One use case that will for sure be filled with cryptocurrencies like Ethereum in the coming years is that of internet money.
Just like we had an era of web-first applications and shops, which then became mobile-first. Internet-first money is yet be fully realized. Money that is not tied to a physical entity per se, but at the same time can store and be a medium of exchange of value over the internet.
Money, Paypal credits, Credit are all good forms of value individual users or businesses use to transfer wealth between each other. This can be done via online too but the underlying mechanism is still tied to bank accounts and balance ledgers maintained by different banks. The internet only acts as a proxy for the transaction.
Internet money, on the other hand has the capability to sustain the transaction and it’s underlying mechanism end-to-end within the internet. Imagine if API’s wanted to exchange money and not users or businesses. Internet money would be the default way to do it.
By the looks of it, cryptocurrencies are the most poised to fill in this use-case.
InterPlanetary File System(IPFS) is a protocol that can be used to store and share data in a peer-to-peer system. Similar to HTTP, the protocol on the internet to share and store information. One problem with HTTP is that the computer requesting for a webpage has to directly establish connection to the server storing it. Therefore transactions are serial and singled-out.
IPFS on the other hand can download a file from the network from multiple sources. IPFS creates a a cryptographic hash for all the blocks within a file. These blocks can be stored in multiple and different locations. IPFS uses a decentralized name server IPNS (equivalent to DNS for HTTP) to map human readable filenames to these cryptographic hashes. This allows a the requesting node to download several pieces of the file simultaneously from different locations.
IPFS essentially decouples the content from the addressing on a network. This would allow the requesting node to download a file from the nearest possible location instead of being bottlenecked to one location.
Blockchain are now widely used to perform transactions between two parties where the blockchain ensures the validity of the transaction and records it in the distributed ledger. However, for a transaction to be completed it would require all the individual peer copies of the ledger to be updated. And this can be very time and resource intensive.
Enter the Lighting Network.
The Lightning Network is a protocol that works on tops of a blockchain that allows for transactions to happen off the chain. The protocol allows for a payment channel to be open between 2 parties which is validated by the blockchain. Once a payment channel is set up, all transactions between the 2 parties can happen quite instantaneously. The record of the transaction only needs to be updated in a certificate tied to the payment channel. Once a payment channel is closed, it is recorded in the main blockchain.
An example, a customer can have a payment channel open with a coffee shop and they can use it to pay for coffee everyday. Once the payment channel is closed, say once in a year. The records are ratified and added to the main blockchain.
A supply chain is a system of activities that is required to convert raw materials to the final product spread across in time and geography. Traceability in such systems make it easier to understand what is happening at each step of the process. This is critical especially in the Food and Pharmaceutical industry, where they are trying hard to trace each component that goes into their products.
With better traceability, it will be easier to enforce regulations. Regulatory authorities can more easily make sure that there are no banned substances used in any product or if any banned processes were used.
From a business point of view, it will be easier to optimize value chains for each product and find possible synergies. Currently all businesses do this, but at a higher level. Not every company is interested in raw materials right from the ore to the form they use. But traceability would make it more transparent for businesses to see the history of each delivery and the complete chain.
Within the food industry, there is a growing need and market for products that are ethically sourced. Big companies want to be seen on the right side of history when it comes to sourcing from local farmers and institutions. Traceability in supply chains is one way to improve their overall brand image. For example, the Fairtrade initiative. Which is then used by downstream companies like “Ben & Jerry’s” who source cocoa, sugar etc. under this initiative.
There are a few ways traceability can been introduced to a supply chain. Subway has 98% of their products traceable by using barcodes. RFID tags, alphanumeric codes are possible solutions as well. Blockchain is a relatively new technology that is being used for this purpose. A distributed ledger that cannot be tampered with keeps track of the supply chain. And all stakeholders are free to check the validity of it themselves. A drawback with using blockchains is that these chains become stronger and more viable when the size of the information is huge. For smaller amounts of data, a centralized approach would suffice.
Usually supply chains include contracts between different parties right from the start until the product reaches the customer. Blockchain maybe is a more viable solution to manage these smart contracts in one of its ledgers. These agreements are usually repetitive in nature and can span across different geographies, time-zones, currencies etc. A distributed ledger in this case could act as a common protocol used by all stakeholders to manager and maintain contracts.
Green Bonds are used to raise money for environment and climate related projects. The financial instrument makes use of the debt capital markets to fund green initiatives. Governments and corporates are issuing green bonds to bring in capital. The World Bank is a major issuer of green bonds. As per a report from PwC, it is expected that 2021 will see the largest ever issuance of green bonds.
Green bonds are issued according to directives set by the Climate Bonds Initiative (CBI). The CBI is an international investor-focused not for profit organization that has set the certification and assurance standards for green bonds. This helps assure investors that the proceeds are being used for the right projects.
Could this system be built over a decentralized platform. There are 2 parts to this system. The part where money is raised based on a renting activity. And the second part, where the money is used to fund projects that help the environment. A blockchain could help bring access to a larger market for raising capital. Anyone could chip in to such an initiative. The blockchain would inherently secure the transaction and keep track of where the money is routed to.
Dapp is an app built on decentralized technology. Typical apps are built by organizations or single entities even if they are open-source. Dapps don’t have owners and are free from censorships. The app itself runs on a decentralized network making it almost impossible to take it down. Blockchain being the most popular of these kind of decentralized chains is a catalyst for such apps.
The application logic lives on the blockchain and would execute the same way irrespective of the environment. This gives dapps a more deterministic way of working. Dapps offer privacy to developers and is resistant to censorships. However, they are computationally a nightmare. To be efficient every node in the chain would have to execute it. It will be hard to maintain such an app and develop coherent user experiences where it is spread across multiple nodes.
Coinbase has launched an app store of sorts for dapps. Brave, a web browser, has built a web browser that focuses on privacy and information control. Instead of relying on the traditional advertising model, it uses consumer attention as it’s form of “currency”. Users can earn their attention token by using their web browser. Compound is an automated interest rate protocol that can be used to develop financial dapps. Compound is a platform that allows you to lend out your crypto assets and borrowers to borrow a loan against a collateral. The blockchain ensure the security of the lending activity itself.