Crypto Is About More Than Just Buying Low And Selling High
Crypto is about more than just buying low and selling high
In November 2021, Bitcoin reached an all-time high (ATH) of $68,000, making it unquestionably a fantastic time to be a cryptocurrency trader or investor. It is at such times that cryptocurrency traders and advocates take advantage of every opportunity to remind those who are not involved in cryptocurrency trading what they are missing out on.
On the crypto-currency streets, on the other hand, the situation is different, as Bitcoin is dwindling. The most prominent cryptocurrency has lost nearly half of the gains made during the all-time high reached in 2021, and the charts remain crimson red in color.
The continuous decline has resulted in a $1 trillion loss in the total market capitalization of all cryptocurrencies.
For those who are familiar with the extreme volatility that can be associated with cryptocurrency trading or hoarding, the current decline is just another example of this. Despite the current decline in cryptocurrency prices, Ruth Iselema, the founder and CEO of cryptocurrency exchange Bitmama, is unconcerned about it.
In a Techpoint Build 2021 session entitled "Crypto beyond trading," Iselema shared his thoughts on cryptocurrency. She spoke about how cryptocurrencies can be used for a variety of purposes other than trading, and how they have the potential to play a significant role in African financial development.
Cryptocurrency is much more than just trading
Coins such as bitcoin and other cryptocurrencies are frequently used for speculation, with the goal of buying low and selling high. However, they were not designed for this purpose. According to Satoshi Nakamoto's enigmatic white paper, the goal of Bitcoin is to provide a "system for electronic transactions that is not reliant on trust," as opposed to other payment systems.
Bitcoin trading is now widely regarded as a viable career option for some, as a hedge against inflation for others, and as a means of escaping poverty for others. Cryptocurrencies are viewed negatively in general, but particularly in Africa because of the high rate of poverty, according to Iselema.
The fact that approximately 40% of Africa's population, or 1.3 billion people, live in abject poverty makes cryptocurrencies a highly appealing investment opportunity. Aside from that, Iselema pointed out that cryptocurrency trading is more popular than other applications of cryptocurrency because of the complexities associated with cryptocurrency use.
Integrating cryptocurrency into regular finance
In addition to trading, cryptocurrencies have a variety of other applications, such as lending, insurance, and value exchange, which are all possible with them. All of these activities fall under the category of decentralised finance (DeFi), which refers to financial activities that take place over decentralized networks such as the internet.
DeFi paints a very vivid picture of cryptocurrency's potential applications outside of traditional financial institutions. Because of this, cryptocurrency can function in a manner similar to traditional financial institutions that use fiat currencies, but without relying on those institutions.
What is the mechanism by which this operates?
The goal of DeFi is to create a financial system that is free of third-party involvement. This is achieved through the use of decentralized peer-to-peer networks. This means that anyone who has access to the Internet can lend, trade, and borrow without having to deal with the usual paperwork associated with centralized financial institutions.
A large number of DeFi protocols, such as Compound, make crypto lending and borrowing more convenient. The cryptocurrency will be made available to those who are looking to borrow it by those who already have it. Non-fungible tokens (NFTs) or other forms of cryptocurrency can be used as collateral in addition to fiat currency.
Smart contracts are essential components of DeFi because they ensure that each party adheres to the terms of the agreement they have made. A smart contract, as opposed to lending apps, takes immediate action if a borrower falls behind on payments. This is in contrast to lending apps, which harass borrowers after they fall behind on payments.
Non-fungible tokens (NFTs) are yet another intriguing application of cryptography that deserves to be explored further. NFTs have made a significant difference in the lives of Africans and many others around the world, from purchasing valuable art or music to creating it.
There is still a significant obstacle to overcome
While the implementation of these use cases appears to be straightforward on the surface, there is a significant educational component to it. Dune Analytics estimates that there are 4 million unique DeFi addresses as of January 2022, according to their research.
Important to remember is that an individual can have up to ten addresses and that the number of actual DeFi protocol users may be less than half of the total number of available addresses. This means that DeFi protocols are used by less than a tenth of the world's population.
Even though peer-to-peer Bitcoin transactions are common in Africa, the continent has been slow to adopt alternative cryptocurrencies such as DeFi, according to the World Bank. Only one African country, Togo, made it onto Statista's list of the 20 countries with the highest number of DeFi interactions, where it came in at number 20.
The reason for this is that many DeFi platforms are complex and expensive to operate. As a result, Oluchi Enebeli, a blockchain expert, believes that the blockchain space is still dominated by engineers and developers who place a low value on design and usability.
Despite the fact that they have been heralded as a means of achieving financial independence, cryptocurrency usage can be prohibitively expensive, creating a significant financial barrier to entry. Trading on the Ethereum network, which is the most widely used network for alternative cryptocurrency usage, is extremely expensive due to its high transaction costs. In this context, it is possible that transaction costs are greater than the transaction's value.
It remains to be seen whether alternative crypto usage will take off in Africa, despite the fact that new networks such as Solana and Polygon are emerging and lowering the cost of crypto usage.
