People often ask about use cases for crypto. They’ll say OK, weirdo, I get that you think Bitcoin is cool but why would I ever use this thing? Here ya go:
- Money – money is 90% digital already and cash is disappearing. The current system of moving digital money is really just a crude transition from the old, paper based system. When you click to buy something on Amazon, you send a stream of bits that goes through about 15 middlemen. I believe that digital money in the future will take the new crypto form because it offers various advantages like saving costs. Crypto is the digitally native way to move value, like email is a native way to transmit messages, and you can do so peer to peer with no middleman.
As a separate note, Bitcoin has other valuable properties of money like being “hard” with a capped supply, impossible to counterfeit, purely digital, etc. It has a strong brand and network. It has a lot of the nice properties that gold has but it’s weightless and divisible to 8 decimal places (try buying 0.00000001 oz of gold).
- Financial derivatives – really just the general case of the point above. Bitcoin was a groundbreaking implementation of digital scarcity. Before Bitcoin, you could send digital things like PDFs but you were really just sending a copy. The idea of digital scarcity was an unsolved problem in Computer Science for 30 years.
Bitcoin showed us how to create digital scarcity. I believe all assets will be blockchain compatible in the future due to cost savings and other advantages. These assets will include securities/equities, government backed-fiat, commodities contracts, shares in prediction markets, etc.
Also, in general, I’m convinced prediction markets will be a thing because of blockchains. Some have reached a decent amount of trade volume before being shut down for defying regulations. Blockchains will make it harder to take these markets down, and governments would be wise to just sanely regulate and tax them instead of trying to kill them, which they likely won’t be able to do.
- Digital collectables – I don’t really get this one but the kids do. Kids are obsessed with Fortnite. The average 13 year old in the US would rather have 100 V-bucks than $100. They celebrate getting new shoes for their characters like they got shoes for themselves. Some kids get bullied for not having the latest threads on their characters. Fortnite brought in over $1 billion dollars in in-game purchases in 2018 – and all of that money was used to buy things that are non-essential to game play! In other words, to these kids, digital status symbols are just status symbols.
Since we can do digital scarcity, we can have digital status symbols. I think video games will leverage items that can exist on a blockchain instead of only existing inside the game company’s database. Game items will be able to be used across games and there will be secondary markets for these items. People might have digital avatars that they maintain throughout their entire lives. Some people might make a living making digital shoes, or something.
- Disintermediation / New Businesses – think of all the middlemen you interact with on a daily basis. For many of them, their days are numbered. Many middleman do provide a valuable service. However, smart contracts can automate away many tasks and solve the problem of having to rely on a third party or third party’s software. For example, gambling in the future might not require a dealer, or even a house, because you could play card games against a smart contract.
Further there are many inefficiencies in the old financial system that I think people will improve upon with new business models. For example, why do you get a paycheck twice a month? Why pay your rent or mortgage at the end of the month? I think it’s just a holdover from the old way of doing things. I foresee new behaviors like being payed your salary by the hour which will unlock a significant amount of liquidity.
In general, blockchains will also make financial instruments that are expensive or inaccessible and making them cheap and easy. College sophomores and housewives in New Delhi will try to earn a little extra money trading options.
- DAOs (Decentralized Autonomous Organizations) – Blockchains also represent an innovation in human organization. Bitcoin’s solution works because of game theory incentives that align a dedicated community around a single cause – protecting the Bitcoin network. This new way of organizing could provide solutions to typical “coordination problems”- meaning that it’s difficult and expensive to get people to coordinate e.g. the US trying to change to the metric system. It could provide a new way of funding and governing underfunded systems like open source communities that maintain the infrastructure of the internet.
Experiments in organization and governance are still being worked on. Some seem to be working well and some have been complete disasters. I think we will see a lot of innovation in this area in the next few years, with some good uses and some bad.
- New Behavior – I’m going to hand wave over this one, but we are just scratching the surface on what we can do with this technology. In 1992 you could not have foreseen Facebook coming.
There are many examples of new behavior that is possible with sending peer to peer digital assets that can be combined in unexpected ways. The ones that win are not always intuitive or obvious. It’s possible the most valuable use cases have not presented themselves yet or have value that won’t be capture until many years in the future.