When we dive into the world of blockchain and cryptocurrencies, we often come across this new term: ‘the Internet of Value’. What do we mean by this term, and how is it related to cryptoassets?
How do cryptocurrencies work?
Let’s begin by looking into how cryptocurrencies function. The concept of cryptocurrency is built on the idea that transactions should be free of intervention from the government and banks. These digital assets are traded in open source platforms, known as cryptocurrency exchanges, where anyone can participate, contribute or invest.
What does blockchain have to do with this?
At the core of the mechanism lies blockchain technology. Blockchain, in the simplest terms, is a complicated computer science, which traces the ownership of cryptoassets.
Here’s an illustration of how crypto transactions take place within blockchain.
Let’s say John wants to pay 1 bitcoin to Paul. He will announce his intent to the whole network. Each computer in the network will check its ledger records to verify that John has enough ‘funds’ to pay out a bitcoin. Once the network agrees, the payment will be processed. Ledgers of all computers within the network will be updated to include this transaction. Now if John tries to go and pay the same bitcoin to Paul, the network will deny the transaction, as it has already been recorded as a past transaction.
All new transactions are chained inside each ledger, making it impossible to alter or delete past transactions. That’s why the whole mechanism is called ‘blockchain’. This blockchain technology is the core of the science of cryptography, from where the term cryptocurrency was derived.
So who’s operating all these computers that are verifying all the transactions? These are people from different parts of the world who are using the bitcoin (or altcoin) software. What do they get in return? They get paid upon new bitcoin production, which happens through cryptomining. The brilliance of this system is that it doesn’t require any centralized entity to function. It’s a decentralized network that has been running smoothly for the past decade.
What’s the real catch here?
On the surface, cryptocurrency acts like a revolutionary way to send and receive payments through the Internet. If examined further, we realize that the ability to make these transactions is just the first application of this technology. Cryptocurrency has indeed created a new and innovative way for individuals across the globe to collaborate with each other over a publicly shared network.
Bitcoin blockchain was initially developed to record bitcoin transactions. But blockchain technology can in fact be used to transfer anything of value, such as property ownership, research data, company shareholdings or any other kind of ownership rights. As research specialists and high-tech organizations realized this, they were prompted to create over 1,600 cryptoassets. These cryptocurrencies are designed to expedite a wide range of value exchange.
Platforms built on blockchain allow anything of value to be programmed and used for doing interesting things, using applications known as smart contracts. For instance, a rental property’s title can be saved on a blockchain-based platform called Ethereum. Through smart contracts, the owner can sell property shares to someone residing in a different part of the world. Someone in Turkey might purchase 5% of a condominium building in Russia, and receive 5% of the rental income every month via an automated system. These monthly transactions will be fueled by Ethereum’s own cryptoasset, called ether.
The above example just touched the tip of what ‘the Internet of Value’ can do. In simple words, ‘the Internet of Value’ can do for finance and trade what the Internet we all know of has done for communication.
So what’s ‘the Internet of Value’?
It’s a new kind of Internet that’s being built through the emergence of cryptocurrency trade, which is perceived to possibly transform the global economy in the future. It’s an Internet where value can be exchanged freely but securely, at any time, from any place in the world.