Crypto, What Is It Good For? A Checklist for Reading Any Blockchain Project

Sorting the crypto world

In December 2020 a World Economic Forum council of crypto practitioners, co-chaired by representatives of an asset manager and a payments company, published an overview of what cryptocurrencies are actually used for. Its foreword notes that these networks had by then been used by over a hundred million people to move trillions of dollars, and that public blockchains can power uses far beyond money.

The useful contribution is the structure. Rather than a list of coins, the council organised live projects into four layers, so that readers can see how pieces fit together.

The four layers in plain English

Base layer. These are the native networks where a cryptocurrency is created, stored and transferred. The report profiles Bitcoin, Ethereum, Ripple, Tezos, Celo, Litecoin, Zcash, Filecoin and Arweave. They differ widely in purpose: Bitcoin as a scarce digital asset with a fixed supply schedule; the XRP Ledger built for fast payments that settle in a few seconds; Filecoin and Arweave for decentralised data storage.

Second-layer protocols. These sit on top of a base layer to add speed or features. Examples covered are Bancor, the Lightning Network, Compound, Uniswap, Etherisc and the OMG Network, spanning payment channels, token exchange, lending and insurance.

Financial products and services. Here the report turns to companies that make crypto usable: investment products, custody providers, exchanges, wallets and payment firms. Entries include XBT Provider, Deutsche Bank, BitGo, Gemini, MetaMask, PayPal and LocalBitcoins.

Non-financial applications. The smallest group shows what else a blockchain can do: creator tokens, digital art marketplaces and humanitarian uses such as the UNICEF CryptoFund and the World Food Programme.

The seven-question checklist

Each entry opens with a short fact card. Turning those fields into questions gives a checklist that works on almost any project, whether you read about it here or elsewhere:

1. What technology does it run on? Its own protocol, a fork of another one, or a smart contract on someone else’s chain?

2. Who governs changes? Open-source proposals voted on by a community, a foundation, a company, or token holders?

3. Is it permissionless or permissioned? Can anyone join and validate, or only approved parties?

4. Where does it operate? Is it global, or tied to one jurisdiction and its regulator?

5. Is there a legal entity? Bitcoin has none, which is part of its design; most other projects have a company or foundation that can be named and held to account.

6. How does it sustain itself? Mining rewards and fees, transaction charges, subscriptions or a treasury?

7. Who financed it? Donations, venture capital, a token sale, or a parent company?

If a project cannot answer several of these clearly, that is information in itself.

A worked example

Take Bitcoin as the report describes it. The technology is the Bitcoin protocol; governance is open-source software changed through improvement proposals; it is permissionless and global; it has no legal entity; and it sustains itself through mining incentives and transaction fees, with core developers funded by donations or sponsorships. The report also notes a fixed supply schedule, with about 85% of all bitcoin that will ever exist already mined by November 2020, which is why some people call it digital gold.

Run the same questions on a project with a company at its centre and the answers change: governance and financing look very different, and so do the risks. That is exactly why a consistent checklist is valuable.

How to use this on Legion I.O.T

Our ecosystem hub profiles 29 projects across payments, smart contracts, real-world assets, storage and supply chain. Treat each profile as a starting point and run the seven questions against it. Prices on those pages are indicative only and nothing here is investment advice.