What's the future of crypto?

blockchain cruises on YouTube crypto raves in Miami multi-million dollar Super Bowl commercials fortune favors the brave for a while wherever you looked the crypto crowd was on top of the world but the party is over the market value tank you saw a series of crashes as alleged fraud dominates headlines Sam bankman freed arrested at the request of the U.S government and Regulators cracked down the financial Revolution crypto once promised looks further away than ever 25 out of 45 of the world's biggest economies have either completely or partially banned crypto but crypto's future might have less to do with money than you think some believe it could hold the key to a wholesale transformation of the internet cryptocurrency was really the first step in this journey I think we're just just about to see that bit whether it starts to get interesting in the 1990s people started to worry about how a new invention the internet would affect people's privacy these anxieties gave birth to a movement to combat them the cypherpunks we believe in personal privacy for everybody their distrust of governments and corporations made headlines as open source code and file sharing went mainstream the cypherpunks were looking for a peer-to-peer network not for music or movies but for money I created an entire movement and community of people who decided to dedicate their lives to working on this technology to try to build privacy preserving technology and secure Communications and the cryptocurrency movement followed directly out of that the ambition was to develop a secure and irreversible payment system that didn't involve centralized Banks corporations or governments privacy issues are inherent to the financial system if you use a financial app they're going to have to verify your identity if you want to operate in a fully private way no one knows who you are you can't do that in most parts of the world anymore if you're transacting online it's just not possible and so that's a big part of the motivation for cryptocurrencies is people want to be able to operate in a permissionless way in 2008 an email from an anonymous person or persons calling themselves Satoshi Nakamoto appeared to hold the answer to this challenge Satoshi Nakamoto created the world's first cryptocurrency a digital form of money Bitcoin the project took off and despite wild swings the value of Bitcoin has grown as has the industry there are tens of thousands of cryptocurrencies now people in the space like to call it permissionless you don't have to get the rubber stamp of a regulator to create one it's been a wild ride by the start of 2020 crypto's market capitalization had reached 250 billion dollars by the end of 2021 it had swollen to three trillion dollars before falling to 828 billion by 2023 it's a volatile investment so what's the attraction of crypto the answer partly lies in the technology that makes cryptocurrencies work the blockchain so if you want to create a cryptocurrency you need some kind of way of making sure no one fudges with it and so that's why cryptocurrencies use what's called a blockchain the blockchain is a decentralized digital Ledger the key thing that's interesting about them is they have what are called consensus algorithms so ways in which the different parties maintain the blockchain agree on what is the source of Truth a majority of users verifies each transaction on the blockchain they all have an economic incentive to maintain trust in the network so everyone acts honestly because it's in their best interests it means people can bypass Central systems like Banks and governments some would call it revolutionary to learn more about how the Bitcoin blockchain Works click on the link this has a lot of political implications of course if you're able to transact online without worrying about government interference then of course you're reducing the power of the government to you know surveil the economy to control people's lives that Vision I think is very powerful to a lot of people but now many fear the cypherpunk's revolution is in jeopardy there definitely is a lot of reflection happening in the cryptocurrency community right now a lot of people thinking about what are the use cases that are really going to drive adoption where is it really going to make the biggest impact the answer might lie far from the Financial Centers of the rich world Nigeria is the world's second largest user now the first crypto unicorn in Latin America bitcoin's price hits new record high in Argentina Africa Latin America and parts of Asia have all seen rapid uptick of cryptocurrencies in recent years their stories might offer a glimpse of crypto's future crypto tends to be used more in places where the alternatives are are worse so for example you know if you look at parts of the world like Argentina which you know has hyperinflation doesn't have a great score of value that's cheap and inclusive for for people to transact with you know crypto is in stable coins in particular are used more often but then other parts of the world you might not see crypto as as useful that's because transaction fees and the price of moving money in and out of crypto can make it a more expensive option than transferring money in more mainstream ways countries like India once they create really good retail payment systems that are you know free account to count transfers you know the the use case of crypto goes down a lot because you have a pretty good digital Financial system anyway so why use crypto one way of reducing these costs is so-called layer 2 Solutions where transactions happen on a framework built on top of the main blockchain because they don't need to be verified by as many users transaction costs are lower layer twos work pretty differently so um they're probably going to be faster than the core blockchains but there are limits to what they can do I don't know if they can handle everyone in the world wanting to transact really frequently for example but the real Leap Forward for crypto could be using the technology behind it to build something much bigger we're in the post money year of blockchains this new layer is the social layer that's building on this infrastructure it's like building a new Digital Society hi I'm Matthew favas The Economist Finance correspondent if you're enjoying watching this film you might be interested to know that economy subscribers get access to wealth of global analysis on every accountable topic you can read it you can listen to it you can even be part of it at live webinars for the best deals on subscriptions click on the link and now on with the film in the quest to find the next incarnation of cryptocurrencies some believe the blockchain Technologies behind them could end up fueling a whole new version of the internet this vision is called web3 and the big difference between web 2 and web 3 is who controls people's data and who controls the various applications that are running on the internet with web3 the idea is your information is stored on the blockchain which is permissionless decentralized and you have ownership over it using your identification credentials or so forth the consequences for the majority of web users could be profound when you use a website like Facebook or Instagram your data is collected and owned by those companies it's how they make their money in web 3 your data is stored in a wallet on the blockchain which only you have a key to you'd interact with websites and apps on web3 through your wallet and when you log off they can't see your data anymore seeing as you own your data you might even be able to make money from it in theory web 2 companies could do this if they chose to but advocates for web 3 believe a new decentralized internet would make it far easier [Music] a lot of The Advocates and proponents for web 3 aim to bring incentives into the applications that they're building so they aim to bring the idea of paying for services directly as opposed to paying using advertising or behavioral data into a service and also really creating incentive systems where people can pool their funds together and invest in the growth of a protocol the idea is a more democratic internet fueled by the technology behind crypto but this carries its own security risks something that's important to remember is the way that blockchains operate is that all of the data on the blockchain is available to everyone in the blockchain network and for really public permissionless decentralized networks that means that data is public to everyone in the world they are what we call pseudonymous so you know you won't see necessarily people's names or you know identifying information you'll see a random number but that data can still be linked across transactions you can still glean a lot of information from that and because blockchains have no Central Authority no one would be responsible if hackers did gain access to your data the desires of these sisters really have to think about how do you bake in security at the very core knowing that you're going to have an open system which anyone can join how do you sort of set the scales up how do you set the protocol up so that it's hard for an attacker to um to cause problems but this is an incredibly important area of research that we're still developing which is really understanding the economic security of these systems if these lingering privacy issues can be fixed crypto's future might not lie in finance at all but in the next iteration of the internet there's a large part of the the crypto Community that's very very driven by ideology by ideals they have a vision for a decentralized open internet where anyone can spin up an application contribute to it and you know be rewarded [Music] [Applause] all new technologies when they first start uh can be clunky can be slow can have problems and might not be anywhere near as close to the technology that they're trying to replace but what we have to remember is that technology is not a static thing it is constantly changing and evolving and people are working and so just because something is slow today doesn't mean that it's going to be slow tomorrow thanks for watching if you want to read more about cryptocurrencies or the future of money click on the link below and don't forget to subscribe [Music]

Channel: The Economist

Views: 306,047

Keywords: The Economist, Economist, Economist Films, Economist Videos, Politics, News, Short-documentary, crypto, cryptocurrency, web3, web3 crypto, finance, blockchain, blockchain technology, bitcoin, what is blockchain, what is crypto

Id: 5-rCKo4CBgM

Length: 11min 7sec (667 seconds)

Published: Thu May 18 2023