NEW YORK (InsideBitcoins) — If you’re a bitcoin enthusiast who doesn’t understand why the price hasn’t gone “to the moon” already, then it’s important to take a closer look at how people are using bitcoin right now. The vast majority of the current price comes from where speculators think the price will go over the long term, which also plays a role in the continued volatility that users see on a regular basis.
There still aren’t many use cases for bitcoin where better alternatives aren’t also available; however, this could change in the next few years. Some people are wondering why people aren’t using bitcoin to buy their morning coffee, but that misses the point of where the real growth in this digital currency could come from in the future. For now, most people holding bitcoins are using them as nothing more than a speculative investment.
Silk Road and Wikileaks
The first two main use cases for bitcoin were Silk Road and Wikileaks. If cryptoanarchists wanted to purchase anything off Silk Road, they first needed to exchange their fiat for bitcoins on an exchange. At a certain point in 2011, bitcoin was also the only option for sending donations to Wikileaks. These were real use cases for bitcoin that caused people to seek out the payment platform. Although these purposes were perfect for bringing attention and new users to the digital currency, we haven’t seen a continuation of this trend over the past four years. The popularity of bitcoin has been aided by the proliferation of Silk Road copycats, but there haven’t been many other bitcoin-related applications built during this time.
Four years of building the infrastructure
One of the main reasons we haven’t seen a bigger focus on real use cases for bitcoin is that most of the investments into bitcoin applications have gone towards core infrastructure. Exchanges and wallet providers, such as Coinbase and Circle, have been the stars of the show up to this point, but they’re not the ones building use cases for the bitcoin currency. Although wallets and exchanges are a vital part of the bitcoin ecosystem, they don’t necessarily create new reasons for people to use bitcoin in the same way that Silk Road and Wikileaks have done in the past.
What are the real use cases?
- Proof-of-existence – This is a method of hashing a document into the bitcoin blockchain as a way to prove it existed at a certain period in time. Proof-of-existence can be helpful for a variety of different use cases such as proving ownership of intellectual property. Proofofexistence.com and Factom are two projects currently working on this sort of functionality.
- Private transactions – Most governments are not fans of private communications and transactions on the Internet. For this reason, it has always been difficult to engage in anonymous commerce. Bitcoin allows people to purchase digital goods and services online without turning over any personal information to the merchant. There are a variety of use cases for these sorts of transactions such as VPN or porn subscriptions. Silk Road could also fall into this category, and OpenBazaar could potentially strengthen that particular use case for bitcoin.
- Continued expansion of decentralized protocols – This application is about more than cryptoanarchy. After all, there are millions of people around the world who illegally download copyrighted content on a daily basis via BitTorrent. Bitcoin will only strengthen these sorts of decentralized protocols for sharing files and routing data packets. As NSA whistleblower Edward Snowden recently pointed out, blockchain technology can be used to add financial incentives to these networks — especially when it comes to mesh networking.
- Content monetization – There are a variety of content monetization schemes that are unique to bitcoin. Content creators can post half of an article or video and create a bounty for the release of the full version. They could also have their audience send bitcoins to certain bitcoin addresses to vote on the type of content that should be created in the future. General tipping and crowdfunding use cases could also fall under this category. It’s important for bitcoin to be used in these sorts of situations, even if traditional payment mechanisms are able to catch up. Those other forms of payment will likely be reversible, or at least involve some form of counterparty risk.
- Colored coins – Colored coins is a method of issuing new tokens on top of the bitcoin protocol. These tokens can represent anything from U.S. dollars stored in a bank to the car sitting in your driveway. While there are other methods of issuing centralized tokens, colored coins allows the issuer to outsource the security and issuance of the tokens to the bitcoin blockchain. The issuer would also be able to prove that they’re unable to reverse or censor transactions in the future.
- Proof-of-reserves – Due to the fact that these other use cases provide bitcoin with some form of underlying value, the digital currency can also be used as reserves for other currencies. For example, someone issuing a U.S. dollar colored coin could back those colored coins with bitcoins that are provably owned by the issuer. Those bitcoins could be held in a voting pool or some other multisig-powered solution to prove that the issuer of the U.S. dollar colored coins cannot run away with the bitcoins if they’re proven to be insolvent.
- Gold 2.0 – One of the main arguments that gold bugs make against bitcoin is that there is no intrinsic value found in cryptocurrencies. They claim that gold has intrinsic value because it can be used for other purposes besides money, such as jewelry or electronic wiring. As we’ve noted with certain use cases, such as proof-of-existence and colored coins, the bitcoin blockchain does have some form of “intrinsic” value. This would also mean that bitcoins have value outside of money due to the fact that they’re required to use bitcoin’s secure, decentralized ledger. This is why many bitcoin enthusiasts refer to bitcoin as “gold 2.0” or “perfect gold.” It has the same “intrinsic” value that gold bugs rant and rave about, but it’s much more useful as a money. We’ve also seen that bitcoin has similar responses to gold in response to major events in the markets. It seems that many market participants already see bitcoin as another hedge against inflation if recent announcements from the Swiss National Bank and European Central Bank are, in fact, an indication of that trend.
These are just a handful of the endless use cases for bitcoin that could pop up over time. Many of the most interesting applications of the technology have likely not been invented yet. For more information on the “millions” of killer apps available for bitcoin, take a look at the following video from the World Bitcoin Network:
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