What can I spend my cryptocurrency on (outside of digital cats)?
You’ve got a stash of cryptocurrencies which have inherent value. This value is based on exchanging them for goods and services (i.e. they are money). But what, currently, in March 2018, can you spend them on? The answer is this: not a lot. Yet.
Broadly speaking you can do things with cryptocurrency outside of the blockchain (i.e. the financial system they are currently contained in) which we’ll refer to as offchain, or you can spend them on services available onchain. Note we’re so new in this game we’re making no distinction between ordinary consumers and organisations — these options are open to any economic actor with cryptocurrency. For the purposes of this article, we also refer to any cryptographic token on a blockchain as a cryptocurrency.
So, what can you do with them?
Offchain
Invest in something, like property or other another investment vehicle which is expected to accrue value. Here you’ll find an onerous process of converting cryptocurrency to fiat currency: it’s slow and the fees can be quite high. Ideally some kind of peer-to-peer forum should exist for this kind of transaction, it seems feasible in principle using smart contracts, but as this doesn’t yet exist you’re stuck cashing out via an exchange. There’s also somewhat of a risk the value appreciation of your offchain investment will not keep pace with the appreciation of the cryptocurrency you used to buy it.
Buy some consumable goods, like your groceries or your vacation to Cancun. Again, you’ll need to convert to cash unless you can find a retailer who accepts crypto, so we’re still in onerous transaction world. Also, if the price of the cryptocurrency you use goes up you’ll be left ruing the day you spent $100 million on two pizzas (or similar).
Use it as collateral for a fiat loan. If you can find someone willing to lend you fiat money with cryptocurrency as collateral. This almost certainly needs a mechanism for collateral management. If the price of the cryptocurrency as collateral decreases, you’ll need to add more to meet your collateral requirements. If it increases, you’ll be wanting some of released back to you. Write the smart contract that does this and you’ll be a super-mega-trillionaire.
Onchain
Direct Price speculation. This is where we are right now in the cryptocurrency space: it’s more or less the only interesting thing that can be efficiently done. It consists of moving your value from one cryptocurrency to another (or from fiat to cryptocurrency) to profit from relative price movements. Most big exchanges also now offer more complex trade types like leveraged trading — i.e. borrowing cryptocurrency in order to trade. It’s been happening for hundreds of years in prechain with stocks, bonds and derivatives; it will not propel cryptocurrency into the mainstream as a store of value and medium of exchange but the expectation of these last two features underpins speculation entirely.
Buy some consumable goods. If your retailer accepts crypto. This is the big use case that all those hodlers are waiting for. There are enormous challenges for any existing blockchain protocol to handle mainstream levels of throughput (Example: Ethereum’s max throughput is 15 transactions per second. For Visa, it’s 50,000).
Simply, current blockchains need to be able to encapsulate more blocks in any given time period, and those blocks need to contain more transactions. For me, Bitcoin will never meet these challenges and will wither on the vine. Ethereum seems the only protocol currently positioned to have a good go. The results remain to be seen. If we can pay our way in cryptocurrency as consumers, we can be paid in cryptocurrency as workers. Simple.
Hold crypto to profit from ‘corporate actions’. Much like conventional shares, some tokens profit from sporadic benefits of ownership -airdrops and other value incentives — that we know as corporate actions in the existing financial world. Simply holding such cryptocurrencies can therefore be an economic activity in itself.
Gamble it. When I said price speculation was the only really interesting thing you can do with cryptocurrency, I was only half right. Another pioneering area of economic activity is the crypto-casino, several of which exist in developed format. Like any kind of such gambling, you carry an extreme chance of getting wiped out, obviously.
Gaming. A fledgling industry, but already one with some notable early wins, you can also game with your cryptocurrency. I wonder how long before we see loot boxes for BTC?
Invest in something with them. If you can find someone to sell you something that stores value (property, financial securities, etc) and will accept cryptocurrency in exchange for it, this is possible. Note this is not investing in cryptocurrency. I’m talking about investing your cryptocurrency in something else. Currently, there are very limited opportunities for this. The idea of accepting cryptocurrency for presents liquidity risk for the seller: what if the cryptocurrency you just received tanks the morning after you just sold your house for it?
However, if a seller thinks that growth in value of the cryptocurrency will beat general increases in the asset value, it’s a very attractive prospect to accept crypto in place of fiat. Sell your house for $100k of ETH now and in six months that same number of ETH could be worth $200k. Whatever the risks, there definitely exists an opening in market to put these sellers together with buyers, either private or retail.
Having outlined the above use cases (there are absolutely more not listed) we can more easily note the absence of any established organisations offering such services. So if you do own Ethereum, or Bitcoin or any of the others, perhaps it is best to hodl. For the non-speculators amongst you, how about plugging all the gaps above?
