Cryptocurrency’s ability to increase one’s fortune makes people consider it a tool for long-term investments. Short-term fluctuations allow traders to make money on cryptocurrency exchanges in the moment.
These examples of the use of cryptocurrencies are just a side effect of their popularity. If cryptocurrencies did not have a specific purpose, most likely they would not be so attractive to investors and traders. To understand the reasons for the hype around cryptocurrencies, we will answer the question of why they are needed and what is holding them back. In the following text, we will illustrate other ways to use cryptocurrencies, so that you can understand whether you need them or not.
Why cryptocurrencies have not replaced money
The first cryptocurrencies were created to fully protect personal freedom. Cryptocurrency transactions are almost anonymous, so even government authorities cannot locate the wallet holder. This design feature soon began to be used for illegal purposes: trading illegal drugs, weapons, other people’s data. Such cases of departure from the law have forced many countries to take a cautious stance in relation to cryptocurrencies.
In addition, if cryptocurrency replaces traditional money, many government mechanisms will stop working. The state needs to regulate the economy to prevent crises, monopolies and unequal distribution of wealth. For example, cryptocurrency will not be able to be used to effectively collect taxes required to form the country’s budget.
However, it is difficult for them to completely abandon cryptocurrencies as they have a number of advantages. Blockchain transactions are safer, faster, and cheaper compared to traditional money transfers.
The benefits of cryptocurrencies are ambiguous, so countries do not have a clear understanding of how they should be treated. The use of cryptocurrencies is practically unlimited in countries such as Australia, Canada, South Africa and Libya. The opposite of this situation can be observed in Algeria, Afghanistan and Saudi Arabia – cryptocurrencies are completely banned there. In the US, the status of cryptocurrencies is vague. Different states and government agencies regard cryptocurrency as either property or legal tender. Most African countries do not yet have separate digital asset legislation.
The spread of cryptocurrencies is constrained by the lack of clear international standards for its circulation. Consider how, due to this complexity, cryptocurrency can be legally implemented in the real world.
Most countries in the world allow their own national currencies to be accepted. For example, Russian law only considers the Russian ruble to be legal tender. It is prohibited to pay for goods and services with anything else. Thus, cryptocurrency is equated to foreign currency – it itself can be bought, sold or exchanged.
There are states in which the use of the national currency is mandatory only for payment of debts and taxes, but not for goods and services. Among them are Great Britain, Canada, USA. In these countries, some large corporations accept cryptocurrency directly: Microsoft, Spotify, Burger King. In Argentina and Japan, you can even pay for public transport with Bitcoin.
But even if in your country you can pay with cryptocurrency, it will be difficult to find a place where it is accepted. According to Coinmap, there are only about 19 thousand institutions that accept cryptocurrency in the world. This is less than half the number of McDonald’s restaurants that accept credit card payments.
To solve this problem, cryptocurrency holders use various intermediary services. The simplest and most commonly used way is a debit card with the ability to use cryptocurrency. For example, the Binance Visa Card is tied to the crypto wallet of the same exchange. You can use the funds wherever cards are accepted – in supermarkets, gas stations, restaurants and online stores. Automatic conversion will take place at the current rate.
Another cryptocurrency focused specifically on everyday purchases is Dash. Transactions are processed in 1 second and the commission is $0.01. In addition, the company develops applications for different platforms. Using these, you can quickly effect transfers, much like PayPal. You can buy Dash at Bitzlato P2P exchanger.
Technological solutions in the field of finance are primarily aimed at business interests. Unlike ordinary citizens, companies have much more complex monetary transactions. It can be necessary to keep strict records, handle a large number of simultaneous payments, and automate customer relationships. Solving such problems using blockchain is often more effective than using a large team of accountants.
It can be beneficial for businesses to accept payments in cryptocurrency for various reasons:
- Low fees. For non-cash payment services, banks keep about 1% from each transaction. A cryptocurrency transaction does not need a third party, and therefore does not require significant costs. The commission for any transaction does not depend on the amount.
- Marketing reception. It is important for customers to understand that the company is keeping up with the times. Plus, a customer is more likely to tell their friends about your business if they find out that you accept cryptocurrency.
- Simplicity. It is enough to publish a QR code with a wallet number to start accepting payments in cryptocurrency.
There are many solutions to accepting cryptocurrency payments. For example, owners of any online business can use BitzlatoPay. The service provides all the necessary functionality for the client to click the “Pay” button and transfer funds to the seller in a couple of clicks. At the same time, if they do not have the required cryptocurrency in their account, it can be instantly purchased in any available way (Sberbank, QIWI, Yandex Money, etc.)
To receive payments, it is most profitable to use cryptocurrencies with low rate fluctuations. It is worth paying attention to the stablecoins like USDT, USDC, DAI or BUSD – their rate is pegged to the dollar.
Transferring money to another country
The most famous advantage of cryptocurrencies is the functionality of quickly and inexpensively transferring money to any country. For example, you can send any amount using ether and spend $2 and 1 minute on it. For bank international transfers, the commission would be about 2% of the amount, and the processing could take up to 5 business days.
You can transfer money to another country by converting it to cryptocurrency:
- The sender buys cryptocurrency in a P2P exchanger.
- The cryptocurrency from the internal wallet is sent to the recipient’s wallet.
- The recipient exchanges the cryptocurrency for local currency.
Using this method, the commission is lower and will not depend on the transfer amount. The whole process will take less than an hour.
Litecoin, Dash and Bitcoin Cash have the lowest transaction fees. This makes them a great tool for international money transfers.
Using decentralized applications
Cryptocurrency can be used inside decentralized applications. Such applications differ in that all data is stored not on the developer’s server, but on the blockchain.
There are many decentralized applications out there, both geared for entertainment and social activities. You can find them in the Dapp Radar and OpenSea catalogs. Here are some examples of the most popular ones.
Splinterlands. This is a decentralized collectible card game. The game world is a synthesis of Pokémon and World of Warcraft characters. The game was created on the basis of the Steem Blockchain, which allows you to own game cards, buy and sell them and not be afraid of an unfair ban or a server crash.
Rarible is a standalone platform for buying and selling digital works. Authors can create their paintings on the platform and sell them for ether. At the same time, copyrights are protected by Ethereum smart contracts.
Decentraland. This project was created on the Ethereum blockchain virtual world. In a vast universe, real estate is the main asset. You can visit different places created by other players: attractions, museums, galleries and concert venues. You can also buy a piece of land yourself and build, for example, a store.
Using the services of DeFi projects
These are the most common decentralized applications in the field of finance. Such services are even allocated a separate group – DEFI, which stands for “decentralized finance”.
All financial services can be divided into three types: banking, investment and insurance. In each of these areas, DeFi projects can represent an alternative to the bank. You can find them on DeFi Pulse. Let’s look at some of the most popular examples.
Decentralized exchanges. Unlike centralized exchanges, users retain complete control over their data and funds. This allows them to maintain anonymity and improve reliability.
The most popular decentralized exchange is Ethereum-based Uniswap. In terms of aggregate trading volume as of November 2020, it is not far behind centralized exchanges such as Bitfinex and Kraken.
Loans and deposits. There are many applications based on Ethereum that you can use to borrow money and make money by providing loans. By linking an Ethereum wallet, you can access all services without waiting for approval.
The Aave app supports 22 types of cryptocurrencies. Each of them can be borrowed, or deposited so that the owner acn receive interest.
Stablecoins. Such coins have a fixed rate and are secured by a collateral in cryptocurrency. The tool can be useful for those who want to insure their assets against market fluctuations.
Decentralized analogue of a reserve bank is MakerDAO. The platform has its own stablecoin DAI, which is collateralized in ETH and equals to one dollar.
Tokens and cryptocurrencies are often mixed up. The main difference is that tokens cannot exist independently, but depend on the network of another cryptocurrency. Tokens are often tied to a project and provide their holder with unique opportunities.
The Ethereum platform currently has the most tokens installed. The most popular of these are internal tokens of cryptocurrency exchanges, such as Binance Coin and Huobi Token. They can be used to pay commissions more profitably than any other currency.
TRON has a lot of tokens. One example is the BitTorrent Token, which can be used to speed up downloads over the BitTorrent file sharing protocol.
There are also tokens that serve as internal currency in games. The already mentioned game Decentraland uses the token MANA. With it, you can buy cosmetic items for your avatar and land for future buildings.
At their core, tokens are the currency that the creators of the services issue and use themselves. They are less functional than cryptocurrencies, but they allow you to solve specific problems.
Despite the complicated legal status, cryptocurrencies are finding use in the modern economy. In the article, we considered several examples of how you can use cryptocurrency in practice:
- make purchases,
- accept payments,
- transfer money to another country,
- use decentralized applications,
- use decentralized finance,
- use tokens.
As technology advances, it is likely that the way cryptocurrencies are used will evolve as well.