When Bitcoin was introduced the first time, some people saw it as the revolution to the finance industry that people desperately needed. People assumed that the time for an “internet currency” to go mainstream was about to happen. Many governments paid attention to Bitcoin, and some of them even went as far as to ban it. There’s no argument that Bitcoin was indeed disruptive to the status quo.
Fast forward to today, cryptocurrencies have been going even further. Some governments who used to ban them are starting to change their opinion. Some traders who used to be skeptical about it are starting to be bullish about it. And the use cases of cryptocurrencies have also starting to change. While previously Bitcoin and other cryptocurrencies were just simply used as “peer-to-peer electronic cash,” nowadays, there is a wide range of use cases.
VeChain Thor, for example, is used to incentivizing VeChain blockchain, which is utilized to solve the problems in the supply chain industry. Another example is IOTA, where it’s intended for machine-to-machine transactions in the era of IoT (Internet of Things). Other cryptocurrencies often attempt to solve different use cases as well. The crypto space keeps on improving!
Less Speculation, More Valuation
However, all the cryptocurrencies that I mentioned above are still somewhat limited due to their extremely volatile prices. Yes, most significant institutions and governments are still concerned with cryptocurrencies’ price volatility. So, what is the solution to make cryptocurrencies more appealing? Well, we have asset-backed cryptocurrencies these days. And yes, these asset-backed cryptocurrencies can potentially change the future of mainstream finance.
If you have heard of stablecoins like TUSD, USDC, or PAX, you might understand why they have 1-to-1 valuation to the US dollars. It’s simply because each of the token that they issue on the blockchain is also supported by the real USD in their bank accounts. You are allowed to exchange your stable token to real USD in your bank account. That’s why the value remains stable following the valuation of the real USD.
And the idea of stablecoins successfully inspired other asset-backed cryptocurrencies to show up. For example, nowadays, we have PAX Gold, where each of its token is backed by an ounce of allocated gold. Then, we have DGX, another gold-backed crypto token where you can exchange your token for real physical gold in your hand.
The crypto market has started to see the real potential behind this type of concept. We even have tokenized real estate on the Ethereum blockchain! The potential is amazing, knowing that every real-life asset can be represented by crypto tokens. And yes, believe me, these asset-backed cryptocurrencies are much more appealing for people outside the crypto trading space who generally do not like to speculate with crypto prices.
People Change Their Mind When They See Asset-Backed Cryptocurrencies
Governments and big corporations also started to copy this concept. Last year Facebook announced Libra, a cryptocurrency that will be backed by real-life assets. The People’s Bank of China (PBOC) is also in the process of developing a CBDC (Central Bank Digital Currency) which will utilize the blockchain technology but without speculative value due to its purpose as “digital yuan”.
The president of the European Central Bank, Christine Lagarde, also has expressed her interest in cryptocurrency technology. Many other government institutions all over the world have been discussing the ideas of their own fiat-backed cryptocurrencies. The list keeps ongoing. In the future we might have more big corporations and government institutions issuing their own cryptocurrencies.
Basically, the idea of asset-backed cryptocurrencies is suddenly much more appealing to the mainstream finance world. The same world which “ignore” the existence of Bitcoin and other traditional cryptocurrencies. It’s not hard to understand why, actually. Most people in the finance world are much more pragmatic in their approach. They don’t want to utilize something that can easily lose 5-10% of its valuation within just a few days. They want something that is backed by something in real life.
And that is why they are so interested in the concept of asset-backed cryptocurrency. Gold-backed crypto token, fiat-backed crypto token, real estate-backed crypto token, and other types of assets. Suddenly, cryptocurrency technology is interesting in the eyes of these government institutions and big corporations.
Why Not Just Use Paper? Why Crypto?
Now, here comes the important question. What’s the point of these institutions releasing asset-backed cryptocurrencies? Why not just use paper? Well, the answer is to save costs and to make every transaction easier. For example, imagine when you have an ounce of physical gold. How easy is it to sell the gold to someone that doesn’t live in the same country?
Now compare it with your ownership of PAX Gold tokens. You can just sell the tokens to another KYC-verified individual anywhere in the world. That person can easily buy your PAX Gold tokens and sell them back to the company if he wants to get the real physical gold in his/her hand. This opens a huge window of opportunity that was previously limited by borders and locations.
Even the standard concept of stablecoins has been quite useful for people all over the world. Freelancers can easily get paid by stablecoins, and they can save unnecessary fees on PayPal or freelancing websites.
The idea of asset-backed cryptocurrencies actually can be quite beneficial for everybody all over the world. Obviously, they are much better than paper ownerships. And considering governments are not really against them (in fact, they are “copying” this concept), it’s safe to say that asset-backed cryptocurrencies might become the future of mainstream finance.