4 Sane Blockchain Use Cases Changing the World
The grandfather of blockchains, Bitcoin itself, is over ten years old. Much has changed since the genesis block in 2009, both to the tech itself and to the world’s priorities — possibly no more so than in the year 2020. Despite its promise, it’s still fair to characterize mainstream adoption of distributed ledger technologies (DLT) as muted.
If 2017 was littered with extremely questionable business capitalizations, 2020 and beyond is a period of quiet technological maturity and product-market fit for many businesses.
Here are four complex industries where sane implementations of blockchain may change the landscape of modern life.
Remittances
Remittances are the transfer of money, usually from migrant workers, to assist family and community members in their country of origin. As globalization decreases the distance between skilled workers abroad and the comparatively wealthier countries they are employed in, personal remittances have skyrocketed from USD $115 billion in 2000 to over USD $653 billion in 2019 globally.
The big winners in this market are the remittance agencies. Western Union, the defacto standard for many in the developing world received USD $5.6 billion in 2018 and charge considerable transfer fees and whole-number margin percentages on cross-border transfers.
One only has to look at the enormous success of M-Pesa in East Africa, to imagine a market ripe for disruption. In the fiscal year of 2019 alone, 37 million customers carried out 11 billion transactions from their mobile devices.
Cryptocurrencies are an extremely appealing alternative for a burgeoning developing world that’s increasingly online and mobile-savvy. Transactions are fast, cheap, secure, often private, and open to anyone with an internet connection. The rise of an expanding stablecoin asset class has allowed recipients to de-risk from the fiat-cryptocurrency value fluctuations that prevent so many from using crypto assets as a daily medium of exchange.
Eating away at the market share of old-world transfer agencies seems a case of not if, but when.
Projects that have been tackling this space include; Ripple, Telcoin, Celo, and the on-again / off-again Libra project. The potential of simple peer to peer payments is so vast that the recent idea of using an existing Facebook account to transact via Libra raised concerns that Facebook would have too much influence over monetary policies in small economies.
Money Markets — Lending, Insurance, Derivatives
Detractors of blockchains cite the failure of distributed ledger technologies as the inability to find a compelling product-market fit and lack of mainstream adoption. However, the thriving ecosystem of decentralized finance (DeFi), predominantly running on the Ethereum blockchain, the second-largest protocol by market capitalization, has been quietly delivering and iterating on innovative financial services for the last few years.
With over USD $1 billion deposited into DeFi protocols, even after a tumultuous market sell-off in March 2020 (driven by COVID-19 uncertainty), the DeFi space is proving that open, trustless, financial instruments are an extremely engaging area for savvy end-users.
While traditional financial news continues to focus on crypto market volatility, much of the DeFi space is powered by stablecoins (tokens that are pegged against fiat currencies) like MakerDAO’s DAI token, which is collateral-backed and targeted to USD $1 dollar. Using DAI, one can trustlessly borrow, arbitrage, hedge, and interact with hundreds of other on-chain projects accepting it, like the Compound interest-generating lending protocol. DAI is not the only stablecoin, and was not the first to gain popularity. Today, there are over a dozen stable assets provided by many key players in the industry.
If Maker is the workhorse, then the fairytale story in DeFi is probably that of Uniswap — a pooled liquidity provider and token exchange with an astonishingly simple constant product market maker model. Uniswap is on-chain and completely leaderless, non-custodial, fully transparent, and available to anyone who can sign a transaction on the Ethereum blockchain. Uniswap’s model competes with other decentralized exchanges like Bancor and Kyber (both successful alumni of the 2017/2018 ICO era) and is pushing the space to be completely on-chain, have a smaller footprint, and fewer protocol fees for end-users.
Another burgeoning class is that of derivatives, giving crypto-asset versions of more complex instruments recognizable in traditional asset economies: options, futures, indices, and more. A now key player in the DeFi space, Synthetix, enables trading of synthetic crypto assets, commodities, indices, and forex, and has eclipsed Compound as the 2nd largest DeFi protocol by capitalization.
The DeFi landscape has been colloquially called money Lego due to the scope of tools and composability by design between the different protocols. The guiding principle of “everything just fits together” is exemplified by zapper.fi, a wrapper service that in a couple of clicks will bundle complicated investment re-balances into simple atomic transactions.
If the ICO boom from 2017 was an indication that the Ethereum protocol can provide a valuable mechanism for startup capital flow, the current DeFi explosion is proving that blockchain can provide functioning mechanisms for any type of financial service. This was the promise of smart contracts when they first came into public consciousness, and piece by piece it is becoming a more certain reality.
Share Trade Settlement and Transfer
The classic film image of a stock exchange is that of the 20th century — paper tickers and crowded floors of businessmen throwing consignment notes to one another. While this image is a little outdated in 2020 when high-frequency traders build their own fiber-optic lines to get millisecond speed improvements coast-to-coast, we still deal with many hangovers from the physical world; T+2 or 3 settlement times (depending on your location), markets that close to historically fit the 9–5 schedule and costly brokers as gatekeepers.
For blockchain-natives, many of their first exposures to investing took place on crypto exchanges with instant settlements, low fees, fractional ownership of assets, 24-hour markets, and rarely any trade minimums. The traditional world of securities must seem like a trip backward in time.
Add in the finality, security, and transparency of securities on a public blockchain, and it becomes difficult to argue against distributed ledgers as the inevitable upgrade to the toolset of securities exchanges, even those with a large existing digital footprint for high-frequency traders. There may even be novel political benefits to public security registers, for example, being able to verify share trades of sitting elected officials to root out insider trading and corruption.
Nasdaq, the architect and provider of the world’s most widely adopted market infrastructure technology, is harnessing this potential and in April 2020 signed an agreement with R3, creators of the Corda enterprise blockchain suite. The Australian Stock Exchange (ASX) is another pioneer in this space and is continuing to work with Digital Asset on replacing the legacy CHESS securities holding system.
While there’s still significant progress to be made, especially on the regulatory side. The crypto-anarchist’s dream of the anonymous purchase of listed securities is very unlikely to eventuate. However, strongly compliant, enterprise-ready blockchains are continuing to be researched and developed by securities exchanges.
Identity
Identity and privacy have been in the global spotlight for a number of years now, and it’s been mostly grassroots activism that has forced technology giants to slowly relinquish ownership and control of personal data. Central to this activism is a growing acceptance that everyone should have an easy way to know where their data is going, specify who can see it, and to alter these conditions as they please.
Distributed ledger technology is often incorrectly assumed to be anonymous, or pseudonymous, but rather the opposite is true. While there are a few privacy-centric blockchain projects that singularly focus on anonymity and confidential transactions like Monero and Zcash, and more recent projects like the Aztec protocol on Ethereum, most blockchains have publicly available ledgers, transaction history, and addresses.
Publicly verifiable data is actually a boon for self-sovereign identity (SSI) services, as you can always see when an identity was created, accessed, altered, and utilized, and it can’t later be falsified or redacted. The weakest link though, as in all security systems, is the human one.
While it’s somewhat trivial to use cryptographic primitives that have been understood for decades (and blockchain is an extension of that), proving that you or anyone else is the real person behind a given identity is more difficult, especially in a global climate of increased surveillance and a (rightly so) growing individual awareness of personal data sovereignty. It’s not hard to imagine a future client base refusing to be forced to use facial recognition (for example) as proof of ownership of any digital identity.
Any company that seamlessly merges the last-mile problem between your mobile phone, the person holding it, and a transferable online digital identity with privacy-preserving proofs will be heading in the right direction. Several organizations in this increasingly crowded space include ConsenSys-incubated uPort, SelfKey, Civic, and Berlin-based Fractal.
Conclusion
Keeping a level head in an industry that has alternated between cypherpunk idealism and get-rich-quick schemes is often challenging. Peer beyond the extremes and look at the core use cases that may actually improve people’s lives. In the enterprise finance world, once it becomes clear that judicious use of blockchains can actually save money in accounting, reconciliation, and security, expect to see more traditionally slow-moving giants like banks, brokers, and payment processors adopt the technology.
Although we still need to decipher the hype and look forward to more real-world applications, there’s a deep-rooted interest in blockchain’s potential and scale of impact on whole economies — but for now — let’s just focus on convincing skeptics and slow adopters with four sane blockchain use cases that may change the world.
Pretoria Research Lab GmbH is a new venture founded in 2020 through Berlin-based company builder Next Big Thing AG. Pretoria’s mission is to analyze the increasingly complicated world of DeFi protocols, proof of stake networks, and other bleeding-edge blockchain technologies. We aim to support valuable staking networks through provisioning infrastructure and active network participation, as well as discover DeFi growth opportunities for Next Big Thing and current in-house ventures.
Pretoria has provided validator infrastructure to the recently launched Celo mainnet network and was one of the genesis validators. Additionally, we launched Celo Cauldron, a visual map used to read and debug real-time progress of validator signatures in the network. Curious to know more? Let’s talk.
