Several features can make a cryptocurrency attractive, including an experienced leadership team, scalability, and a proven track record of security. But for me, utility is what can make a digital asset stand the test of time. That can take several forms, but the bottom line is this: Does it solve an existing real-life problem? And does it really need the cryptocurrency involved to do it?
Blockchain technology offers a secure, tamper-proof, and transparent way to track data and transactions quickly. Blockchain could impact the way we manage elections, healthcare records, intellectual property, and more. But when hunting for utility, it's important to remember that cryptocurrencies and blockchain are not the same thing.
For example, Walmart turned to blockchain to make its supply chain more traceable. If there's an outbreak of, say, E. coli, the source can now be tracked in seconds. The utility challenge for many of today's cryptocurrencies is that companies can implement blockchain solutions without using crypto.
If you're going to hold a cryptocurrency for decades, it isn't enough to have an innovative blockchain solution. We're looking for projects with real-world uses that depend on that specific cryptocurrency rather than the underlying technology. Here are three to keep on your radar.
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1. Bitcoin
The growth of Bitcoin (BTC 4.10%) speaks to its increasing utility. Governments and corporations now hold it in their treasuries. People have used it as an alternative currency in countries grappling with hyperinflation. For a while, it was legal tender in El Salvador, though adoption rates left a lot to be desired. And institutional adoption has soared since the SEC-approved spot Bitcoin ETFs.
It's true, Bitcoin hasn't become a peer-to-peer electronic cash system in the way that Satoshi Nakamoto intended. However, it continues to gain traction as a form of digital gold. Indeed, the lead crypto has a lot in common with gold. It's scarce, as only a limited number of Bitcoins will ever be produced. The decentralized ledger is durable. And it's easy to break it down into smaller pieces. Not only that, but Bitcoin is much less volatile than it used to be.
Ark Invest argues that several use cases could push Bitcoin's price to $1.5 million by 2030 (an increase of over 1,000% on its Sept. 9 close). These include institutional investment, a form of digital gold, and an emerging market safe haven. As Bitcoin matures and becomes more baked into our financial systems, I'd argue that it is becoming a digital vault capable of underpinning other blockchain projects.
CRYPTO: BTC
Key Data Points
2. Ethereum
Ethereum (ETH 5.02%) is the biggest smart-contract cryptocurrency. Smart contracts are tiny pieces of self-executing code that live on the blockchain and make it programmable. Ethereum's ecosystem has more projects -- and more money -- than any other crypto. According to DefiLlama, applications built on Ethereum account for over $90 billion in value.
Now, a lot of Ethereum's applications are in decentralized finance (DeFi), rather than the real world. However, this year, DeFi has really started to make inroads into traditional finance. One aspect of that is stablecoins, which now have a clear regulatory framework in the U.S. Another is tokenized assets, which we'll touch on below.
Stablecoins are cryptocurrencies that peg their value to another asset, commonly the U.S. dollar. They can dramatically cut the costs of global money transfers and allow for fast and more transparent payment systems. Ethereum hosts over half the current stablecoins in circulation, and a stablecoin surge could seal its long-term value.
CRYPTO: ETH
Key Data Points
3. Chainlink
Chainlink (LINK 4.57%) is another cryptocurrency with utility in a changing world. It's known as an oracle blockchain because it collates and verifies data from both the real world and the digital one. That's particularly important when it comes to feeding smart contracts the information they need. For example, let's say a farmer took out a decentralized insurance contract against certain weather conditions. Accurate real-world data would be essential to trigger any payout.
Another important blockchain use that's gaining popularity is tokenized assets, which are tokens representing various forms of ownership. Without getting too much into the weeds, people can now buy tokenized stocks -- blockchain tokens that track the value of specific entities. Oracles provide the on-chain data that makes it possible.
Chainlink is working with the U.S. government to bring key data online. It's been working with Swift and major banks to connect existing infrastructure to tokenized assets and blockchains. In short, Chainlink has one foot in the real world and another in the blockchain, offering utility in both.
CRYPTO: LINK
Key Data Points
Utility matters
Solid utility can elevate a cryptocurrency from a speculative investment to one with long-term potential. Even then, it's no guarantee. I've seen plenty of cryptos fail, even though they had seemingly excellent utility. It's one reason that cryptocurrencies should only make up a small proportion of your wider portfolio.
Blockchain and cryptocurrencies can certainly offer some innovative solutions, which may gain more traction due to recent regulatory shifts. But, just as with any business, solving real-world pain points is only the start. Success depends on implementation, whether it's a cryptocurrency, a start-up, or a well-established business venture.
