A lot has been written about the use cases of blockchain. As many blockchain projects get closer to Beta stage, the cryptocurrency community is learning more about effective use cases for this new technology. In the blog post, we’ll go through three main points:
- What blockchain is not good for
- What blockchain is good for
- What traditional companies can learn from these first two points
Many applications of blockchain are currently being prototyped by entrepreneurs around the world. Here are a few where blockchain is less valuable, with explanations of why:
- Heavily moderated social networks where the sole application of blockchain is for “immutability” and “transparency”. Most of these networks make people pay tokens to use them, and people don’t care enough about these two “benefits” to pay for such a service. For example, imagine if you had to pay a token every time you “liked” a post on Instagram! People would stop using such a service pretty fast, and you’d have a hard time convincing people to sign up.
- Networks that use a native currency that can’t yet be integrated into any real world service due to technological barriers to entry. Although it might be easy to create a token called “XYZCoin” to promote XYZ cause, chances are the people who care about that cause wouldn’t want to go through the trouble of cashing out XYZ coin to support it. Imagine XYZ coin is a coin to promote the environment, for example. How savvy are environmentalists about cryptocurrency? While a few might know about crypto, they’re definitely not a good target audience. And environmentalists are just the tip of the iceberg when it comes to all the crazy causes people use crypto to advocate.
So, what are some things blockchain is good for?
- Privacy. Coins with anonymous transactional outputs are most attractive to those seeking privacy.
- Provably limited supply of some virtual currency or collectible. This is particularly important for companies that want to tokenize centralized digital tokens like frequent flyer miles or discounts. We’ll go into this point more later in this post.
- Clearer ownership for both the past and present. Although an Ethereum address is pseudo-anonymous, it’s a better way to track ownership than a typical IOU. Maybe the best way to illustrate this is to ask the following: is there any way to prove a bank actually has the money they say is yours? And, what if they decide not to give you your money? That might seem like an extreme example, but during times of crisis questions like this become important.
Point 1 is applicable in countries where governments are overly controlling or oppressive. Points 2 and 3 are applicable even in countries where this is less the case. This article is mainly focused on how tokenization will change companies and startups in the future. In fact, tokenizing an existing business can give that business a key competitive advantage by creating stronger brand awareness and additional utility through secondary, tradable discounts promoted for free by token holders.
Let’s look at a specific example. In a typical setup, crowdfunding and e-commerce products grow like so:
1. Creators promote their products and campaigns, driving users and creators to the product through referrals or word of mouth.
2. Users refer the product to other users and creators, either through formal referrals or word of mouth.
However, a company can introduce a third incentive to use a product by incorporating a discount virtual (ERC20) token (which is a also a separate, decentralized tradable token):
3. Token holders promote the product to creators and users, and creators and users use tokens to receive discounts when using the product.
For example, a company that leverages tokenized discounts in the crowdfunding space would have an extra group of community members marketing projects and the platform that would not be present in traditional crowdfunding companies like Kickstarter and Indiegogo.
Tokens don’t need to replace traditional currencies as a form of payment for them to be useful. They can supplement many existing businesses already. As Web 3.0 comes closer, existing businesses can leverage tokenization to grow their following and user base as well as increase the utility of their platform in preparation for Web 3.0. It takes more work to tokenize a business than just adding “blockchain” to the name, but it allows businesses to prepare their customers for the changes ahead as well as gain the competitive advantages described here.
At ELIX, we’re experimenting in this space with the first tokenized crowdfunding and lending app. We’ve been able to demonstrate that tokenization can drive viral loops already, and built our community around our token. Expect to see the above discoveries reflected in our product’s development.