Part 1: Welcome to Next Generation Finance
The dot-com boom was a panacea for technical innovation, but the introduction of cryptocurrencies such as Bitcoin and Ethereum will turn the entire financial industry on its head as money fully becomes software.
Beyond cryptocurrencies in their pure form we are seeing brand new concepts emerge like the expansive realm of NFT’s, or non-fungible tokens, which are driving a collision course between art, money, gaming and access. In other parts of the crypto-sphere (we’re almost tempted to call it the multiverse) we’re seeing digital mechanisms replace and innovate on traditional finance systems, creating the burgeoning Decentralized Finance or Web3 space, where crypto lending, leveraging, borrowing, and everything in between is occurring.
If all this sounds daunting, don’t worry. In the following guide we’ll break down the cryptocurrency space, discuss different ways to integrate crypto into your products and offerings, dive into some of the requirements to operate in the space, and describe the more nuanced concepts that are worth understanding (at least at a high level). We’ll also break down what it would cost to build a team if you wanted to take on all the complexity yourself.
You may be asking the strategic question of if your organization should embrace crypto. Beyond all the hype, and the scams, and the volatility, is it actually worth the time and effort to plan, build and release something to your customers? We think the answer is a resounding ‘Yes!’, but you don’t have to take our word for it. You just need to look at the market growth and onslaught of weekly press releases about traditional organizations introducing new crypto-based products and services. If you’re not getting into crypto, you may be missing the boat (the same way organizations who didn’t embrace the Internet, or Mobile were).
The crypto market is big, and growing. As a market, the aggregate set of cryptocurrencies has been fluctuating between $1-3 Trillion, with some estimates indicating it will be worth over $5 Trillion by 2028. Approximately 20,000 different cryptocurrencies are listed on the popular CoinMarketCap web site, showing there is no shortage of innovation and opportunity in the space. In fact, momentum is only growing as the traditional Layer 1 blockchains like Bitcoin and Ethereum become congested and their transaction costs become prohibitive, which has prompted the creation of additional Layer 1 blockchains or Layer 2 scaling solutions to continue driving innovation.
So let’s be clear. While there is a lot of hype, crypto and DeFi are not going away, and it’s critical your business and strategy teams understand and consider what role crypto plays in the future your company.
If you don’t have your head wrapped around the basic concepts of crypto, be sure to check out our Core Concepts, which will give you enough information about blockchain technology, cryptocurrencies and decentralized finance to be dangerous.
For now, let’s just briefly cover a few key terms:
|Blockchain||The underlying technical infrastructure that runs cryptocurrency and decentralized finance. It’s made of linked digitally signed blocks of transactions, hence, a chain of blocks, or blockchain.|
|Layer 1||The primary layer of blockchains, like Bitcoin and Ethereum.|
|Layer 2||Scaling solutions for Layer 1 blockchain that enable faster transactions, or more transaction throughput.|
|Cryptocurrency||A digital token, running on a blockchain, that has a monetary value.|
|Wallet||The secure identity of someone who holds cryptocurrency or digital tokens.|
|Transaction||The process of moving or assigning cryptocurrency and digital tokens from one wallet address to another.|
|Tokenization||The concept of turning digital or physical assets into many small pieces, or tokens, that can be stored within wallets.|
|Exchange||A centralized location to swap between cryptocurrencies.|
|Decentralized Exchange||A non-centralized exchange, supported by community provided liquidity.|
|Stablecoin||A cryptocurrency that is pegged to the value of a real-world currency like USD. Stablecoins are either backed 1:1 by real currency, or use some kind of algorithmic approach to keep the peg.|
|DeFi||A set of growing distributed finance tools that users can interact with via wallets and a variety of cryptocurrencies and digital tokens.|
|NFT||A tokenized non-fungible asset representing digital art, digital land, or even real world assets.|
Crypto-led growth can fuel your business
Paving the way for transactions that are cheaper, faster and more secure, the question is not “if” Crypto-as-a-Service will disrupt the financial sector, but “when”. With 88% of Millennials expressing interest in investing in crypto, demand suggests this shift will happen sooner rather than later. By the end of 2023, it is expected that between another 100 and 200 million new crypto wallets will have entered the space.
Jump into Part 2 of this series, Ways to introduce crypto into your portfolio.