Cryptocurrencies will be the killer app for blockchain. There’s no doubt about that. Eventually, they won’t just be used for speculation. They’ll be a means to exchange value between people, organizations, and ultimately — machines.
Cryptocurrencies are protocol-native payment solutions
The networks of today are private, closed off silos of information that only communicate with the outer world through defined interfaces. Eventually, these systems will require greater flexibility and autonomy if they are to cooperate to serve us in ways not possible before.
Think of all the friction that currently exists with online payments, for example. Bank transactions are slow for a reason. And no one really knows how it works. Unless you’re working at PayPal or Venmo, you probably don’t know why funds take 3–5 business days to appear in your account.
What’s also funny is that the HTTP protocol has a 402 Payment Required status code. It’s likely this was to be used for a built-in digital payment system but was never developed.
Soon enough, services that require some form of payment will speak the same language at the network level, making conditional transactions so simple that developers won’t have to think about the complexities — kind of how today’s web developers don’t really need to know the inner workings of protocols like TCP/IP.
Decentralized platforms like Ethereum enable systems to exchange value in a trust-less environment. They execute the instructions of smart contracts exactly as they are programmed and securely transfer the ownership of digital tokens.
Right now, lots of projects are creating their own utility token — a token that provides access to a platform or service and acts a sort of access key.
To best paint a picture for how utility tokens will be used, let’s use an already “decentralized” company, one that easily compliments blockchain technology — Airbnb.
Services in the sharing economy such as Airbnb and Uber stand to be the first to truly benefit from peer-to-peer networks enabled by blockchain technology
Airbnb’s utility token would be at the centre of its ecosystem. This token will be the currency exchanged for all its services, meaning that you’ll be exchanging fiat for tokens and then using those tokens when paying for your stay. I have to mention that the exchange from fiat will require good UX to abstract away the idea that you’re buying a cryptocurrency. The barrier to entry needs to be as low as possible otherwise we’ll never see adoption.
Blockchain technology enables peer-to-peer payments, so when paying for your stay, you’ll actually be sending the funds directly to your host — not some escrow service. Of course, there will also be logic in the protocol to handle disputes and manage the routing of funds. Because it’s offering a service, the protocol might take a small percentage, but it’ll be magnitudes lower than a bank’s or payment processor’s fees due to the lowered processing cost.
Utility tokens will power decentralized protocols, enabling the automation of complex agreements and facilitating payments for services
If you’re a host and have just been paid for a weekend booking, you’ll have these tokens available in your account. You could cash out if you wanted to, receiving exactly the original amount agreed to in fiat. However, you’ll also have the option of holding the tokens, taking a stake in the continued success of the service and directly benefitting from the rise in token value.
Right now, only those who invest in company stocks benefit from the value of the company rising. The value of a company is derived by the value it produces and it’s generally generated by its network. This could be a network of efficient trucks, truck drivers, and supply chains. In the case of digital networks like those of Facebook and Google, the value is derived by the use of its services, the number of active users and the data generated. Users don’t gain anything from scrolling through Facebook, even though Facebook does have much to gain from your attention and time. Having publicly-traded utility tokens allow everyone to participate in the network effects of a successful service.
The services of Web 3.0 will be decentralized platforms with levels of abstracted complexity. The underlying protocols will simply act as middleware, seamlessly exchanging data as well as money. The value will be generated by incentivized networks and will benefit all participants — producers and consumers.
About the author: My name is Carlos and I’m a software engineer working on a blockchain-enabled mobility platform — Helbiz — Mobility System.
Disclaimer: This article should not be taken as, and is not intended to provide any investment advice and is for educational purposes only. As of the time posting the writers may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency as all investments contain risk.