As blockchain technology has developed, various use-cases for its application have emerged. Although initially designed to solve problems in the financial sector, the core tenents behind blockchain (decentralization, transparency, security) make it ideal to solve a variety of societal problems. In this article, I examine the most popular “flavors”, or applications of blockchain technology:
Finance
The first real-world application for blockchain technology was as a cryptocurrency, namely Bitcoin. Since then, hundreds, if not thousands, of cryptocurrencies and alt coins have been created. This led to the emergence of DeFi, or decentralized finance, in which individuals can buy and trade cryptocurrencies to build wealth without the use of centralized banks. This is crucial as not only do banks have have central points of failure (databases that can be hacked, a corrupt CEO who can dictate the use of funds, etc.), they are also exclusionary. Many people in the world are unable to access basic banking features for a variety of reasons. Perhaps an individual cannot open an account or take out a loan because they are seen as too much of a risk by the bank. Perhaps the individual is located remotely, and cannot travel to the bank’s physical location in order to open an account. Or, on a global scale, perhaps their entire country is blacklisted from participating in the global financial market.
These are the types of issues that cryptocurrencies and DeFi platforms attempt to solve. Because DeFi platforms lack a central authority, an individual is free to participate in financial protocols, such as loans or staking, provided they have the funds to do so (usually in the form of cryptocurrency). Additionally, to create a wallet and join a DeFi platform, there is no need to travel to a physical location– all that is needed is an internet connection. In fact, physical locations can provide a point of failure for banks if they are robbed or bombed and their collateral is compromised as a result, making DeFi more secure than banks. Finally, DeFi platforms have the ability to operate globally, without concern for country borders, allowing any individual anywhere to participate in finance on a global scale.
These are the advantages of DeFi platforms, but cryptocurrency itself also has several similar advantages over centralized government-issued currencies (known as FIAT currencies). Because cryptocurrencies are not controlled by a centralized government, the value of a cryptocurrency is in its inherent value and purchasing power, which is dictated by the community. Bitcoin, for example, gained value as a currency when people started using it to buy things. The first example of this was in 2010, when Laszlo Henyecz purchased two pizzas at Papa Johns for 10,000 Bitcoin.
Since then, Bitcoin’s value and purchasing power has only increased. This is due to another inherent property of Bitcoin, namely its supply cap. The total amount of Bitcoin that will ever exist is 21,000,000. The amount of FIAT currency in circulation, however, can vary at the government’s discretion, as they have the ability to print as much money as they need to pay off loans or manipulate their country’s finances by causing inflation or deflation by controlling their currency’s total supply. It is important to note that Ethereum does not have the same hard total supply that Bitcoin has, but rather operates under a “fixed issuance” schedule, which gradually increases the number of ETH in circulation based on how many blocks have been created (2 new coins per block). However, because ETH is released into the ecosystem at a fixed rate by an inherently neutral computer program, it cannot be manipulated by self-interested parties, looking to increase their own wealth by gaming the system.
Digital Ownership
Because of blockchain’s unique ability to keep data transparent, yet secure, a new use-case for the technology emerged in the form of NFTs. NFT stands for non-fungible token, meaning each token is unique. NFTs are usually unique due to the data they contain, from an image, an ID number, or the metadata it contains. Additionally, the history of these NFTs are tracked by the blockchain, creating a record of ownership. This allows for the current owner of an NFT to prove their NFT’s legitimacy.
The easiest way to understand NFTs is through art, which has also non-coincidentally become the most common use for NFTs. Imagine that Picasso was living and created a new painting. As an original painting by a famous artist, this painting would understandably have high value at an auction. However, while art historians may be able to attest to the validity of the new painting as an original Picasso, most of us would have to take these experts’ word for it. This creates an opportunity for fraudulent artists to take advantage of our lack of knowledge to try to sell us paintings that are not by Picasso at an exorbitant price, as if they were an original Picasso. And if you cannot afford to hire an art historian to get their opinion on the piece, you may end up spending a lot of money on a fairly worthless painting.
Now imagine, instead, Picasso’s new painting was made into an NFT. This means that the record of its ownership would be stored on the blockchain. You could then verify whether the original owner of this painting was Picasso, as its creator, to ensure the painting is, in fact, of high value, and not a knock-off, and you were able to verify this without needing to learn any special skills or hire an expert. This is the value of NFTs– provable ownership and ownership history.
NFTs and digital ownership have since evolved beyond art, however, into the digital representation of various physical assets. Most notably, land ownership has been transferred to the blockchain in areas where traditional paper methods of proving and transferring ownership have the potential to be corrupted and contain a central point of failure (similar to banks and financial institutions, by using databases and physical buildings to hold records). Preventing corruption and centralized points of failure are easily solvable by the blockchain, making it ideal for use in ownership.
Governance
One of the greatest things about blockchain, however, is that it allows anyone, from anywhere, with any background, to participate. This can be said of very few other global institutions, if any. As stated previously, entire countries are blacklisted from participating in the global financial system if they are not seen as progressive enough. Yet, who determines a country’s progressiveness? The answer is another centralized government body, prone to corruption and bias– the U.N. While the U.N. strives to be a force of good in the world, there can be no doubt that the U.N. tends to favor more powerful, western, democratic countries when making key global decisions, and excludes countries that do not score high enough on various scales and indices that have been developed by these powerful, western, democratic countries. If any institution is guilty of W.E.I.R.D. bias, it is the U.N.
For this reason, blockchain technology has been used in governance as well as finance and ownership through the creation of DAOs (decentralized, autonomous organizations). DAOs usually operate by members purchasing a token, showing their membership. This could be an NFT, or it could be cryptocurrency. Then, depending on how the DAO is structured, each token owner is given a certain number of “votes” — it could be one vote per wallet, one vote per token, or any other infinite possibilities. The point is that the number of, and even the weight of your vote, can be recorded by the blockchain, which remains neutral in its calculations. Members can then propose various actions they wish their DAO community to take, for example donating to a charity or granting membership tokens to an outside wallet. DAO members can then vote on these proposals using their membership tokens, and their responses are recorded on the blockchain, further preventing corruption. The results of the vote are then visible to everyone on the blockchain, not just the DAO members.
The mechanics behind DAOs have been applied to government elections as well, as voting in these elections can be corrupted due to a lack of transparency. Since all transactions are visible and verifiable on the blockchain, election results recorded on the blockchain are nearly impossible to tamper with. Additionally, central authorities cannot prevent certain members from voting. Take, for example, the 2020 election of Trump vs. Biden in the U.S. During this election, Trump attempted to skew results by preventing certain demographics from voting by disrupting postal services to areas he believed would vote against him, preventing citizens in these areas from receiving or sending their ballots via mail. For many of these people, going to a physical location to vote would be impossible due to distance, discrimination/the potential for violence (imagine an African American having to go to a ballot box located in a racist neighborhood), or merely time restrains (a working single mother might not be able to find the time to go to a ballot box). By using blockchain technology, these kinds of corrupt moves, accessibility issues, or even counting mistakes, are rendered impossible.
Blockchain technology, originally created to solve problems in the financial sector, has since expanded to a variety of use-cases beyond money. As the technology continues to develop, it is possible that the applications of this technology will shape society in unique and unforeseen ways.
