Why real-world utility is the Holy Grail of cryptocurrency
Those who follow cryptocurrency news and opinion are familiar with the many discussions surrounding real-world utility. The topic of utility comes up quite frequently as part of a broader discussion of whether or not cryptocurrency will actually survive. You might even say that real-world utility is considered the holy grail of crypto among people who follow it closely.
There is good reason for this. Few things introduced as novelties go on to enjoy long-term success over many decades without having some practical value. Novelties are fun at first, but interest eventually wanes if no practical application follows. The internet and its predecessors offer us a clear example of how it works.
Novelty replaced by utility
Back in the late 1980s and early 1990s, there was no such thing as a public internet. There were, however, electronic bulletin boards one could log on to with a fairly modern computer and dial-up modem. The bulletin boards were certainly novel. Yet they served no practical function other than giving the groups that ran them a place to post announcements.
It only took a few years before the electronic bulletin board began showing its age. By the time the early 1990s turned into the mid-1990s, bulletin board membership had begun to fall. It was about that time that the public internet made its debut. Along with it came e-mail, online news and sports scores, the ability to share photographs, and more.
The internet was effectively the death blow to electronic bulletin boards. User groups hung on to their bulletin boards as long as they could, but even they figured out that the internet had far more utility. The last bulletin board groups died out before the end of the century.
So what did the public internet offer that bulletin boards did not? Practical, real-world utility for everyone. Bulletin boards had limited practical value in terms of day-to-day use. But you also had to be a member to utilize one. The public internet, and all it brought to the table, was freely available to anyone who had a computer and a modem.
The evolution of cryptocurrency
It is clear that real-world utility is that which gave the internet its legs. It is what it is today because of the amount of real-world utility it offers. Bitcoin and its alt coin counterparts are not there yet. Should they ever get there, they could become as ubiquitous as the internet itself. This is why real-world utility is the holy grail cryptocurrency fanatics are searching for.
It is interesting to note that cryptocurrency has evolved in multiple stages over the years. Cointelegraph's Lorenzo Pellegrino recently wrote a rather compelling piece discussing real-world cryptocurrency use and how it will drive the growth of the sector throughout this coming year. He mentioned two seismic shifts in crypto's evolution, shifts that helped propel it forward. He believes real-world use could be a similar seismic shift this year.
The first shift Pellegrino mentioned was the introduction of cryptocurrency exchanges. There were no exchanges when Bitcoin was launched in 2009. In fact, the first exchange would not come to the market for more than a year after. Yet once Bitcoin Market did open its doors in February 2010, it opened the floodgates of exchange operators all looking to get their piece of the Bitcoin pie.
So many exchanges offering opportunities to buy and sell Bitcoin instantly gave the cryptocurrency legitimacy. Suddenly people were buying and selling to the point that Bitcoin eventually gained parity with the U.S. dollar. Some six years later, the next seismic shift took place.
That shift was the introduction of the ERC-20 token standard. This Ethereum token broke new ground and introduced the world to the initial coin offering (ICO) concept. The crypto community went from fewer than a dozen players to thousands virtually overnight.
The ICO concept made it clear that anyone with a modicum of tech knowledge could create a new digital token. Moreover, they did not have to do it from scratch. They could fork Bitcoin or Ethereum, modify the code to suit their needs, and release their tokens to hungry investors waiting to put money into their platforms.
While the era of ICOs is largely behind us, ICOs did a lot to boost the profile of cryptocurrency around the world. They turned investors on to cryptocurrency like never before. They introduced cryptocurrency to untold numbers of small-time users who, rather than looking to invest, just wanted a different way to pay for things. That brings us to the topic of real-world utility.
Crypto needs more than hype
Pellegrino makes the case that cryptocurrency cannot survive just on hype. He is absolutely correct. The interesting thing about cryptocurrency, as a technology, is that its success is often pegged to market capitalization. What other technology works like that? None that we know of.
Market capitalization is a concept for investors. Mention Bitcoin's market capitalization and the conversation automatically turns to investor interest. But if you are talking real-world utility, market capitalization becomes largely irrelevant. Real-world utility requires practical application.
For the purposes of this discussion, we will assume you own some Bitcoin yourself. That's great. What do you do with it? A small minority of Bitcoin owners actually use their coins to buy and sell things. However, the majority trade Bitcoin as an investment. They buy, wait for the price to go up, and sell.
That is all well and good as there is nothing wrong with making money by investing. But the total number of people in the world who invest in anything is comparatively small. Thus, Bitcoin will never reach its potential as a global monetary system if the vast majority of its users continue to be investors.
The big problem with investing is that so much of it relies on hype. It does not matter whether you are talking cryptocurrency or stocks and bonds, traders buy and sell based on hype. When things are looking good - as they perceive them - investors will buy. The same investors will sell in a heartbeat if some negative circumstance spooks them. Their decisions are driven largely by emotions and calculated guesswork.
On the other hand, think about fiat. For all its faults, fiat is a lot more stable than cryptocurrency. Its stability is found in its utility. The U.S. dollar is not the world's preferred reserve because of hype. It is what it is because of the strength of the U.S. economy. That strength is that which makes the U.S. dollar spendable just about everywhere in planet Earth. That is real-world utility.
Areas to watch in 2020
It is fitting to close this post by asking whether or not any big gains in real-world utility are on the horizon for 2020. Pellegrino seems to think so. He cites a number of examples, beginning with supply chain and logistics. Pellegrino specifically pointed to Maersk and Coca-Cola as two companies that have successfully implemented blockchain technologies to handle the logistics.
Maersk's blockchain solution was launched in 2018. The shipping giant now has 90 partners using the system. Those partners include the government customs agency in Thailand. Coca-Cola introduced their blockchain system in 2019 and now boasts some 70 partners using it along with them.
What these two companies are doing makes a lot of sense. They manage supply chains with a blockchain system and accompanying token. All of the partners have access to the system and the token for the purposes of moving goods around. Blockchain provides the ledgering capabilities, immutability, and security everyone is looking for.
Gaming is another possible avenue Pellegrino believes is worth watching. When he says gaming, he is not referring to online gambling and things like the Mega Moolah video slot. Rather, he is referring to RPG and other games that feature a host of virtual assets players can accumulate as they go.
Game developers are quickly discovering that they can implement blockchain in their projects in order to give in-game assets real-world value. In so doing, they are bridging the gaming environment with the real-world economy, thus encouraging people to play their games in order to earn tokens that they can spend outside of the game.
Also in the gaming arena is the problematic task of tracking and paying royalties to game developers. Pellegrino cites problems Microsoft has had compensating developers on their Xbox platform. The well-known software company has apparently turned to Ernst & Young to create an automated blockchain system capable of handling royalty payments.
Cryptocurrency has one more thing in its favor: a new rush among the world's central banks to create central-bank digital currencies (CBDCs). A world that runs on CBDCs seems inevitable at this point. As such, anyone and everyone who does any kind of business will eventually have to be on board with the cryptocurrency concept. As long as they are accepting CBDCs as payment, they might just as well accept private cryptocurrencies as well.
Real-world utility has long been the holy grail of cryptocurrency. Though there are never any guarantees, 2020 could be a big year for real-world utility. If it ends up being so, this year could go down in history as being the year of the third seismic shift that propelled cryptocurrency to the next level.