokens and as with voting for software changes in a DAO, the entity with the biggest amount of tokens has the biggest vote on changes to the property or decisions on tenants. Just imagine buying into a property without debt and over the course of years gaining more and more tokens until you can finally move into a place you own.
The rise of decentralised finance
Finance is where there is the biggest action; Projects building futures markets, insurance systems, synthetic asset trading or lending and borrowing are gaining popularity and are seeing a rapid inflow of capital. According to DefiPulse there are currently 50B USD locked in the various dapps (decentralised apps) of the Ethereum ecosystem. And if you just look at the 1 year chart, this has all happened quite recently (and dumped a good bit even more recently):
The majority of dapps run on Ethereum, but there are others. Compared to Bitcoin, Ethereum can run applications in smart contracts on the blockchain.
What to make of decentralisation?
Hard to tell where this will go but who doesn’t like to have his savings in a currency that can’t be printed infinitely? Who wouldn’t like living anywhere in the world and working as much as necessary to spend the rest on things you love doing (perfectly fine if that’s working)? Who wouldn’t like the world to be a fairer place, because where you live and where you’ve studied doesn’t really matter as long as you are good at what you do.
To me this future sounds very exciting and I can’t wait to see where it takes us