I've studied this for about ten years, and came to the conclusion there is none, other than crazy financial structures and mechanisms that make the 2008 subprime mortgage scandal look like a Fischer-Price toy. If you find an interesting, practical application for anything blockchain or cryptocurrency, please let me know as well.
The interesting application looks something like this.
You have an internet connection, a Raspberry Pi and a USB hard drive. You get paid in cryptocurrency to host some data for the decentralized web. Now you have it and can use it to pay for things over the internet, anonymously. Having an anonymous digital payment system that regular people could use for small transactions would be a big advantage. No more Amazon keeping track of what books you read on your Kindle and having to worry about getting put on a list. It also provides funding for decentralized content hosting.
The current problem with this is that existing popular blockchains have high transaction fees and low transaction volumes. That's a technical problem that could be solved in the future, but right now it's an impediment.
The current solution is to use third party custodial services, which can handle arbitrary transaction volumes and have low fees because they're just rearranging numbers in their own private database. But then they're subject to KYC regulations and that's a blocker because people are going to get to the point where some shady internet company they've never heard of wants their social security number and say "hell no" and that's the end of it. Also, this erases the privacy benefit.
So to be useful we need one of two things. Either solve that technical problem, or get regulatory changes that waive KYC requirements for small transaction amounts, e.g. for accounts with less than a $1000 balance.
Or they exchange their cryptocurrency for cash in some place or context without KYC rules. The seller could be anywhere in the world.
The IRS is likewise not famous for its laxity with tax fraud.
You know that some public key had some amount of cryptocurrency and then it went somewhere else, possibly into a cryptocurrency tumbler. You don't know the identity of the person holding it and as soon as they have enough to buy something they can stop using that now-empty wallet.
Also, Monero solves this more robustly, doesn't it?
> The IRS is likewise not famous for its laxity with tax fraud.
Who said anything about tax fraud? You can report the income on your tax return without specifying how you spent the money.
How do you think it works with physical cash? The advantage here is that it can happen over the internet.
https://timroughgarden.github.io/fob21/l/l1.pdf
“Future generations of computer scientists will be jealous of your opportunity to get in on the ground floor of this new area—analogous to getting into the Internet and the Web in the early 1990s. I cannot overstate the opportunities available to someone who masters the material covered in this course—current demand is much, much bigger than supply.”
EDIT: I made a new post for this: https://news.ycombinator.com/item?id=29140393
I wrote off blockchains after a cursory investigation into applications in supply chains about 4 years ago. I’m planning to take a second look after seeing so many accomplished people gush about it like TR here.
Kind of like sports: the winner of a sporting event doesn't practically matter, it's just entertainment, but fans can feel extreme emotion from a win or loss, and many people form part of their identity around a team.
That said, entertainment itself is practical and necessary, and had been around longer than our modern financial systems, so maybe it does answer your request !
I do still think crypto will eat the world in every way it can, even if it shouldn't.
By comparison, Bitcoin has existed for ten years and hasn't let anybody do anything yet, because a slow time stamping algorithm (proof of work) turns out not to be that practical for many important applications.
Bitcoin created a scarce digital good, modeled after gold in many ways, that promised a sound money for the internet, digital cash, a reserve currency powered by proof of work. A currency that unlike fiat, could never be debased no matter how tempting it might be for a politician. I could see how one might not value these things as an individual but I think it's a bit much to boldly claim that "it hasn't let anybody do anything yet."
After all, it's made many people rich, particularly those curious souls who went down the rabbit hole to investigate it early and were therefore rewarded. Growing wealth, providing a savings vehicle that beats inflation over time, or making the owner rich - are all valuable outcomes for a new technology designed to offer a new type of monetary asset.
Bitcoin is incorruptible money with a fixed and predictable inflation rate and monetary policy that cannot be manipulated by any politician or central bank - no matter how tempting it may be. There is value in that, even if not everyone can see it.
only because the first is not viable does not mean that blockchains as a whole is a stupid idea.
Their current implementation is more proof of concept, but they are useful and they are being used daily by at least a few hundred thousand people.
Funny, my impression is the opposite. Blockchain and DeFi are still quite limited in what they can do relative to what’s going on Wall St. It’s the blockchain stuff that’s still a toy. A novel and fun toy, but still comparatively a toy.
Also fwiw, so far cryptocurrency is a debtless financial system, since without identity you can’t have credit ratings or any way of enforcing repayment. So a 2008-style credit collapse is impossible. It’s highly volatile of course, but at least not subject to a GFC or Great Depression style credit collapse.
(There are flash loans, but those loans are made and repaid instantly in the same smart contract, and if they can’t repaid then the smart contract fails and the loan was never made. I don’t think a buildup of risk similar 2008 can happen with those)
Even DeFi creates gigantic leverage while being "debtless" - the typical usecase for DeFi is just financial leverage:
- have BTC you lock up, get a stablecoins in exchange
- buy volatile crypto with stablecoins
- voila! You're leveraged
You can see this very easily in how the Total Value Locked in various protocols is essentially an index of the price of Bitcoin
Most stablecoins are run by a centralized, trusted third party maintaining a dubious peg to the centralized USD and will probably get taken down by some Soros breaking-the-pound style attack eventually.
But Bitcoin and most other major cryptocurrencies predate stablecoins, and will survive them.
Additionally, most of the collateralized DeFi leverage schemes you reference require over-collateralization. Since no identity makes margin calls impossible, effectively the margin call is done up front as a contingency in the form of over-collateralization.
A debtless, over-collateralized financial system is an interesting case study in financial in/stability. It’s certainly a different beast from the traditional financial system.