As you venture into the world of cryptocurrency, at some point you have to consider the concept of money. Once upon a time, we traded with each other, trading one product for another. Maybe you would give me fish in exchange for potatoes. I could then trade some of those fish for seeds, and so on.
As societies evolved, so did our money. We started to use things like cowries or gold as a medium of exchange for goods and services. From there, we finally reached fiat currency, like the dollars or euros that we use today. These have no intrinsic value: a dollar is worth a dollar because we give it that value.
Now we have cryptocurrencies. One way to think of crypto is that it looks like digital cowries: tokens that you can exchange for goods and services.
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How Bitcoin Can Change Our Money Systems
Bitcoin was the first cryptocurrency, and it promised to revolutionize the way we use money. It is not backed by a central bank or a government. And it allows us to make digital payments or transfers without involving a third party, such as a bank. Money can be moved faster and with lower transaction costs.
Over 11,000 alternatives to Bitcoin (known as “altcoins”) followed in its wake, and a new decentralized finance (DeFi) industry flourished. DeFi removes intermediaries from traditional financial services. For example, crypto holders can take out a loan without going through a traditional lender, earn interest without opening a bank account, and purchase insurance without going through a broker.
Here are five altcoins pushing the boundaries of how we use money.
1. Aave (AAVE)
Decentralized lenders like Aave exclude traditional lenders from the lending process. Borrowers do not need to pass a credit check or fill out any paperwork. Instead, they deposit crypto collateral and enter into a smart contract (a self-executing piece of code that lives on the blockchain).
Crypto holders can earn interest on their assets by contributing them to the loan pool. The rates they can earn are higher than traditional savings accounts, as are the risks.
2. Compound (COMP)
Compound is another top DeFi lender that works the same way. According to DeFi Pulse, which tracks the performance of different DeFi platforms, Compound has less total assets deposited on its platform than Aave. (As of this writing, Aave tops the list with $ 16.12 billion, while Compound has $ 10.35 billion.)
3. Ripple (XRP)
Ripple is an international digital payments network looking to replace SWIFT (the current standardized money transfer system favored by banks). If Dogecoin (DOGE) is the people’s crypto, Ripple is the bank’s crypto.
Ripple makes it easy to transfer any currency, be it dollars, Swiss francs, or Aave tokens. Sadly, he landed in hot water with the Securities and Exchange Commission (SEC), which enforces securities laws and protects investors. He argues that XRP is security rather than cryptocurrency. (Most cryptocurrencies are categorized as commodities, so they don’t have to follow the same rules as securities.)
4. Stellar lumens (XLM)
Stellar was created by Jed McCaleb, one of the co-founders of Ripple. Like Ripple, it aims to facilitate low cost money transfers. However, Stellar is aimed at people rather than institutions. This could be particularly powerful in developing countries where many people do not have access to traditional banking services.
5. Nexus Mutual (NXM)
Unfortunately, as cryptocurrency gains in popularity, scams, hacks, and crypto thefts are on the rise as well. Cryptocurrencies don’t have the same protections you would get with a traditional bank or broker. As a result, crypto insurance is increasingly important.
And, unsurprisingly, there are a growing number of decentralized insurers. Indeed, insurance brokers as we know them could become a thing of the past. Those smart contracts that we mentioned earlier? They don’t always work as expected. Nexus Mutual covers smart contract failures and exchange hacks.
The association aims to bring back a community approach to insurance and reduce administrative inefficiencies. Unlike traditional insurance brokers, NXM token holders jointly assess claims, which are then paid from a central pool. Unfortunately, the token is not available from major US cryptocurrency exchanges.
Changing the way we use money
Whether it’s banking services, money transfers, loans, or insurance, these and other cryptocurrencies could transform the financial landscape. But like all cryptocurrencies, they are volatile and high risk investments.
It is not yet clear how this space will evolve, and there are a lot of moving parts. Authorities around the world are considering how DeFi should be regulated to ensure consumer protection. Governments can launch their own centralized digital currencies. And the technology itself continues to develop rapidly, so these parts can be replaced with newer ones.
That said, DeFi is an exciting area with huge potential, so it’s worth putting these coins on your watchlist.