What is the link between Fortnite, Drest and the NBA? All make revenue from zero-touch cultural products that rewrite the rules of how we store value through the use of non-fungible tokens (NFT). Let me explain what these are and why you should care about all this now:

It has almost become a tradition that crypto prices rally around the new year. Experts attribute this to a range of factors, each bearing differing degrees of substance. Some say money sits loosely in the wallets of Wall Street brokers after they have pocketed their annual bonus while others point to the ever-increasing Google searches for crypto-related topics (often indicating growing trade activity). But what exactly causes this growing interest? And is there something different about this hype cycle?

Truth is, while most of the mainstream turned away from crypto over the last year, dismissing it as a short-lived trend, developers remained unfazed by the loss of interest and continued building on their vision of a decentralised future. Over the last year, venture capital funds, endowments and other institutional investors joined the crypto club. They not only invested in the protocols’ native assets themselves (like Bitcoins or Ethers) but also backed the companies building applications or tools on top of these new platforms.

It has also become increasingly apparent that there are really only two projects with serious traction: Bitcoin and Ethereum. Most other ‘challenger’ projects that raised money through so-called Initial Coin Offerings (ICOs) in the hype phase of 2017, are dying a slow and, dare I say it, deserving death. With these distractions gone, Bitcoin and Ethereum’s unique properties have become better understood by the public.

That’s why it’s important for people to understand the basics behind the two major crypto networks, Bitcoin and Ethereum, and look at some of the major events taking place this year for each.

Bitcoin was launched in 2008 during the depths of the financial crisis. To put it simply, it’s a currency that is completely electronic, lives on a peer-to-peer network that anyone can connect to, that is not controlled and can’t be controlled by any single entity. Contrary to fiat money issued by governments and their monetary policy, Bitcoins are not created out of thin air, but by miners all over the world who provide computing power to the network to validate the transactions that are broadcasted to the network.

These properties make Bitcoin a unique financial asset. Like gold, it is rare and ‘mining’ comes with operational costs giving it monetary value. Unlike gold, however, it can be divided into a million pieces and sent across the globe in minutes, which makes it a highly marketable and liquid asset. For citizens in countries with high inflation, Bitcoin is already a much safer asset than their local currency and much more accessible than the US Dollar, for example.

Check out share trading platforms like Crypto Head to find more informative and easy-to-digest explanations about cryptocurrencies.

In May 2020, Bitcoin’s supply schedule will be halved. This happens every four years and means that Bitcoin miners will only receive 6.25 bitcoins (down from 12.5) for every block they solve. With fewer bitcoins earned, there will be less supply available on cryptocurrency exchanges, which will drive the price up, assuming a constant or rising demand.

Most properties described for Bitcoin hold true for Ethereum as well, with two exceptions: global acceptance and liquidity. Bitcoin, having had a head start of a couple of years, is more easily tradable and its value is better understood by the mainstream. However, Ethereum has many attributes that Bitcoin doesn’t have.

For one, it allows developers to create applications or agreements on top of its platform (so-called “smart contracts” in Ethereum lingo) and people can trust that the code specified in the contract will be executed. Unlike traditional apps, which are hosted and ‘owned’ by companies, these applications can be deployed and used by anyone. Because users hold their funds in non-custodial wallets (retaining control over their funds) no middleman is necessary when they use these applications.

Secondly, it introduces the concept of ‘tokenization’, which allows issuing other assets on top of the network besides the native currency Ether. Where Bitcoin is a transaction network for Bitcoin only, Ethereum is a transaction network for any financial asset. These assets can, for example, represent a share in a company, a piece of real estate or a currency like the US dollar.

These two building blocks together led to the emergence of a movement called ‘Decentralized Finance’ or ‘DeFi’. In short, it aims to re-create the financial system that we use today, but in a way that removes the need for intermediaries like banks. Today, users can draw loans, trade synthetic securities or deposit their ‘crypto dollars’ in interest accounts by using smart contracts instead of banks. The value locked in these decentralised applications exceeds $1B dollars today and keeps rising.

While the last years were successful in experimenting with this new type of finance, Ethereum is now at a point where it is constrained by the capacity of the network. The good news: for the last few years Ethereum’s developers have been working on an upgrade of the network called Ethereum 2.0, which is planned to finally launch this year. From then on, Ethereum will be much faster, giving way to new types of applications and allowing existing applications to scale.

Cryptonetworks create a common standard for exchanging financial assets in a trustless way.

Centralized Finance has been around for so long that many people don’t challenge the fact that there’s a better way to do it. The truth is that just like other human inventions, money has evolved a lot throughout history. Hopefully, we’ll see cryptocurrency and cryptonetworks shape the next phase of money innovation.

Cryptotesters is a crypto product comparison platform helping you to find the best products and get started with your crypto journey. Find the best cryptocurrency wallet, hardware wallet or cryptocurrency exchange!