Cryptocurrency has been in the news on an almost daily basis over the last few weeks – bitcoin’s volatility throughout January has been well-documented, most recently the notable surge in value that followed Elon Musk changing his Twitter bio to read #bitcoin.
Elsewhere, Ray Dalio, founder and chief investment officer of Bridgewater Associates’ referred to bitcoin as “a hell of an invention” and many traditional hedge funds have recently looked to diversify their portfolios by adding bitcoin and other cryptocurrencies.
However, these stories tend to focus on just one aspect of crypto – the investment angle. For crypto to evolve and fulfil its revolutionary potential, we need to think about it as more than simply an investable or speculative asset and consider the real-life use cases that the underlying technology can provide. This phase of evolution of the sector is sometimes referred to as the “utility phase”, in which cryptocurrency becomes more than just a store of value and powers a range of financial services – “Finance 2.0” as some have called the phenomenon.
The beginnings of the utility phase are already here, with many services providing an ‘on-ramp’ or ‘off-ramp’ to crypto with real world applications. At Coinbase, we pioneered our Coinbase Visa debit card in the UK in 2019 and subsequently rolled it out in the US late last year. The card provides an easy way to spend and (in the US) earn crypto anywhere that accepts a Visa card.
New entrants, such as Paypal, have also brought new pools of customers into the crypto ecosystem with exciting plans to increase the real world spending applications of digital currencies. Building on this, thousands of developer teams around the world are actively working on the next phase of crypto, across a wide range of areas. These include:
Remittances – unlocking the power of peer-to-peer transactions with blockchain technology. This technology can speed up and simplify the cross-border payments process, cutting out traditional middlemen and making money remittances more affordable. Until now, the costs of sending remittances were approximately 5%. The blockchain reduces transaction costs to <1%, while guaranteeing real-time transactions across borders and reducing the risk of loss.
Prediction markets – crowdsourcing information from and providing appropriate (financial) incentives to forecasters that predict outcomes can increase accuracy of predictions e.g. Augur.
Micropayments – for example, “Basic Attention Token” facilitates smarter advertising, whereby advertisers pay based on “mental effort” by the person viewing the ad, which means smarter spending and connecting with potential customers. One of the lead players in this space, Brave, currently has over 25m monthly active users – a testament to the level of interest in this model.
Decentralised lending – facilitating peer-to-peer loans through the use of open-source protocols that enable the borrowing and lending of cryptocurrency.
Decentralised identity – when you download music or read a news article, the publishers don’t lose their copy, and when you send an email, a copy remains in the “Sent” folder of your mailbox. The magic of bitcoin is that when you send one, you can’t also retain it. That obviously changes what it means to own things on the Internet, but think about how this applies to something like a National Insurance (NI) number.
Every time you want to prove who you are using your NI Number, you need to give away a copy of it. That copy has exactly the same power as the original, so when there is a data breach containing copies of your data it puts your identity at risk. A decentralised identity will let you prove that you own an identity without making a copy of it.
These examples represent just a handful of the use cases that can be delivered by crypto and blockchain technology, and which have the potential to deliver huge benefits across society. However, at the moment, they are relatively unknown and often misunderstood.
At Coinbase, we have a strong focus on educating customers about all aspects of the crypto ecosystem and demystifying what can seem to be complex concepts. We aim to build a solid foundation of understanding, explaining how specific crypto assets and their underlying use cases work (beyond any asset’s perceived investment value). Rewarding users with free crypto as they learn more about a new asset, we hope to incentivise education across the general public and, in turn, build a deeper understanding and appreciation of the new ideas and platforms that are being developed every day.
We truly believe that crypto is the future of finance worldwide. Crucial to the success of this new financial system is trust and transparency, welcoming in a new age where everyone recognises and fully understands the value and added security afforded by embracing crypto.
Price movements across popular cryptocurrencies like bitcoin are likely to continue to resonate with the media and broader public in the short-term, but our hope is that the next wave of interest will examine the true value proposition behind this incredible technology and the benefits which are on the cusp of being unlocked.
Marcus Hughes is General Manager for EMEA at Coinbase