Here’s What Vitalik Thinks Blockchain Is Good For (And What It Isn’t)

Ethereum co-founder Vitalik Buterin published a blog post on Monday that reviewed the development of various blockchain use cases over the past few years.

With many years of experimentation behind the ecosystem, the developer has narrowed down a list of applications that he personally finds most worthy of attention in crypto.

Money: The most important app

Buterin began by highlighting what he sees as the most important – and first – application of blockchain: creating new forms of money.

In particular, he noted that residents of hyperinflationary countries, which Argentinahave a lot to gain from storing their wealth in crypto, and using the technology to facilitate interaction with the global financial system.

While transaction costs and speeds were once impractical for using crypto as a daily means of payment, upgrades such as the merger has helped promote faster settlement times on Ethereum, and scaling technologies such as rollups allow for much cheaper transfers than previously possible.

Stablecoins are particularly beneficial, given that they compensate for crypto’s notorious short-term volatility. Buterin sees a mix of centralized and DAO-governed stablecoins existing in the future, backed by real-world assets and crypto-assets.

DeFi, DAOs and Stablecoins

The programmer also believes that there is a place for decentralized finance (Defi) in the future – as long as it follows relatively simple models centered around a few select basic functions.

“Decentralized finance is, in my view, a category that started out honorable, but limited, [but] transformed into something of an overcapitalized monster that relied on unsustainable forms of yield farming,” he wrote. Despite its speculative past, Buterin singled out decentralized stablecoins as “the most important Defi product,” with prediction markets and other synthetic assets also worth mentioning.

“There is also room for using an asset as collateral to raise a loan against another asset, although such projects are most likely to succeed and avoid tears if they keep their leverage very limited (e.g. no more than 2x),” he added. .

Meanwhile, Decentralized Autonomous Organizations (DAOs) can serve as effective governance structures for applications/businesses that require protection from outside attackers, or internal corruption.

MakerDAO is an example of such a model when applied to stablecoins – although ownership of the governance token is still quite concentrated among a few owners. “This is a nice model to get a stablecoin off the ground, but not a good model for the long term,” Buterin said.

Other reasons for using decentralized governance may include increased efficiency in gathering input from many sources, and better interoperability with other rigid, decentralized systems.

Buterin also called decentralized identity solutions (AGREED, PoH, etc) and hybrid on-chain / off-chain applications (ex. voting) as reasonable use cases for blockchain. Still, he believes that blockchain faces fundamental limitations, and that most potential ideas for the technology have probably already been explored in some capacity.

“Industrial supply chain applications haven’t gone anywhere. Decentralized Amazon on the blockchain hasn’t happened,” he said.