Beyond DeFi: NFTs, Decentralised Social Media and Other Emerging Use Cases for Crypto
Why the most promising use cases for crypto have yet to be built
Blockchain is well-suited to disrupting centralised systems in general, not just those unique to finance. An excessive focus on financial applications may stifle innovation along other interesting dimensions of blockchain development.
NFTs, social media, and digital identities (i.e. passports) are three examples of blockchain applications outside of DeFi that I find particularly interesting.
NFTs are valuable because they cryptographically certify that each copy of a digital asset is unique, assigning intellectual property and ownership rights to individuals in a trustless and decentralised way. They also bring liquidity and improved functionality to entire new classes of assets.
Decentralised social media has the potential to subvert the ‘user-as-a-product’ model applied by Big Tech, redirecting value creation back toward individual users and content creators. Decentralised social media may also rely on more democratic forms of content management in moderating the power of Big Tech.
Digital passports help to curate a single source of truth and are well suited to managing medical, jurisdictional and other private personal data. More importantly, securing personal data with blockchain delegates control of this data back toward end users.
Ever since its unprecedented growth over the past year, Decentralised Finance (DeFi) has come to dominate much of the development focus and media attention in the crypto space. I wrote an article earlier this summer to highlight some of the ongoing developments in the DeFi space and suggest techniques that investors can use to value projects in the sector.
With DeFi still leading as the focus of the crypto community, I wanted to expand upon the discussion in my previous article by exploring three emerging verticals outside of the DeFi space. While less well known, these applications nonetheless merit discussion because they advance the use case for blockchain in novel and interesting ways.
This article has been inspired in part by a keynote recently delivered by Vitalik Buterin, founder of Ethereum, at the EthCC conference. In that speech, he discussed his vision for Ethereum and outlined his favourite use cases outside of finance. You can read my notes on this speech here.
Why it is important to look beyond DeFi
Blockchain technology should not be limited to a focus on finance because:
its trustless and decentralised architecture is well-suited to disrupting centralised systems in general, not just those inherent to finance, and
concentrating development effort on solving the same types of problems may stifle innovation along other interesting dimensions of blockchain development. In my last article, I noted that many of the financial innovations in DeFi had been brought about by the technical limitations of building on blockchain. Solving problems in adjacent fields could, in the same way, advance blockchain technology in unprecedented ways.
There are three examples of blockchain applications outside of DeFi that I find particularly interesting and that I will share below. These are:
Non-fungible tokens (NFTs)—which allow intellectual property rights to be assigned in a trustless and decentralised manner
decentralised social media—which I see as diverting value creation back toward content creators and providing a fairer (but not necessarily better) solution to online content moderation, and
decentralised digital identities—which act as a single source of truth and confer control over personal data back toward individuals.
Non-fungible tokens (NFTs)—bringing liquidity and interoperability to new classes of assets
One emerging class of blockchain applications you may have heard of outside of DeFi is Non-Fungible Tokens (or NFTs). Beeple, a graphic designer and digital artist, famously sold tokenised copies of his paintings for $69 million in an auction brokered by auction house Christie’s.
While most people associate NFTs with digital art, it is really much broader than that. NFTs refer to tokenised versions of any digital asset. This can range from images and video (i.e. digital art) to digital trading cards, or even digital tweets. NFTs are valuable because they cryptographically certify that each copy of an asset is unique. It is a way of assigning intellectual property and ownership rights to individuals in a trustless and decentralised way, without needing to resort to a central intermediary.
Tokenising assets also has the benefit of bringing liquidity and improved interoperability to new classes of assets. The ownership rights conferred by an NFT, much like cryptocurrencies, can be transacted freely between users, creating a market for these otherwise illiquid assets.
The real interesting applications of NFTs, however, are likely to come from tokenising assets in the real world. Imagine, for example, being able to tokenise a house, or a legal contract. Besides making a market for these assets, it would allow them to interface with the existing set of crypto applications in interesting ways: financial institutions can now securitise their lending on the digital rights to a house, while insurance providers can build new products based on the information provided by digital contracts. Other use cases will likely emerge as the ecosystem of interconnected digital assets grows.
Of course, NFTs are still at a very early stage of development, and many of the solutions that exist today are imperfect. A primary limitation in tokenising real-world assets is that there currently exists no mechanism to prevent the listing of art or other intellectual property that creators do not own. In effect, any illegal appropriations of IP would still need to be resolved through legal processes in the "real world", undermining the purpose of tokenisation in the first place.
Secondly, from an investment perspective, NFTs are particularly risky because of the existence of asymmetric information in markets where goods do not perfectly compete (digital art being the primary example). Much like the Lemons in the Market analogy in industrial economics, the lack of verifiable information and objective metrics makes it particularly difficult for investors to filter the junk from the gems. This in turn attracts even more ‘lemons’ to flood the market, increasing the risk borne by investors.
The development cycle for any novel technology will necessarily involve extensive experimentation and iteration toward a workable feature set. Despite the problems with NFTs today (both cultural and technological), there is clearly strong institutional interest and backing in developing this technology—for example, OpenSea, the largest digital marketplace for NFTs recently raised $100 million from Andreesen Horowitz (A16z) to scale its platform. With such a high profile investment, it would be interesting to see what other players will follow.
Decentralised social media—subverting Big Tech's ‘user-as-a-product’ business model
Big Tech (in particular Facebook) has been in the news a lot lately over its growing monopoly power and ability to censor content and deplatform users online. The debate has in turn surfaced a number of growing problems with social media today, some of which could be solved with blockchain-based solutions:
Social media companies generate revenues by monetising their users and the content they create. While the product itself is free to use, almost all of the value behind online social networks is captured by companies in the form of advertising revenues. Decentralised social media has the potential to redirect this value creation toward individuals and online content creators. This is already being done by projects such as Bitclout—a social media platform that allows content creators to redeem “creator coins” valued based on their social reputation.
The ability of blockchain-based social media platforms to tie user accounts to real identities (for example by requiring identity authentication) can also improve the quality of content and reduce spam, clickbait and fake news. One way to do this is by requiring users to make a small monetary contribution when creating a new account. This amount would be negligible for individual users but prohibitively expensive for those creating thousands of fake accounts to spread disinformation online. As alluded to above, monetary incentives can also be used to encourage and reward high-quality content.
The ability of Big Tech companies to arbitrarily remove content online or deplatform its users based on their particular (e.g. political) views is considered by some as an infringement of the rights to free speech. Decentralised social media platforms would likely resolve to a more democratic means of curating content, rather than delegating control to a small group of decision-makers (see for example Facebook's Oversight Board).
That said, decentralising content moderation may not necessarily improve the quality of content published online. Companies like Facebook have a moral imperative to censor harmful information, and moreover, the sensitive nature of this content may make it unsuitable for crowd-sourced forms of moderation. Striking a balance between these different aims is difficult and will likely require a more nuanced approach.
Decentralised digital identity and blockchain-secured passports
With governments around the world still resorting to paper-based systems to maintain vaccination records during the current Covid-19 pandemic, the lapse in technology in bringing our identities online has never been thrown into starker relief.
Blockchain-based identities are particularly well-suited to use cases such as digital vaccine passports because they create a public and immutable record of an individual’s personal information. For example, a blockchain could be setup whereby only certain approved organisations (e.g. immigration offices, government-sanctioned hospitals) are given permission to amend health records stored on the passport. Users can then view these records and selectively share this with third parties.
Using a decentralised system for identity verification is highly beneficial because it curates a single source of truth—dramatically improving the consistency of records retained by different agencies. Rather than distributing personal data across several disconnected databases maintained by different government agencies, blockchain technology can unify this data in a more secure and accessible format.
A decentralised system also enables individuals to retain better control over their data and the way in which it is shared (think of a private-public key model). The concept would work similarly to Open Banking as applied in the financial system in the UK. Where personal financial data was historically held by banks, Open Banking collates this into a single repository (accessible via APIs) and empowers individuals to selectively share this with service providers (e.g. restaurants, concert venues, airline companies).
The decoupling of data from service provider places control of data back in the hand of users. In this way, digital passports can actually improve upon, rather than compromise, personal data privacy.
The rise of DeFi has brought crypto to the forefront of media attention, but there are other classes of applications that merit attention from development teams, investors and the wider community.
The most promising use cases for blockchain have likely not yet been built. If you have any ideas for interesting ways in which blockchain technology can be applied, please share it by leaving a comment below!
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Open Source Finance is a blog to document my journey into the complex and fast-moving world of fintech. In this blog, I share ideas, insights and key learnings about companies, technology, entrepreneurship, innovation and more.
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