As you learn more about bitcoin, you’ll eventually come to terms with the concept of money. People used to barter back in the day. Our money evolved together with society. We began by exchanging products and services for gold, and then we developed paper money, such as dollars or euros, which we still use today. They aren’t valuable in and of themselves: a dollar is only worth a dollar because we assign it to it. Cryptocurrencies are now available.
Changing our financial habits
What role does bitcoin play in our monetary systems?
The original cryptocurrency, Bitcoin, promised to change the way we use money. It is not backed by a government or a central bank. It also enables us to perform electronic payments or transfers without the assistance of a third party, such as a bank. Money can be transported more quickly and at a cheaper cost.
More than 11,000 “altcoins” (alternatives to Bitcoin) have since emerged, spawning a new decentralized finance (DeFi) industry. Traditional financial services are rendered obsolete by DeFi, which eliminates the need for middlemen. For example, bitcoin owners can get a loan without going via a traditional lender, earn interest without having to open a bank account, and buy insurance without going through a broker.
Here are five alternative currencies that are transforming the way we use money.
1. Aave (AAVE).
Traditional lenders have been eliminated from the financing process thanks to decentralized lenders like Aave. Borrowers are not required to submit to a credit check or complete any paperwork. Instead, they put up cryptocurrency as security and sign a smart contract (a piece of self-executing code that resides in a blockchain).
By contributing their assets to a credit pool, cryptocurrency holders can receive interest on their holdings. The interest rates they can receive, as well as the hazards, are higher than in ordinary savings accounts.
2. Compound (COMP).
Another well-known DeFi lender, Compound, operates in a similar manner. Compound has fewer total assets on its platform than Aave, according to DeFi Pulse, a website that analyses the functioning of several DeFi platforms. (Aave has $16.12 billion, whereas Compound has $10.35 billion as of this writing.)
3. Ripple (XRP).
Ripple is a global digital payments network that aims to take over from SWIFT (the current standardized money transfer system favored by banks). Ripple (XRP) is the cryptocurrency of the bank, while Dogecoin (DOGE) is the cryptocurrency of the people.
Ripple enables transferring any cash, including dollars, Swiss francs, and Aave tokens, simple. Unfortunately, the Securities and Exchange Commission (SEC), which enforces securities laws and safeguards investors, has looked into it. XRP, according to the regulator, is a security, not a cryptocurrency. (Because most cryptocurrencies are classified as commodities, they are not subject to the same regulations as securities.)
4. Stellar Lumens (XLM).
Jed McCaleb, one of Ripple’s co-founders, invented Stellar. It, like Ripple, wants to make low-cost money transactions easier. Stellar, on the other hand, focuses on people rather than institutions. This is particularly useful in poor nations, where many people do not have access to regular financial services.
5. Nexus Mutual (NXM)
Unfortunately, as bitcoin becomes more popular, so are cryptocurrencies, hackers, and thefts. Cryptocurrencies are not protected in the same way that traditional banks or stockbrokers are. Crypto insurance is becoming increasingly crucial as a result.
The number of decentralized insurers is increasing, which is unsurprising. Indeed, insurance agents as we know them may soon be obsolete. Smart contracts, as previously indicated, do not always operate as expected. Smart contract failures and exchange hacking are covered by Nexus Mutual.
Changing the way money is used
The nonprofit aims to reintroduce a public approach to insurance while also reducing inefficiencies in the administrative process. Unlike traditional insurance brokers, NXM token holders combine their resources to evaluate claims, which are then reimbursed from a common pool. Unfortunately, the token is not available on any of the main cryptocurrency exchanges in the United States.
Changing the way money is used
These and other cryptocurrencies, whether in banking, money transfers, loans, or insurance, have the potential to transform the financial landscape. They are, however, volatile and dangerous investments, like are all cryptocurrencies.
We have no idea how this place will develop, and there are many moving components. Authorities all around the world are debating how to regulate DeFi in order to safeguard customers. Governments can create centralized digital currencies of their own. Furthermore, because technology is continuously evolving, these coins can be replaced with newer ones.
Nonetheless, DeFi is an intriguing field with a lot of potential, so these currencies are worth keeping an eye on.