Having discussed Web3 and its underlying technology, blockchain, let's take a look at what constitutes this decentralized world. The first thing to mention is cryptocurrency. "If we compare Web3 to a new world, then cryptocurrency is the 'money' circulating in this world. Without it, the decentralized ecosystem would struggle to operate effectively."
So, what is cryptocurrency? In simple terms, "cryptocurrency is a digital currency based on blockchain, managed without banks or institutions. Transaction records are public and transparent, allowing for free circulation globally. Unlike the paper currency we commonly see, it exists in digital form on the blockchain, maintained and recorded by countless computers worldwide."
First, why is cryptocurrency valuable? Where does its value come from?
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Scarcity: Limited in quantity, it naturally holds value. Take Bitcoin, for example; its total issuance is capped at 21 million coins, with no possibility of arbitrary inflation. This scarcity makes Bitcoin a form of "digital gold," and as market demand increases, it further drives its market value.
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Trust and security: Traditional currency relies on centralized institutions (like banks and governments) for trust. But what do you trust in cryptocurrency? You trust the consensus mechanism of the blockchain, the ledger maintained by thousands of nodes globally, ensuring that transaction records are public and transparent, and no one can alter the accounts.
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Practical use: It can be spent, borrowed, and earned; it is not just a "digital collectible." It can be used for many purposes—such as cross-border transfers, purchasing goods, or lending and earning interest in decentralized finance (DeFi). The more uses it has, the higher its value.
To summarize: Where does the value of cryptocurrency come from? It is like a rare and useful item: limited in quantity, immutable, and practically usable, with market demand naturally making it valuable.
Second, what role does cryptocurrency play in Web3?
As the core driving force of Web3, cryptocurrency mainly serves the following functions:
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Medium of value exchange: In the real world, finding a currency that can be used for global value exchange is unrealistic. However, in the Web3 world, you can freely trade, transfer, and purchase services, regardless of who you are or where you are.
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Incentive mechanism: Cryptocurrency provides incentives for participants in Web3. For example, Bitcoin miners are incentivized; the Bitcoin network relies on miners to "mine" and validate transactions while maintaining the security of the blockchain. In return, they receive corresponding Bitcoin rewards. Similarly, DeFi platforms incentivize users to provide liquidity (such as depositing funds into pools) to support the platform's trading activities. In return, users can earn certain returns.
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Governance and decision-making: In decentralized autonomous organizations (DAOs), users holding governance tokens can vote on significant community matters, reflecting a governance model where "users are shareholders."
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Economic foundation: Digital currency is the economic foundation of Web3 projects, serving not only as a fundraising tool but also ensuring the long-term sustainable development of the projects.
Third, the current state of cryptocurrency
- Rapid market growth
As of December 2024, the total market capitalization of cryptocurrency is approximately $3.83 trillion. If viewed as an economy, it surpassed France's GDP (about $3.17 trillion) in just 16 years, ranking seventh in global GDP, behind the United States, China, Germany, Japan, India, and the United Kingdom.
- Dominance of Bitcoin and Ethereum
As of December 2024, Bitcoin (BTC) accounts for about 52.7% of the total cryptocurrency market capitalization, while Ethereum (ETH) accounts for about 12.1%. Bitcoin primarily serves as a store of value and is regarded as "digital gold," while Ethereum, as a leading smart contract platform, supports the development of numerous decentralized applications and financial protocols.
- Stablecoins supporting financial circulation in Web3
As of December 2024, the global stablecoin market capitalization reached $20.37 billion, with USDT (Tether) accounting for 66.3% and USDC (USD Coin) for 19.8%. Stablecoins, anchored to fiat currencies, provide price stability and serve as foundational tools for core financial services in Web3, such as payments, lending, and cross-border settlements.
- Expanding user base
As of June 2024, the number of global cryptocurrency holders has surpassed 617 million. The growth of the user base not only reflects the popularity of crypto assets but also injects more vitality and liquidity into the Web3 ecosystem.
- Bitcoin and Ethereum ETFs driving institutional entry
As of September 30, 2024, Bitcoin and Ethereum ETFs (exchange-traded funds) on the blockchain have reached a holding volume of $65 billion, indicating an increased recognition of crypto assets in traditional financial markets, with more institutional capital accelerating its entry into the Web3 space.
Thus, we have completed our discussion on cryptocurrency in Web3. Thank you all!
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