blockchain mainstream

Blockchain, Crypto, and Decentralized Finance – Towards Mainstream Adoption

In an interview with Supertrends, Karina Rothoff Brix, country manager for Denmark at Firi, the Nordic region’s largest cryptocurrency exchange, shares some insights on the role of crypto in the decentralization of the financial system.

As a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems, blockchain technology allows users to record information in a way that makes it difficult or impossible to tamper with. The technology has applications in multiple fields such as healthcare (e.g., to preserve and exchange patient data, track medical goods and confirm their authenticity, etc.), food and agriculture (e.g., increase supply chain transparency), automotive (e.g., increase efficiency by tracking the ownership, location, and movement of parts and goods), and government (audit trail for regulatory compliance, contract and identity management), to name just a few.

The rise of Decentralized Finance (DeFi)

However, the field where blockchain is expected to have the highest impact or go faster into mainstream is the financial industry. This technology is currently driving the shift from centralized finance (where banks or third parties store, manage, and transfer the money between transaction partners) to decentralized finance, a system that eliminates intermediaries and enables peer-to-peer financial networks.

“Because the information on a blockchain is duplicated to a lot of computers all around the world, the system is more secure than saving all data in a few spots. Changing the data is impossible, as many so-called ‘validators’ are involved without knowing each other. Therefore, decentralized financial systems do not require the involvement of centralized parties such as banks, but at the same time are capable of enabling payments, money lending, and interest-bearing accounts,” says Brix, who has over 15 years of experience in driving innovation and implementing digitalization projects.

The many faces of crypto

Crypto is usually defined as a class of digital assets that are generated using cryptographic techniques and can be traded, exchanged, or used as a store of value. As Brix explains, the term “cryptocurrency” can be misleading: “Crypto is much more than a currency.

Crypto is much more than a currency. Simplified, crypto can represent coins, tokens, or NFTs. Different crypto can be coded to encompass different possibilities and values. This is why regulators are struggling with how to define crypto.

Simplified, crypto can represent coins, tokens, or NFTs [non-fungible tokens]. They are all digital assets, but different in the sense that a coin is a crypto that functions on its native blockchain, whereas a token is crypto on a non-native blockchain. A unique token is called an NFT. Different cryptos can be coded to encompass different possibilities and values. This is why regulators are struggling with how to define crypto.”

These developments have led to the rise of tokenomics, an industry branch that covers a token’s creation principles, content, and distribution. This information usually stored in a so-called “white paper.” From this perspective, not all crypto assets are created equal, and they do not all have the same value propositions and tokenomics. Brix also notes that crypto can be a security token, a utility token, a commodity token, a governance token, or a combination of these. Moreover, the range of possibilities and projects is in full expansion, since innovations in this space are advancing very rapidly.

Currently, there are several types of blockchain networks that differ in terms of technical infrastructure, speed, verification, authorization procedures, energy consumption, access, risk, etc. Various projects can be built on top of these networks, with a broad range of applications. Brix points out that it is too early to say which ones will still be functional in the next five years or which blockchain is a better fit for a certain industry.

Regulating the unregulated crypto market

Even though crypto assets have been around for more than a decade, it is only now that regulatory efforts are beginning to pick up and become a priority on the political agenda. Most countries are already exploring ways of adapting existing regulations to crypto, and of enabling legal transactions with digital assets.

In the EU, the Council Presidency and the European Parliament reached a provisional agreement (the MiCA regulation) regarding the regulation of crypto assets in June 2022.

The provisions are expected to come into effect in 2024 and harmonize crypto services across all member states. In the US, President Joe Biden has signed a US$1.2 trillion infrastructure bill that, among other things, advances the regulation of the cryptocurrency industry with a series of amendments to be enforced starting 2024. In the Asia-Pacific region, efforts to regulate crypto range from a complete ban in China to more progressive approaches in Indonesia and the Philippines. 

The major change that is likely to occur when regulation is in place is that institutional investors will start to participate in the process. A lot of big companies and pension funds are reluctant as the regulation is not clear, but the interest from the big players is definitely there and will materialize in the coming years.

Emerging markets lead the way in crypto adoption

Despite an adoption rate that varies significantly from country to country, current trends indicate a steady increase in the global adoption of cryptocurrencies compared to 2019 levels. Emerging markets lead the Global Crypto Adoption Index, with countries such as Vietnam, Philippines, Ukraine, India, Pakistan, Brazil, Thailand, Nigeria, Turkey, and Morocco in top positions.

Brix explains why low and middle-income countries dominate the index: “In the emerging markets, crypto is a way to have access to banking, make trades, earn an income, and travel with finances. A huge part of the population in emerging markets doesn’t have access to a bank account, and as a result, is excluded from the economy. Decentralized Finance changes this.” Moreover, in emerging economies, crypto trading is also a viable hedge against inflation, allowing people to preserve their savings in times of fiat currency volatility.

What does the future of crypto hold?

In line with the common expert opinion in the industry, Brix also expects that crypto will see mainstream adoption in the next decade, despite the current volatility and global financial turbulence.

Notable in this sense are initiatives such as the ones in El Salvador and Central Africa, where the governments have declared bitcoin to be legal tender and all corporate and private entities own a crypto wallet.

“A completely new and different economy is currently developing based on cryptos, blockchain, and Web3. The way people are trading is changing dramatically, and the young generation is the biggest driver.”

Crypto is also starting to gain an increasingly important role in financial transactions – with cities such as Colorado (US) and Zug (Switzerland) allowing citizens to pay their taxes with Bitcoin, while other municipalities such as those in Miami and New York City have already developed their own tokens.

Karina Rothoff Brix is Country Manager in Denmark for Firi, the largest crypto exchange in the Nordics. The former head of the Copenhagen School of Entrepreneurship at Copenhagen Business School (CBS) and head of the Center for Lifelong Learning at the Danish Technical University (DTU), Karina is also a recognized expert at the Danish Innovation Fund. For the last 15 years, Karina has worked with tech-scaleups and emerging businesses and has spoken on numerous occasions about the impact of emerging technologies on the future of businesses. In 2022, she published “Kryptovaluta og Blockchain” (Cryptocurrencies and Blockchain), an inspired and clear introduction to the future of cryptocurrencies, blockchain, and Web3.

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Catalina Sparleanu

Working with top experts to identify how the latest innovations and disruptive technologies will impact businesses, industries, and society. I have an academic background in social science (Ph.D. in Sociology), an MBA degree, and experience in private companies and NGOs.

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