A weekly newsletter decoding crypto, blockchain and the entire ecosystem.
By Rohas Nagpal
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What do you get when you buy crypto?
If I had a BAT every time someone asked me this question, I probably would have enough to buy an mTSLA. Didn't make sense? Read on.
Let's start with the absolute basics. Crypto is a generic name for a digital "coin" or "token" that runs on a blockchain. A blockchain is a computer network running on top of a whole bunch of cool technologies.
You don't actually "buy" cryptos in the traditional sense, like buying a book or a car or even a gold ring.
When you buy a book, you get a book—a physical thing with an excellent looking cover and many pages bound together. You can hold it, read it, scribble on it and even throw it at someone.
But when you "buy" crypto, you basically get "control" over some digital coins connected to your "address" on a blockchain. This address could look like this: 16xeWqVo2prJA7LzFft4BAFPcvbapgd67a
And you would control the digital coins using a private key that could look something like this: L5mY1GFgAYsNvkHnh8bVh1hXsaRvWpym9mQa7i1jy92ZKw4xxPQQ
Now the real question is, what is the value of these digital coins or tokens?
Cryptos can represent many things - a currency, ownership of a startup, intellectual property licenses, voting rights, fuel to run financial services and even shares of Amazon, Google or Tesla (mTSLA).
Cryptos as currencies
A cryptocurrency can be used to buy or sell things, e.g. a stablecoin pegged to a fiat currency - US dollar, Japanese yen, euro etc.
How does this work? Let's say you send $1000 through your bank (or even credit card) to a stablecoin issuer. Once your dollars hit their bank account, they transfer 1000 tokens to your address on a blockchain. Then, whenever you want, they can redeem your stablecoins. For this, you send the stablecoins to their address on the blockchain, and they transfer equivalent dollars to your bank account. Examples: USDT, BUSD, USDC.
Cryptocurrencies like Litecoin (LTC) are also a popular way for gig workers and freelance software developers to receive money from clients worldwide.
In the criminal world, cryptos like Dash (DASH), Decred (DCR), Monero (XMR), and Zcash (ZEC) are very popular because they offer a very high level of privacy, which pseudonymous cryptos like Bitcoin (BTC) do not provide. However, BTC is still very popular in the ransomware industry. This is probably because of the massive liquidity of bitcoin. Maybe the ransomware creators are worried that if they ask for Monero, their victims won't be able to buy it easily!
However, BTC is still very popular in the ransomware industry. This is probably because of the massive liquidity of bitcoin. Maybe the ransomware creators are worried that if they ask for Monero, their victims won't be able to buy it easily!
Cryptos that gives you ownership of a startup
Many startups use the blockchain to raise funding. As a result, the startups get much-needed cash, and the investors receive shares representing ownership of the startup. These shares are usually called security tokens and are issued on a blockchain.
Cryptos that mimic shares of listed companies
Buying shares in a foreign company comes with a whole bunch of problems. You need to open an account with a broker in that country. Then you need to buy foreign exchange and send it to that broker.
Plus, you need to buy at least one share, and that may be too expensive for an average investor - did you know that a single share of Warren Buffett's Berkshire Hathaway costs over $415,000!
That's where tokenized stocks come in. They are blockchain tokens that mimic the price of publicly traded shares. You can buy a fraction of a share without needing to open accounts with brokerages in foreign countries. And unlike traditional stock markets, the crypto market runs 24 x 7 x 365.
Some of the most popular tokenized stocks are Amazon, Apple, Facebook, Google, Microsoft, Netflix, PayPal, Pfizer, Tesla, and Twitter.
In most cases, a custodian holds the underlying stocks. As a tokenized stockholder, you can get the dividend paid out on the original stock. Depending on the issuer, you may also have an option to get the underlying stock transferred to your name.
Cryptos with intellectual property licenses
You've probably heard about NFTs (non-fungible tokens). In an ideal world, NFTs represent an intellectual property license.
Suppose you buy a copy of "Harry Potter and the prisoner of Azkaban". What do you get? You get a book that you can read. But you don't get the right to translate the book into another language and sell the translated copy. Nor do you get the right to make a movie based on the characters in the book.
For doing these kinds of things, you would need an intellectual property license from the book's copyright holder - usually the author or the publisher.
In an ideal world, an NFT grants you an intellectual property license over something like a book, artwork, song, etc. But, unfortunately, in reality, many NFTs are not worth anything!
Cryptos that give you governance and voting rights
Some cryptos are governance tokens and enable holders to shape the project's future, e.g. the automated market maker Uniswap has UNI as its governance token.
Cryptos as fuel for financial services
Suppose you are an insurance company that wants to run a smart contract that enables an automatic pay-out to customers when a particular event occurs - say, a flight is delayed by more than an hour. You would need to pay for "fuel" or gas fees for this smart contract to run, just like you need to pay for fuel or gas when you drive your car. This fuel would be payable in crypto, e.g. ETH for stuff running on the Ethereum network.
Cryptos that give you dividends
Some cryptos can give you dividends. For example, KuCoin is a crypto exchange that pays holders of its token KCS a daily dividend from 50% of the exchange's daily trading fee revenue. KCS can also be used for paying trading fees at a massive discount and for shopping, hotel reservations, gaming equipment, etc.
There are tons of cryptos powering various industries. Let's see some examples.
Theta uses the blockchain to make video streaming more efficient, cost-effective and fair for industry participants. It has two native tokens - Theta (THETA) and Theta Fuel (TFUEL). Users get rewarded in TFUEL tokens for watching and sharing content.
VeChain uses blockchain and Internet of Things (IoT) technology to boost the efficiency, traceability and transparency of supply chains. It uses two tokens, VET and VTHO, to manage and create value on its public blockchain.
Basic Attention Token (BAT) powers a digital advertising platform that rewards users for their attention and provides advertisers with a better return on their ad spends.
Next edition: Metrics that every crypto investor must know