Practical applications and sustainable use cases of specific cryptocurrencies are increasingly difficult to identify, a notion that is reflected in the extended bear market. Established cryptocurrencies like Bitcoin and Ethereum have clear-cut cases for their application, despite having problems grappling with scalability.
Other cryptocurrencies — as part of the more than 2,000 currently in existence — face a steep climb in garnering enough user adoption to become relevant. According to Tokendata, more than 46 percent of ICOs failed in 2017, further illuminating the lack of sustainability and practical applications of many cryptocurrencies.
The Lack of Sustainable Applications and Use Cases
The early popularity of Ethereum as a Turing-complete smart contract and dapp platform highlighted the broad application of blockchain networks to various industries. However, Ethereum’s scalability issues are well-documented and have led to prohibitively high gas costs and declining user adoption of dapps.
According to DappRadar, daily users of Ethereum dapps have actually decreased since November 2017 and have shown no meaningful momentum after a few spikes in daily users in May and July.
Practical applications of other platforms are also challenging to identify. Prominent cryptocurrency figures have elaborated on their concerns with the utility token model. Particularly, utility tokens are commonly solicited as investment opportunities rather than having a sustainable token economy for maintaining a user base. Many ICOs focus on making quick financial gains rather than building tangible products, as demonstrated by their high failure rate and recent declining interest.
Utility tokens come with inherent difficulties in building cryptoeconomic incentive systems that retain users over the long-term. This is an entirely new field complete with decentralized systems of governance and unknown implications of bootstrapping distributed game theory mechanics. Applying functional incentive systems in the real-world is notoriously tricky. Moreover, many applications of cryptocurrency networks are better served with centralized models. This begs the question of:
Do these real-world problems really need a decentralized solution?
There are clearly some practical applications of cryptocurrencies to real-world problems, including decentralized payment rails, reduced transactional friction of contracts, improved efficiency of supply chain models, the transparent, censorship resistance of smart contract platforms for dapps, integration with legacy financial systems, and many more.
Interestingly, stablecoins have emerged as a necessary component of the cryptocurrency space to reduce volatility and provide a direct means of transferring in and out of fiat-pegged assets. Moreover, decentralized payment rails are a common goal for many cryptocurrencies, with only a few really emerging from the rest.
Focusing on Building Real-World Solutions Through Payment Networks
Identifying meaningful applications of cryptocurrencies requires evaluating whether or not they:
Solve a Problem
Their Decentralized Solution is More Effective Than a Centralized Solution
Focusing on decentralized payment networks, applications of cryptocurrencies aptly enable reduced transactional friction, transparency, and improved counterparty risk. Analyzing decentralized payment networks is best observed with a few examples.
The legacy cryptocurrency, Bitcoin has the most established network effects and functions effectively as a secure medium of value exchange. It is decentralized, censorship-resistant, and exists as a transparent and trustless ledger of transactions outside of the traditional financial system.
Bitcoin’s revolutionary existence outside of traditional fiat currencies and the financial system also inhibit its capacity in some ways. First, it is highly volatile, making it a risky store of value. Second, it is not compatible with existing financial markets and is used primarily at this point for simplified transactions of large sums with a faster settlement than traditional payment rails. The regulatory environment around Bitcoin is still unclear, and only futures contracts are currently used in conjunction with Bitcoin as part of financial markets.
Stellar’s blockchain is designed to facilitate the transfer of digital payments and assets. It functions as a decentralized exchange and universal order book itself with front-end UI’s built on top of it to plug into the platform.
Mile is an interesting payment stablecoin solution with a design that is tethered to the real economy through the IMF’s XDR. At a high-level, this effectively allows the dual MILE (stable supply) and XDR (stable price) system to function as an exceedingly useful tool in real commodity and services turnover. As a cryptocurrency, its value and use-case is directly tied to the global financial system.
Particularly in developing countries with unstable monetary systems, MILE is a practical solution for the International Cooperative Economy. MILE can provide cooperative economies with solutions including offset accountancy, a depository for storing receipts and balancing checks, external fundraising, and discounted commodity and services marketplaces.
Further, MILE functions as a stablecoin (XDR) that is a useful store of value and medium of exchange that can be used for P2P lending platforms for the SME, cross-border trading, and fast, uncensored global payments.
Identifying practical use cases of cryptocurrencies is becoming more obscure as the market is flooded with waves of new tokens. Analyzing the decentralized payment network solutions — one of the original applications of cryptocurrencies — reveals some intriguing projects and real uses cases. The future landscape of cryptocurrencies will assuredly evolve, and those projects with the most sustainable use cases and real-world applications are poised to remain relevant.