The concept of money has evolved with time, from a system of trade by barter to the use of precious metals like gold and silver which were made into coins.
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Now cryptocurrencies are taking over, they have been tagged the future of money for a good number of reasons such as:
- Financial inclusion for everyone
- Decentralization as they are not controlled by governments or banks
- Transparency on public blockchains allowing all transactions to be viewed by anyone
- Privacy as user details are not revealed
Putting all these into consideration we should take a look at the economics, gold has a market cap of eight trillion dollars which is ten percent of the total GDP of all the countries.
On the other hand, the total market cap of the cryptocurrency market is 313 million dollars that is only four percent of gold’s market cap.
Bitcoin alone has a market cap of 200 million dollars with a dominance of 64% in the cryptocurrency market, while ethereum and tether dollar follows closely with 11% and 3% respectively.
Even though cryptocurrency is a relatively new market it has been predicted to overtake gold in the future because less than 1% of the total world’s population currently uses cryptocurrency therefore there is huge potential for enormous growth.
However there has to be mass adoption of cryptocurrency to achieve growth, their use has to spread to a wider audience. The issue of scalability is a major issue for most cryptocurrencies, using bitcoin and ethereum as examples:
Bitcoin was created in 2009 by Satoshi Nakamoto, it is the first implementation of blockchain technology and the pioneer cryptocurrency.
Its reputation gives it the first movers advantage but there are two sides to the coin. On one hand, people believe it should replace the fiat currency as a medium of exchange allowing it to flow and more people use it.
On the other hand, more people now hold it as a store of value for long-term investment. This is partly due to the amount of time it takes to process transactions.
Although faster than traditional banking systems for cross-continental transactions, its use for day to day transactions is not feasible as transactions can take up to ten minutes before they are confirmed.
Imagine having to wait ten minutes to confirm a transaction for a cup of coffee in our fast-paced society. The effect of this is that more people hold bitcoin making it more scarce and it doesn’t allow for financial inclusion of everybody.
In the long run, when all bitcoins have been mined, transaction fees will become considerably higher as most miners will have to merge to remain profitable or shutdown and this will make the network more centralized.
The search for a scalable solution for bitcoin has led to various hard forks, the proliferation of many layer-2 solutions and other cryptocurrencies.
Ethereum was the first cryptocurrency to use smart contracts which are programs that executes automatically once some predefined conditions are met.
The use of smart contracts has widened the use of blockchain technology beyond cryptocurrency as many tokens and decentralized applications are built on the ethereum blockchain.
Yet ethereum is plagued with the problem of scalability as it uses a proof-of-work consensus algorithm like bitcoin. Transactions can take a while most times and miners prioritize transactions with higher fees.
The founder of ethereum, Vitalik Buterin proposed the blockchain trilemma that a blockchain can only have two out of decentralization, security, and scalability but not all three.
In other, to solve the scalability issue it has been decided that ethereum will switch to a delegated proof-of-stake algorithm.
This will offer better scalability to tokens and applications built on the ethereum blockchain but it will become more centralized as staking pools will be delegated based on a certain amount of stakes in this case ether they own.
Sacrificing decentralization for scalability is similar to using banks and fiat, there is great need to solve the blockchain trilemma and that is what algorand blockchain has done.
Algorand is the first pure proof-of-stake permissionless public blockchain.
Algorand’s CEO Silvio Micoli found that for a blockchain to reach a consensus it only requires a subset of participating nodes and algorand is built on this principle.
Anybody can run a node on algorand by simply owning ALGO the native algorand token, then subsets are chosen randomly to verify transactions and blocks.
This allows for greater decentralization in which nodes work together instead of competing and more can be achieved with greater efficiency in less time.
ALGO is a cryptocurrency that allows for more financial inclusion as transactions are faster taking not more than five seconds per transaction and an average of a thousand transactions can be processed per second.
This makes it useable for day to day transactions and with very minimal fees it has the potential to become a widely used currency both as a medium of exchange and store of value.
Other cryptocurrencies and digital assets can be built on algorand blockchain with ease giving the same decentralization, security, and scalability.
Some examples are the Marshal Sovereign (SOV) which is a national currency of the Marshal Islands built on algorand blockchain to be used simultaneously with its fiat.
Another example is the stable coin Tether dollar (USDT), being the third-largest cryptocurrency by market cap and already built on some other blockchain. Tether dollar on algorand blockchain offers better scalability with lower transaction fees when compared to others.
Recently Circle released another stable coin built on algorand blockchain and this goes to show that an increasing number of projects are beginning to identify with algorand.
Banks will soon become obsolete with the recent trend of decentralized finance, a wide variety of digital currencies as options, and readily available solution to the blockchain trilemma on algorand blockchain.
Algorand blockchain is building a decentralized ecosystem that is the next step in the evolution of money.
Written By Algorand Ambassador Edidiong Ekpobo