Anatomy of a cryptocurrency: What more does Bitcoin need to do

When you think of the word “crypto,” the word that comes to your mind is exactly what comes to everyone’s mind – Bitcoin . The first cryptocurrency, the first blockchain to facilitate transactions of digital assets, the first step towards the end of centralization.

Bitcoin bestowed upon the world not only a new instrument of transaction, but also an entirely new system of finance. One where you don’t have to worry about who’s watching.

Alas, 12 years later, with over 6500 cryptocurrencies in existence now, the pressure to keep up is building on the king coin. Hundreds of blockchains have been built by now, striving to do something that Bitcoin couldn’t, to try and overthrow it.

Some succeeded, some failed, but in that process, they developed the first real threat to Bitcoin – Decentralized Finance, otherwise known as DeFi.

Today Bitcoin needs DeFi more than DeFi needs Bitcoin . What’s DeFi and why the need for it?

I’m sure you all smart fellows are mostly already aware of DeFi, but a quick revision will help make things clear for the points we’ll be discussing ahead.

DeFi is the exact opposite of the kind of finance we witness every day. No humans at the helm, no control over operations, and no interference whatsoever.

DeFi is a system that enables any kind of transaction between two individuals utilizing a smart contract which is basically a pre-defined set of agreements that every transaction must satisfy in order for it to be processed.

So, why does it matter you ask? Because that DeFi is the biggest demand and the most necessary feature of today’s crypto-space. Since it removes the hassle of human dependence and error, everyone wants to integrate it. The demand has been coming from banks and individual investors alike who want digital assets and DeFi to be a part of their system as soon as possible.

As popular programmer Chris Dixon said , “On Wall Street, value flows inward to institutions at the center. In DeFi, value flows outward to people at the edges.” A survey conducted by Deloitte Insights recently found that a huge chunk of Financial Stability Institute (FSI) members believe that digital assets will be very important to their industry in the next 2 years. Even though their degree of need for multiple functions varied, the main focus was on access to DeFi platforms as well as new payment methods.

FSI survey for use of DeFi | Source: Deloitte

In fact, the oldest and the biggest Thailand bank – Siam Commercial Bank – has been supporting the growth of DeFi in Asia using a $110 million war chest for investments.

While regulations will always be a hindrance in the path of absolute DeFi adoption, it doesn’t stop the idea. Currently, 55 of the top 100 banks in the world are investing in digital assets.

On the other hand, the total value locked on DeFi across all chains is over $170 billion. So, even if theoretically, the top 100 banks invested 1% of their assets under management, the combined TVL would hike above $1 trillion.

DeFi TVL if top banks added 1% of their AUM | Source: Blockdata

This is the potential DeFi holds with the involvement of banks and institutions. This is how DeFi will transform the crypto-space entirely. This brings us to the question… How are others banking on this opportunity?

Recently, Binance pointed out the growth some major altcoins have registered since the beginning of 2021. BTC has grown by only 63% whereas, in the same period, ETH, ADA, BNB, and SOL have risen by 374%,1252%, 969%, and 7359%, respectively. Bitcoin vs altcoins’ growth in 2021 | Source: Binance The only thing common between these gainers is – DeFi. It began with Ethereum , but the emergence of Binance Smart Chain, Solana , Fantom , and the Alonzo hard fork for Cardano has made DeFi the next big thing. Today, combined, they hold almost $144.5 billion in TVL.

This has attracted investors towards them and away from Bitcoin.

Bitcoin has not seen any growth in investors for the last 6 months now. Bitcoin’s stagnant address growth | Source: Intotheblock – AMBCrypto But, Bitcoin will always be the prime SOV asset… right? Bitcoin lacks in the field of DeFi since all it has to offer is being an SOV. The network is slow, it doesn’t support smart contracts, and now even that exclusivity of SOV is being challenged. While no other coin is competing here, the rise of a relatively newer “asset” definitely is – […]

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