What is Cryptocurrency 2.0?

Beyond Bitcoin: How Cryptocurrency 2.0 Could Rewrite The Rules

Bitcoins, artwork
VICTOR HABBICK VISIONS/Science Photo Library/Getty Images

What is the innovative part of bitcoin technology? It isn’t the electronic currency itself. That’s just another form of digital money. What makes bitcoin clever is the blockchain, which is the unique algorithm that makes it possible to manage payments with no one in the middle, acting as a central arbiter.

Bitcoin itself may last, or it may not. But in the future, it will probably be eclipsed by a whole set of different applications also using blockchain technology.

These will probably do far more than sending money around. Some think that they could even be the basis for a whole new paradigm in computing.

The Next Generation Of Blockchain Apps

Sometimes called ‘cryptocurrency 2.0’ applications, these new services take the underlying characteristics of bitcoin and apply them to new things. They offer similar kinds of services that other applications have provided in the past, but they do away with the need for a central party, controlling everything. That has significant ramifications for any application where it’s dangerous or difficult to trust one particular entity to keep track of everything.

What kind of application might that be? One example is an online storage service. When you store your data with Dropbox or someone similar, how do you know that they are looking after it properly? They might suffer a cyberattack, for example. Or a government may subpoena your files, and then prevent them from telling you about it.

In a cryptocurrency 2.0 application, your storage could be spread around a peer to peer network, with each person running software that connects them to the network. It is the way that bitcoin functions, but instead of mining bitcoin, the software might encrypt and store a tiny part of your file. That would make it difficult for any one entity to steal your files because they wouldn’t be one single place to go and get them.

The software running the network would be able to reconstruct your files, but it would need your specific credentials to do it.

A New Kind of Facebook?

Another example could be social networks. Today, whenever you publish your data on a large social network like Facebook, it controls that information and can make arbitrary decisions about how it shares it around.

What about if the social network wasn’t run in one big data center somewhere, but instead was distributed around the large, peer-to-peer network made up of people running social networking software on their computers?

That way, each person could control exactly who they shared their data with, and wouldn’t have to cope with a single, faceless company selling it on to advertisers, for example.

Tokens: The Lifeblood Of Cryptocurrency 2.0 Apps

Several cryptocurrency 2.0 companies are already forming, and are preparing services just like these. Many of them use tokens as a form of currency to pay for the use of these services. Instead of mining bitcoin, members of the network ‘earn’ these tokens by providing services to the network.

If you give up part of your hard drive space to store someone else’s files, for example, then you would be ‘paid’ by the network in tokens.

You could then use these tokens to store your files on the network.

Some cryptocurrency exchanges are also beginning to offer services trading these tokens for other kinds of cryptocurrency, such as bitcoin. It means that the tokens will gain a market value, independently of the cryptocurrency 2.0 application that they are designed to serve.

So, you will be able to use your tokens in exchange for the service that the application is providing, or sell them on to make money. Users of cryptocurrency 2.0 apps could end up providing more resource than they use and then selling on the tokens that they collect for a profit.

Cryptocurrency 2.0 is only just emerging as a concept, but if it takes off, it could create new opportunities for services where the users don’t have to trust anyone – and could maybe earn a little money by participating.