Applications on the Blockchain

This is the 3rd of the 6 articles that I wrote for my course at the Singapore University of Social Sciences. The first part is here.

Anything that can benefit from more trust and disintermediation is a good use case for the blockchain. As the technology matures and performance increases, we should see more and more applications utilizing the technology.

Some of the currently used use cases are:

• Coins (tokens)
• Multi Signature wallets
• Exchanges
• ENS — Ethereum Name Server
• Games
• Autonomous Organizations
• ICOs

Coins

Tokens or coins on the ethereum blockchain are implemented as smart contracts. The contracts have a set of functions, and by calling these functions the authorized parties can perform actions on these tokens.

To standardize the token creation, most tokens use the ERC20 standard. The standard functions (for example totalSupply(), balanceOf(), transfer()) make it trivial to integrate the tokens with the essential ethereum infrastructure.

An ERC20 token does not differ in functionality from a token that was created by forking bitcoin. Except that for the ERC20 token, all essential infrastructure and security is provided by the underlying Ethereum infrastructure.

Such token does not need to be mined or secured on its own.

The tokens (and every other smart contract) inherit ethereum’s accountability as well. It manifests in two ways:

1. The token contract is visible and readable on the blockchain. For example, here is the code for the HelloGold token. And here is a handy interface for the same. With this, anyone who can understand solidity can absolutely make sure what the token can or can’t do. This gives an unprecedented accountability for computer software that was not technically possible before.
2. Every single state change of the token contract — by definition — is recorded on the blockchain. This means every transaction is recorded and can be traced.

We will see that accountability will be a recurring pattern — in fact, this is one of the fundamental properties of blockchains.

Multi-Signature Wallets

In ethereum, smart contracts deployed on the blockchain may have their own wallets. It is possible to send ether to a smart contract. What happens to the funds depends on the code of the smart contract. Not even the owner of the smart contract has access to these funds unless the code specifically allows it.

So it is possible to write a smart contract that requires the consent of multiple accounts to make a transaction. It will operate like a shared company bank account, where multiple signatories required to send money.

Other systems, for example, Bitcoin, implemented this functionality on the core code level. On Ethereum, it is implemented as a smart contract. At this point, it is debatable if it’s a good idea or not. Because if the smart contract is badly written, then the funds can be taken or destroyed. As it happened with the funds in the popular Parity Multisig Wallet.

Exchanges

Exchanges are one of the services that decentralization will make obsolete. Exchanges are responsible for most of the funds lost on blockchains (MtGox, BitFinex, CoinCheck, etc).

Centralized exchanges basically circumvent and negate the properties of blockchains. In order to use them, the user has to give up control over their assets and trust the exchange to handle it.

Smart contracts can completely take over the role of exchanges. There are already a few decentralized exchanges in existence, for example, etherdelta.

The main reason they did not take over yet is that ethereum is not scalable yet. But once that is solved, there will be not much reason left for centralized exchanges to exist.

In fact, it seems like that they will be replaced not by an application, but by one or more protocols like 0x or bancor, that will push the exchange functionality to the protocol layer.

ENS — The Ethereum Name Server

The ENS is a domain name resolver, implemented as a set of smart contracts, and deployed on Ethereum. It can translate human-readable names to ethereum addresses.

It aims to have the same functionality as NameCoin. NameCoin, as highlighted above, is a separate blockchain implementation.

ENS implemented the same functionality and utilized the Ethereum ecosystem to be able to focus on the use case.

Kittens and Other Games

CryptoKitties is a blockchain-based virtual game that allows players to adopt, raise, and trade virtual cats, and it represents one of the earliest attempts to deploy blockchain technology for recreational and leisurely purposes.

The game benefits from the blockchain in multiple ways. For example, the fact that all kitties are on the blockchain makes the creators of the game accountable. The exact number of kittens and their prices are known facts.

It also showed how non-scalable ethereum at this moment is: the game got so popular that it slowed the whole network to a crawl for several days.

All games where it is important to assure that the house is playing a fair game will benefit from utilizing the blockchain. This includes but not limited to trading card style games, gambling applications and similar use cases.

ICOs

ICO stands for “Initial Coin Offering”. It is a way for a project to collect funds from its supporters.

ICOs originated from traditional crowdsourcing campaigns. On the way they did pick up features from Angel / VC investing as well.

ICOs build on all previously discussed use cases: They use coins (obviously), multisig wallets and smart contracts that display autonomous behavior, keeping the ICO accountable.

ICOs seem to be a good use case for the blockchain, because it can utilize all the strengths of blockchain systems:

• accountability
• disintermediation
• autonomy

Conclusion

The current use cases are built to use the current (admittedly limited) systems. But these already show how well the technology can be used, even well outside the payment use case. When the fundamental limitations will be solved, we can expect to see much more complex applications. But regardless of complexity, they will utilize the fundamental properties of blockchain technology: accountability, disintermediation, and autonomy.