One of the most popular aspects of cryptocurrency is its speculative side, arguably being responsible for much of its exposure. As the technology continues to mature, more speculative use cases continue to emerge. I’m going to walk through a few new asset classes that I believe are enabled by cryptocurrency technologies.
Apps like Instagram and Facebook now play a significant role in our day-to-day lives. However, the only revenue model that has emerged for these apps is one based on advertising. Advertising may never go away; however, it is possible to visualize the emergence of alternative revenue streams via something like appcoins. In this model, apps would charge individual actors for actions performed in the app, expecting payment in a native app cryptocurrency.
For example, say I’m creating a brand new version of Instagram, and with that I issue some amount of “Instacoins” to the public, and charge a fixed 100 Instacoin cost for “unlocking” / viewing a photo. When the application is still young, the content is probably not as good, and there are fewer recognizable celebrities using it. As a result, users are likely to exchange not much bitcoin per Instacoin. However, perhaps over time I build the app up, adding new features, developing filters, and recruiting users of interest. Now, since there is overall more demand for Instacoins (which are required to view photos in this example), users will be willing to part with a larger amount of bitcoin for an Instacoin. With this being a theoretically possible scenario, it gives speculators reason to trade early appcoins in the hopes that they pick a winning horse. Note that this model could work with either centralized or decentralized applications (though it is worth mentioning that paying to “unlock” a photo doesn’t work as well in the decentralized case where everyone may in theory be able to see everything already).
Another notable aspect of the current generation of apps is that creators are often not rewarded for the value they bring to the platform (one notable exception perhaps being YouTube). An interesting spin that would also have a speculative edge would be to allow creators to cryptographically “own” their profiles/content.
Let’s return to the Instagram example above. In the version described, my Instagram clone is pulling in revenue each time someone views a photo. Let’s say now that we decide to split a fixed 50% of that revenue with the original creator of that content. This is interesting and probably already an improvement of some sort. Now, let’s say that whoever owns that content is able to split their profile into “shares”, such that each share receives a proportional amount of “dividends” each time the revshare pays out. In this way, creators can organize creative fundraising mechanisms - say, doing a public offering of these shares when first starting out in order to raise money to make their channel / profile better. These shares can of course be traded on public markets for cryptocurrency. It may even be possible to see a scneario where the app operator “acquires” some of these profiles over time - they may find in their forecasts that they stand to be better off paying for these shares upfront than having to continue to make revshare payouts (especially if the profile is showing no signs of stopping its growth). This could give profile speculators a nice exit / return on investment.
In-game economies have been around for some time. Most recently, we’ve seen stuff like in-game purchases of coins and items in games like Candy Crush. However, well before that, games like World of Warcraft and Eve Online have had thriving in-game economies for a while. Currently, for most in-game economies, you pay fiat currency into the system, and then it’s locked up in there by the game developer for eternity, with the only way to “sell out” of your in-game resources being heading over to a “black market” marketplace to facilitate sales to other players. This usually puts you at risk for an account ban, as it’s typically against the terms of service for the game.
This is probably an optimistic perspective, but perhaps this policy is only in place because gamers have yet to encounter any real alternatives. Perhaps once more fluid in-game economies emerge, gamers will demand a certain level of fluidity for all future games that are released. As games themselves become more “real” via VR and related technologies, perhaps we will start to demand the same thing of our in-game assets. Representing these assets as colored coins could be the solution, allowing users to pull items into and out of games freely and onto public markets to trade these items for cryptocurrency. This of course unlocks speculative use cases - if you perhaps know of a particular under-the-radar game strategy that requires a certain item, you can “farm” the item in-game and stock up before demand spikes. Once the strategy becomes more public, you may be able to make a profit selling your items on an exchange. There are also perhaps cross-game use cases to explore here - moving a Rolex between games as a cosmetic item or transferring your Ferrari from Gran Turismo to Mario Kart with some sort of standardized attribute system.
This one may be a bit of a stretch, but it’s perhaps worth mentioning. There is, according to this TED talk, a $1.2 billion market for Nike sneakers. The speaker in the talk actually went ahead and built an online marketplace for sneakers, allowing users to set bid and ask orders for distinct shoe lines. The site acts as a centralized party to each transaction and verifies the authenticity of goods sold. In this way, they’re improving the liquidity / price discovery process for these sneakers.
It might not be crazy to say that one day, they could also act as a warehouser for these sneakers and issue a colored coin of sorts representing ownership of an individual sneaker. This would enable trading of these physical goods where the “settlement” doesn’t require shipping across the country (unless desired), allowing speculators to take things even further. Of course, this introduces dependence on / trust of the centralized issuer. Still, it could be interesting to see physical consumer goods traded in this way. I think it can only work with fungible goods - you can’t actually wear the sneakers or else you have to consider all the varying degrees of condition. Sizes alone already introduce some complexity.
All of the new assets introduced above could also serve as underlying assets for new derivative products. Smart contracts can interact with these assets in any number of ways, and it will be interesting to see how complex things can get. One advantage of smart contracts is that any derivative instrument is completely transparent as far as its underlying components and governing logic.