Why Blockchain Use Cases Aren’t Yet Nameable

Where are the Blockchain Use Cases?

I was on The Information’s conference call about cryptocurrencies last week with Jessica Lessin, founder and Editor-In-Chief of The Information, and Alex Sunnarborg, a founding partner at Tetras Capital.

Jessica and Alex did a great job of giving us a snapshot of the state of cryptocurrencies.

Prompted by Jessica and questions from participants, Alex talked about things like

  • the value of blockchain-token forks (which is counterintuitive when the upcoming Bitcoin fork seems so controversial)
  • the proliferation of crypto investment funds (which jumped in number in the past twelve months, he said, from about 10 to 100)
  • ways to analyze the value of a cryptocurrency (e.g., transaction velocity)
  • how traditional investors are trying to position themselves to participate in this new asset class
  • and so on.

One moment that stood out for me on the call was when Alex didn’t have an immediate answer to a question, which was, what are the use cases you’re seeing for cryptocurrencies?

He paused to really think about it, and the caller who asked the question said something like “And if you don’t have an answer to the question, that’s an interesting answer, too.”

Two Drivers for Token Valuations

We’re all trying to make the connection between the value of these tokens (Bitcoin has a dollar value of $5,715, and Ethereum $295, as I write this) and what the value could (and eventually will) be based on.

What’s the business model for these new protocols and tokens? Very related, how will the thousands and millions of people who are just living their lives be able to use blockchains and cryptocurrencies?

But the fact that Alex (and many others) don’t have four or five killer blockchain-token use cases at the tip of their tongue isn’t what many people assume it means. Many assume the value of tokens is mostly due to speculation. Not so.

What’s actually happening is that the Blockchain (with a capital B) layer of the Internet is being built from scratch as a protocol (one with a distributed system and security based on asymmetric cryptography). That alone is attracting enormous investment from development teams and investors, which is reflected in the price of the tokens (along with various levels of pure speculation).

Another driver is people around the world are increasingly gaining confidence in the tokens, side by side with dollars or other fiat currencies and other asset classes, as a store of value. This use of cryptocurrency is less obvious to those of us living in the US because the dollar is quite stable.

What if you live in, say, India, are even relatively wealthy, and the value of the money in your checking account decreases overnight by thirty percent due to a decision by the government?

This is a reality you can read about here: “Your money’s no good: rupee note cancellation plunges India into panic”.

So the buildout of the Blockchain as a better Internet, and, second, using the cryptocurrencies as a store of value, are two reasons why many tokens have accrued a lot of value.

A Third Driver for Token Valuations

The third reason tokens are increasing in value, though, does, in fact, have to do with use cases, but these are early use cases, what I even think of as proto-use cases.

These earliest Blockchain use cases aren’t specifically for users. Instead, they address how to do things on and for the Blockchain better or in a more sophisticated way. These are important advances in the Blockchain like cross-blockchain transactions, user-driven governance, and pervasive security.

Polkadot, is a great example of this type of early use case, with its goal of being a “decentralized home for diverse chains”. Decred is another, an initiative to provide “community-based governance”.

And it makes sense, right? In order for the Blockchain to do everything we want it to do, and more, then the initial use cases need to be one step before use cases for the end user. They’re precursors, proto-use cases, to satisfying needs for you and me in a scalable way.

Soon, these early use cases will start to show up on the Blockchain in a way that end-users can take advantage of.

Yet even in this phase for early use cases, it doesn’t mean there aren’t some really amazing use cases for end-users starting to emerge.

Use Cases For You and ME Are Emerging

For example, check out Alex Miller, CTO at Grid +, talking about how they’re using the Blockchain to give consumers access to wholesale energy markets, combining AI and IoT, to intelligentlly interact with changes in energy prices.

Why use a blockchain for this use case?

There are a number of reasons, but one Grid + points to is that fundamentally blockchains allow people to have complete control over their own assets and easily exchange those assets with other people.

So a blockchain satisfies this first and second principle of decentralized value exchange – individual asset control and asset exchange – allowing you and I, in this case, to buy and sell energy, including energy we collect and store, on an open market.

Forking Allows Blockchain Adaptation

There’s a lot of arguing and disagreement about forking in the blockchain world.

In Patrick O’Shaughnessy’s Hash Power, Episode 3, though, you hear a more positive take on forking blockchains.

Patrick introduces the idea of forking as an adaptive process at the start of the episode:

We hinted at how innovation in blockchain may happen faster than elsewhere. This is because of two phenomenon: funding and forking.

Forking is when a network splits into two paths. Like the recent schism of Bitcoin into Bitcoin and Bitcoin Cash. Forking allows a sub-community to alter a protocol and continue forward in a different direction, with new rules or features.

Think of forks like genetic mutations in the evolutionary chain, experiments which will be tested in the real world and will thrive and survive or die.

Later on, he talks with Fred Ehrsam, who is an investor and a co-founder of Coinbase, about seeing forking through this adaptive lens.

It’s such an intriguigng concept, particularly as it relates to markets and behaviors that I’ve quoted Fred at length (starts at 43 min, 15 sec):

You might describe a fork as sort of a parallel universe, or an alternate reality perhaps, where at one point in time they were the same thing, and now they’re two or even more different things.

Basically, if you think about blockchains as metaphorically similar to organisms, orgamisms evolved over time by having some DNA, and then some changes, some random mutations, are slowly introduced to that DNA over time, and as a result you try a bunch of different sub-types of that organism over time, some work really well, they live on, they continue to evolve, some die.

So you get this constantly adaptive behavior and these things become stronger and stronger. They obviously co-evolve with their environment too so it’s not just in isolation.

And that’s what’s really exciting about these blockchain based protocols is not only can anyone create them or access them, but they evolve just like organisms in the same way where anyone can fork them, you know, analogous to sort of the mutation in the DNA, and as a result you get to try all these different sub-types of one general idea quite quickly.

And it turns out that since blockchains are software they tend to operate more at the speed of software than the millions and millions of years than we’ve needed for the evolution of organic orgamisms.

One maybe practical way to think about this is, I think that through blockchains we will be able to try hundreds if not thousands of times more types of economic and governance systems, then we have in the last hundred years [my emphasis in bold] of the quote unquote real world.

There’s a guy Brad Burnham, who confounded Union Square Ventures, who said something to me once that has really stuck with me, which is basically that market structure is the highest point of leverage that he can think of. In other words, the way in which a market is constructed really determines all of the behavior that emerges out of it.

In addition to forking, other ingredients in blockchains may lend themselves to adaptability through things like ways of selecting leaders, voting, compensating “players,” and governance.

For example, Olaf Carlson-Wee of Polychain Capital talks about how blockchain decentralized autonomous organizations (DAOs) could be a more blockchain-native way to connect talent and resources to achieve common goals in the future.

If you haven’t listened to all three episodes of Hash Power, you’re missing out. So many great questions and insights from Ari Paul (BlockTower Capital), Juan Benet (Filecoin), Naval Ravikant (MetaStable Capital), in addition to Fred Ehrsam and Olaf Carlson-Wee, and many others.

(Photo source)