In this post we are going to discuss the ecosystem of a typical blockchain. Ecosystem in this context, refers to the different stakeholders and their interactions with each other, the system and the outside world. The different stakeholders we are going to explore are:
Understanding how each of these stakeholders fit into a blockchain ecosystem will not only give you a better appreciation of how a blockchain works, but will also allow you to better evaluate its potential for growth. The more attractive a blockchain is for each of the above stakeholders the more likely it is to experience healthy growth. So without further ado, allow us to introduce the colorful characters that make up the blockchain ecosystem.
That’s right, users are normal people who use a blockchain or cryptocurrency to achieve some purpose other than just buying cryptocurrency to sell at a later date (i.e. investing). For users to exist, a cryptocurrency has to have some utility (something to spend your coins on). Lets have a quick look at the three most popular blockchains to understand their current and potential utility.
Bitcoin has only one utility, but it’s a big one; payment for goods and services. At the time of writing, ~46,000 merchants around the globe accept payment for goods and services in the form of Bitcoin (Coinbase). In fact, several household brands and major e-commerce players including PayPal, Expedia, Microsoft, Subway, Bloomberg, Reddit, Dell, Steam, Whole Foods, Shopify and Webjet have all added their names to the ever-growing list of Bitcoin merchants. This list will inevitably continue to grow over the next decade and it is entirely possible that Bitcoin will be as widely accepted as Visa, AMEX or Mastercard at some point in the not so far future. This arguably means that Bitcoin currently has more utility than any other blockchain. The advantages of Bitcoin payments compared to traditional payment methods are:
- Faster international payments and transactions
- Very low transaction fees
- No third-party Interruptions
Additional benefits for merchant include
- No chargebacks
- Additional customer base
Due to Bitcoin’s high utility, a relatively large part of its ecosystem consists of users. This is a great attribute from a long-term investment perspective as it improves price stability and gives investors hard data to base their price estimates on (user growth, merchant adoption, number of transaction etc.).
The Ethereum blockchain is fundamentally different to the Bitcoin blockchain due to its ability to imbed smart contracts into the blockchain (see Post 2). As a result, Ethereum offers it’s users two different types of utility:
- Currency utility: Although not the primary goal of Ethereum, it seems likely that users will be able to use Ether (the native cryptocurrency of the Ethereum blockchain) to pay for goods and services in the near future. Several companies (TenX, Token Card, Monaco) are racing to capture market share with their cryptocurrency debit cards and online payment platforms like Coinify are offering plug and play solutions for online merchants to accept cryptocurrency like Ether as payment. At the moment however, Bitcoin is still the king of currency utility and Ether and other cryptocurrencies will likely have to play catch up for years to come.
- General utility: This refers to user interaction with decentralized applications (dApps) built on the Ethereum blockchain. Already, hundreds of dApps allow users to interact with the Ethereum blockchain in interesting ways. Numerai, a unique kind of hedge fund gives data scientists around the world access to encrypted market data, then incentivizes them to outperform the current trading algorithm and improve the overall performance of the hedge fund. Gnosis and Stox have both released alpha versions of their prediction market dApps (read: betting platforms) where users can bet on the outcome of any event. There’s also about a dozen or so lottery dApps that let you gamble with your Ether in a fair and transparent way. This is only the beginning however. New dApps are being released every day and it is only a matter of time before someone develops a dApp that truly captures the attention of the public and ushers in the next wave of Ethereum users.
A list of all dApps on the Ethereum blockchain can be found here.