Die-hard fans claim bitcoin is a panacea for the world’s financial ills and will be adopted for everything from bank clearing to stock exchanges. But this future-gazing misses where the use cases are right now – and therefore where the easy wins are for broader blockchain tech.
Ask around the enthusiast communities scattered across the Internet and you will find plenty of people who are literally messianic about bitcoin. The Grand daddy of crypto currency, they say, which is outside of the control of banks or governments, will ultimately be used for all kinds of financial transactions.
This spans regular purchases from bricks-and-mortar stores, e-commerce, remissions, banking the global unbanked and recording ownership of all kinds of physical and digital assets. But the list does not stop there.
No other digital currency has yet come close to competing with bitcoin for peer-to-peer (P2P) online payments. But when it comes to gauging the potential of blockchain technology, it makes sense to look at what bitcoin is being used for right now, not what it could be used for.
Bitcoin, cryptocurrency and fintech concept. (Source: Shutterstock)
Use Cases
There several categories of popular use cases. Speculation is one, of course. However, that is ultimately predicated on bitcoin having some kind of wider value – otherwise it’s the tail wagging the dog at best. Gambling is another.
Recent research suggests that around half of all bitcoin transactions involve unregulated gambling sites, though the nature of gambling is that winnings tend to be recycled until the player meets the unfortunate statistical reality of a gambler’s ruin.
We might conclude that a relatively small amount of money can result in a large volume of transactions. Organized crime including ransomware payments and drug purchases constitute a small, if growing fraction of overall use cases.
Crowdfunding
One emerging but already major use case is crowdfunding. For much the same reasons as its popularity for gambling – namely relative anonymity, irreversible transactions, fast and borderless transfers – bitcoin has found a niche in the sharing economy.
A slew of recent projects have proven bitcoin’s worth as a means of investment, regardless of the geographical location of those involved. It has become the de facto way of funding new crypto platforms.
Ethereum, a decentralized platform that runs smart contracts, for example, raised more than 31,000 bitcoins back in September 2014, which was the equivalent of over $15 million (m) at the time.
More recently, Lisk, which allows users to develop their own blockchain apps with web technologies like HTML5, CSS3 and JavaScript, raised $5.5m. And Waves, a blockchain-powered token platform founded by Sasha Ivanov, a graduate from Moscow State University in the Theoretical Physics department, raised over $16m. The latter made it the sixth-largest crowdfunded project of all time back then.
Countless other platforms have raised the cash they need this way. Sometimes it’s few tens of thousands of dollars, while in other cases it has been many millions. The money is used to pay developers and for marketing, also in bitcoin – remitting funds back all around the world.
Volatility
And this is all in bitcoin, an imperfect currency as far as most financial transactions are concerned. The key problem is volatility. Ask any economist and they will tell you that money serves three main purposes. It is a store of value, a unit of account and a medium of exchange. But bitcoin is an excellent medium of exchange, but a poor store of value.
For all the criticism of centrally controlled national currencies and the risk of unilateral intervention and inflation, bitcoin does not hold its value against the dollar. It’s like gold or silver on steroids: the floating price means there is no buffer against the waves of supply and demand that come with normal market cycles and speculation. And, here it becomes clear where there is a place for blockchain technology to excel.
Backed Assets
Just imagine it was possible to remit money and crowdfund over the blockchain, attracting investors from all over the world, but without the problem of volatility.
Instead of using the blockchain’s native token, like bitcoin, the ledger would be a way of carrying secondary tokens that represented the value of major currencies like USD, CNY (Yuan) and EUR, backed by financial institutions and other companies that serve as ‘gateways’ between the blockchain and the world of traditional finance (and satisfy any regulatory burdens in their operating jurisdiction). Even bitcoin is included in this list.
But it is not just about currencies: tokens could be created that represented almost anything, including equity in a business or a stake in a new crowdfunded venture.
Moreover, those assets could be traded directly against each other – so US dollars (USD) could be sent abroad and exchanged seamlessly for CNY, or a share in an as-yet unlaunched crowdfunded project could be sold for EUR, all at the rapid speeds and low costs offered by decentralised ledgers.
As a decentralized platform Waves, for example, was launched on the basis of exactly this proposition. It is a universal tokens platform, billed as ‘Blockchain for the People’. The blurb purports it to be a straightforward and a user-friendly way for ordinary people to benefit from a new technology that is all too often the preserve of the tech-savvy alone.
Specifically, it allows any user to issue, transfer, swap and trade custom blockchain tokens on an integrated peer-to-peer exchange. Tokens may represent a share in a crowdfunding project, financial instrument, or any other item with inherent value.
And, unlike many blockchain applications that can be seen as solutions without a problem, the fact that it caught the interest of almost 6,000 investors and crowdfunded 29,000 bitcoins would seem inherent proof of the demand it seeks to satisfy.
Waves Technology
Waves is built on the Scorex platform (itself based on Scala I), which sets it apart. Bitcoin and its clones are C++; occasionally Java is used, as with Nxt. Block times are currently around 1 minute. But with the full nodes launch being imminent and ‘Leased Proof-of-Stake’, this is expected to decline to around 10 seconds with the full public network of Waves.
There will be centralized order matching on Waves, which means orders on the built-in exchange are matched by a central server, but executed on the blockchain. As a resulted this provides the speed of the central server but with P2P security, which enables something like high-frequency trading (HFT) on the blockchain.
However, centralised order matching will still enable practically instant exchanges.
Money, But Better
The claim of Waves is that it does not try to reinvent money. And, it does not seek to replace bitcoin. Already we have money – we use it every day – and for the cryptocurrency community bitcoin is the universal reserve currency. We do not need more forms of money. But we can make money better – faster, borderless, frictionless. Effectively making it more democratic.
This is the realistic evolution of blockchain technology: not a replacement for the banking sector, but as a complement, a restraint and form of accountability for it.
So, why take three working days to process a payment when the Waves blockchain can do it in seconds? Why charge 3% to 10% for remitting money abroad when you can do it for a flat fee of $0.01?
This is also why the broader blockchain movement is good for bitcoin. Realistically, bitcoin will not be unseated from its position of dominance over other cryptocurrencies any time soon. Its network effect is too great.
But neither should it be expected to do every job perfectly. Bitcoin is a trail blazer and excellent as a medium of exchange. However, it is not designed for the myriad purposes that blockchain technology can and will come to address. Adapting it for those will inevitably mean compromise at some level – when the only tool you have is a hammer, everything starts to look like a nail.
And, when you have the complete and diverse toolkit of blockchain technology, it makes sense to let bitcoin be bitcoin and let other custom-made digital platforms specialize in other use cases.
In relation to timelines for Waves going forward, it is understood that the full network will occur next week, with asset exchange and other functionality such as messaging and voting built on top of the platform later this year.
