Crypto Use Cases

With all the cryptocurrencies and tokens out there now, it's difficult to figure out why there are so many and what they do, not to mention are they a good investment for you? One of the ways I determine a good investment is by its use case. From the tech world, use case means what is the cryptocurrency used for? Why does it exist?

So with that in mind, let's look at 10 of the most popular cryptocurrencies and see what they are trying to accomplish. You'll notice there are no prices on any of these cause you shouldn't buy one due to price alone.

The Original

Bitcoin: The first and granddaddy of all cryptocurrencies. Created, per the white paper, as a peer to peer electronic cash system. Producing a block every 10 minutes and cutting its block size reward every 4 years, the next halving (as they are called) occurs in 2020 and at that time 6.25 BTC will be created every 10 minutes from the current 12.5.

Bitcoin's use case is a source of much debate. Is it a store of value like gold especially during turbulent times? Is it a medium of exchange to use for payments? Is it a unit of account where it may be the reserve currency (like the USD is for the whole world) for the tech and cryptocurrency world? These 3 definitions: store of value, medium of exchange, and unit of account are the definitions of what makes something money.

So which will it be? I don't know but my guess, and my bet because I own some, is on store of value and unit of account. I think as the reserve currency for the crypto world, where most cryptocurrencies and tokens cannot trade without exchanging for Bitcoin first, is one of the best uses for Bitcoin. I also like it as a store of value against a declining USD and Euro.

Some of the key metrics are transaction times and fees, transactions stuck in the mempool, institutional and other investor interest, and developer activity on Github and through commits on the Bitcoin protocol.

Payments Case

Bitcoin Cash: Forked from the Bitcoin blockchain, Bitcoin Cash, like some others you will see on this list, is full of controversy. It has some strong crypto backers including some Bitcoiners from way back when who believe that Bitcoin Core (what we all call BTC), has lost its way from its original mission. It's one of the newer cryptocurrencies.

The use case for Bitcoin Cash is payments, to be the electronic cash system part of the original Bitcoin white paper.

Litecoin: Meant to be silver to Bitcoin as gold and forked off the Bitcoin blockchain. Founded by former Coinbase engineer Charlie Lee, Litecoin uses some of the same things in Bitcoin's framework but produces blocks 4x as fast as Bitcoin. Instead of every 10 minutes, Litecoin produces blocks every 2.5 minutes.

The primary use case for Litecoin is payments including micropayments. If you want to use cryptocurrency to pay for goods and services, then this is one you may want to consider (Disclaimer: I own some). Key metrics here are merchant adoption, exchange accessibility, and developer interest/activity.

DASH: DASH is a privacy-based cryptocurrency. It has some interesting features including its nodes, those computers that are hooked up to run the network, are known as MasterNodes. To be a masternode requires holding 1000 DASH to qualify. I wrote a piece on DASH a couple months ago outlining many of its features and why Venezuela is a high growth market.

The use case for DASH is payments with privacy. The goal is to have a fast, anonymous payment network as a cryptocurrency that can be used all around the world. Some key metrics here are merchant adoption, number of DASH wallets, number of Masternodes, and developer activity from both DASH Core and outside developers.

Monero: Monero, symbol XMR, is also a privacy-based coin. Monero claims to be untraceable through the use of ring signatures and stealth addresses and all transactions are said to be private. XMR is a proof of work based coin, which matters to some, and is ASIC resistant so you can mine it on normal computers if you have the know-how.

The use case for Monero is privacy period. The sender and recipient are transparent on the Bitcoin or Ethereum blockchain and Monero keeps those essentials private. Some key metrics here are developer activity and I don't know what else to be honest as the private nature of XMR makes it difficult to get information about it.

Decentralized Applications

Ethereum: Bitcoin's blockchain is only effective for Bitcoin. Ethereum is a platform for building blockchain applications including those with smart contracts. By far, the most popular app in 2018 is the ICO or Initial Coin Offering, used for fundraising, as a security token or as a utility token for an application.

The use case for Ethereum is building blockchain-based applications. If you want to see more apps using blockchain or you believe in 'Blockchain, but not Bitcoin', then this is one you should look at. Developer interest, ICO issuances, and transaction fees are 3 key metrics here.

EOS: EOS is meant for blockchain-based applications as well. Through their EOSIO software, they are building 'blockchain architecture designed to enable vertical and horizontal scaling of decentralized applications.' Decentralized applications is the name of the game here and the use case.

The Settlement/Cross-Border Case

XRP: One of the most controversial cryptocurrencies in the market today. XRP is commonly known as Ripple, however, XRP is the token and Ripple is a private SF based fintech company that holds a sizable influence over XRP. How decentralized XRP is or is not is beyond the scope of this article but you should research this on Reddit, Cryptotwitter or wherever else you research your crypto investments before investing.

The use case for XRP is compelling in my mind and the minds of anyone who has ever done a financial deal with a company across borders. Cross-border settlement to compete with the existing SWIFT system is XRP's main goal. If I was considering XRP as an investment, one key metric I'd look at is how many banks, especially non-US banks are signing up to use the RippleNet and XRP.

Stellar Lumens: Stellar Lumens is in the settlement market too, with an emphasis on remittances and the underbanked. Unlike XRP, who is going bank to bank to compete with SWIFT, Stellar is going after poverty, the underbanked and the underfinanced. This isn't just their use case, it's their mission.

Stablecoin

Tether: Also one of the most controversial coins in the market, Tether is a stablecoin. I recently wrote about 2 new stablecoins in order to help define how these coins work, however, Tether is the largest. Tether is linked to exchanges but primarily to Bitfinex, where I used to trade but can no longer thanks to my American-ness. The big controversy du jour for Tether is that it recently 'lost' its peg to the USD, where it's supposed to trade 1 for 1. The loss of the peg is making the stablecoin less stable.

A stablecoin is supposed to maintain a stable price in the market and the use case for Tether is as a stablecoin to the USD, trading 1 for 1, but recently broken. A USD stablecoin is meant to provide liquidity to the market for exchanges, trading, and settlement.

Conclusion

Did any of these cryptocurrency use cases trigger something to explore further? As with anything, you need to do your own research. Payments, Settlement, and Applications are three of the biggest use cases for the cryptos on this list. They are not the only uses in cryptocurrency and you can have a preference for proof of work or proof stake coins or  even ICO projects. Hopefully, this will give you an idea of where to start your own research.

 

 

 

 

About the author

Stu Stu Lustman, the author of this post, is a Credit Analyst by trade trying to bring Commercial Credit Analysis techniques to the world of Peer to Peer Lending. Check me out on Twitter, LinkedIn and Google+

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