Based on commercials that aired during Super Bowl LVI, crypto brands have officially moved from the fringes to the mainstream. But the crypto ads in this prime time space didn't do much to explain the underlying products and services, especially if the viewers were not already immersed in Web3. Many viewers undoubtedly were left wondering: What are they selling?
There's a good chance, however, that you are not familiar with products like Bud Light N3XT or sites like Crypto.com. If so, please read on!
Cryptocurrencies typically use a blockchain for verifying ownership and confirming transactions. A blockchain is a decentralized, shared, public database that stores a history of transactions.
The process to confirm transactions and add them to a blockchain is called mining. Mining is a distributed consensus system, meaning it allows multiple independent computers in any location to agree on the status of any individual block chain. Appropriately, the people who perform the service of mining are called miners, and they receive payment for their services—a transaction fee—in the form of the specific cryptocurrency powered by relevant blockchain.
Cryptocurrencies can be obtained and traded on a cryptocurrency exchange platform. Coinbase, currently the largest cryptocurrency exchange platform, was founded in 2012. Crypto.com, eToro, and FTX also provide cryptocurrency exchange platforms.
Coinbase currently lists prices for about 9,500 different crypto assets. Within this large group, there are a number of distinct cryptocurrencies, powered by distinct blockchains, that serve a variety of goals.
Almost everyone is familiar with the OG (“original gangster”) of cryptocurrency, Bitcoin (BTC), which launched in 2009 and is powered by the Bitcoin blockchain. Bitcoin is an example of a cryptocurrency designed to be used like money, and Bitcoin currently has a market cap of about $832 billion.
Dogecoin (DOGE) is another well-known cryptocurrency, originally intended as a joke but also useable as money, with a current market cap of about $19.5 billion.
Another type of cryptocurrency is one associated with a blockchain designed to accept smart contract data. The best known blockchain of this category is Ethereum, which powers the cryptocurrency Ether (ETH). Ether's current market cap is about $367 billion. The unique feature conceived by the founders of Ethereum allowed for smart contracts to be deployed on the blockchain.
Smart contracts, which empowered the burgeoning trade in NFTs, have a number of other utilities such as gaming, powering decentralized finance applications, and improving data privacy in confidential activities like clinical trials.
Simply put, a smart contract is a small chunk of code or programming that defines a public agreement, and the smart contract executes its terms automatically when called upon by someone on the blockchain. For example, smart contracts can control sending and receiving of fungible tokens (i.e., Ether on the Ethereum blockchain), and they can also control sending and receiving of NFTs.
A growing number of blockchain networks—at least 16 to date—are specifically designed to run smart contracts. Cardano, which powers the ADA cryptocurrency named after Ada Lovelace, and Solana, which powers the SOL cryptocurrency, are two better-known examples. Each has a market cap of about $35 billion. Cardano and Solana are also examples of blockchains attempting to provide technology that, compared to their predecessors, is faster and more environmentally sustainable (a massive topic unto itself).
Some crypto tokens developed for use in a specific setting are now powered by one of the dominant blockchains. For example, MANA is a crypto token powered by Ethereum for use in the Decentraland metaverse. RARI, which is a crypto token powered by Ethereum, can be used in the NFT marketplace Rarible.
In economic terms, a fungible asset has units identical to one another, allowing the units to be exchanged without gaining or losing value. Examples of fungible assets include a U.S. dollar, a stock, a commodity such as gold, and a cryptocurrency token. A non-fungible asset is unique, and cannot be readily valued or exchanged for something of equal value. Examples include a diamond, a baseball card, a pair of sneakers, and an NFT.
An NFT can be created (or “minted”) by deploying an NFT smart contract to a blockchain that supports smart contracts (e.g., Ethereum). The NFT can be purchased using the blockchain's crypto tokens (e.g., Ether), and transfers of the NFT are permanently recorded in the blockchain.
Just as the value of a T206 Honus Wagner baseball card is substantially different from a common card from a Topps 2021 series, the value of an NFT depends on what the market is willing to pay to own it. Perceived value could be due to the relative fame of the digital “art” behind the NFT, such as with the Charlie-Bit-My-Finger NFT, but value can be assessed in a manner similar to physical art. In the latter case, Beeple's The First 5000 Days was sold by Christie's for over $69 million.
Some NFT projects generate interest and value by creating communities where the NFT is much like a membership card. These NFTs provide access to the perks available to the community of holders. Bud Light N3XT is an example of an NFT project with an associated community having roles on the Bud Light Discord server. Discord is a favorite discussion platform for NFT communities.
The shared interest of a community could include NFT collecting and investing, with perks such as special access to new NFTs, as with Board Ape Yacht Club. But there are any number of shared interests on which an NFT community can be built. For example, World of Women defines itself as “a thriving community celebrating representation, inclusivity, and equal opportunities for all.”
The shared interest of an NFT community could also have tangible ties to the real world, such as Party Horses, which gives access to special edition bourbon and tickets to parties during the Kentucky Derby (minting in March 2022).
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For many, the rapidly-evolving world of cryptocurrency, NFTs, and Web3 can be difficult to understand, both in terms of its operation and its appeal. As the crypto industry expands, however, its significant and growing economic impact is increasingly difficult to ignore. Just wait until the next Super Bowl.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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