The subject of use cases in blockchain is a complicated one. Blockchain maximalists paint a world where blockchains take over the world. Blockchain skeptics counter by explaining that most uses can be achieved with a smart database. The answer lies somewhere in between and has a time factor applied to it.
No one can deny the impact that the Internet, mobile phones, high resolution digital cameras, ubiquitous WiFi and mobile networks, cloud computing, open source software, and many other innovations have had on how the world works. These innovations have radically transformed business models and influenced almost every sector and form of interaction and communication under the sun.
Likewise programmable money, digital identity, tokenized assets, public/private keys, open finance, decentralized ledgers, and many other innovations will no doubt have a similarly transformational effect. To those in working in the blockchain space, decentralized solutions are an almost inevitable evolution of technology and commerce. To them, Web 3 is just the next phase in line with the Internet, Web 2, mobile telephony, and cloud computing.
It is a combination of technologies where the sum is greater than the parts, creating new opportunities and new economic models. Full realization of this vision, however, will take time. Many components and layers need to be built out and/or mature. One of the key components in this emerging technology stack is a security and execution layer that provides for high performance elastic sidechains.
The primary benefits of elastic sidechains include increased transaction throughput, faster transaction finalization, and reduced transaction costs. These capabilities all translate into improved user experiences and a more sustainable economic model. Additional benefits of elastic sidechains include increased storage capacity and greater transaction processing control. The use of sidechains can also aid the development process by accelerating app development and the introduction of new features.
The use cases highlighted in these series include DeFi, Predictive Markets, Online Gaming, Collectible Cards, and Media Streaming. There are certainly many more but the approaches taken here are applicable to almost any decentralized solution.
Use Case #1 – DeFi
Decentralized finance (DeFi) is one of the fastest growing categories in the decentralized space. The reason is relatively simple. When currency is a primitive in a digital system and easier to use, the number of people using it will grow at a rapid pace. The number of transactions in turn go exponential because there will be less friction. Less friction means many more transactions made per person.
In the 1800s people used to send maybe one letter a month. Then in the 1900s telephones became available, and for $1 a minute you could even call long distance to other countries, maybe a few times a month. With SMS, at $0.20 each, people might send a few messages a day. Peak SMS globally was 20B messages a day. Then WhatsApp, email, and many other messaging apps drove the cost per message down to zero, and we saw a true explosion in messaging. Hundreds of billions of messages are now sent every day, and it's not uncommon for someone to send 40 messages in an hour….
What will happen when the cost of a payment falls to SMS levels? What about free? What will happen when all payments are inherently global? Just like messaging, we will see several orders of magnitude more payments (it won't be uncommon for someone to do 40 transactions in an hour, instead of in a month), but we'll also see many types of new transactions that would seem strange to us today....
– Brian Armstrong, CEO and Founder, CoinDesk
One of the Dapps building on the SKALE Network demonstrates how digital currency can transform a product category and change an existing model. The developer is an events solutions provider that is using cryptocurrency as a way for attendees to not only pay for events but also to reward them for their participation in the form of payouts based on the success of the event.
This model is a new take on what has traditionally been a centralized and closed business model. Events are typically staged by promoters acting on their own or with a set of investors. These groups put up lots of money to host events and then the promoters and investors divvy up the profits.
This development team is using the SKALE Network to change the way people run, attend, and profit from events. They are essentially crowd-sourcing events – getting attendees to put up funds in advance in return for potential proceeds based on the success of the event. In the case of a profit from the sale of merchandise, food and drink, tickets, media rights, and other revenue sources, these early attendees/sponsors would be paid out based on an agreed upon rate schedule. With this model, attendees have an incentive not only to attend the event but also to drive people to it and increase its success.
Certainly this could be done without the use of a blockchain network – a modified version of GoFundMe or Patreon, for example. In this case though, cryptocurrency plays a key role both for getting currency into the system as well as providing a transparent mechanism for computing and recording payouts. The developers are using smart contracts to record the events that attendees/sponsors are participating in as well as pay out participation rewards at the end of the event.
In the beginning, they will accept both fiat currency and cryptocurrency. If fiat payment comes into their system, they will tokenize it and then use this token throughout their system. If and when they pay out at the end of an event, they can remit payment via ETH directly to the account holder’s public key or convert it back to fiat and pay via a traditional payment channel. The native use of digital currency along with the transparency of the system may seem like a simple exercise but from a transparency and trust viewpoint, it has powerful implications.
From a development standpoint their use or elastic sidechains not only speeds up processing but also dramatically reduces transaction fees. Whereas running this system on the Ethereum mainnet would be prohibitive, running it on the SKALE Network makes the economics work.
Requirements List: Decentralized Finance (DeFi)
Use Case #2 - Trustless Sports Betting/Prediction Markets
Blockchain-based sports betting is another promising Dapp category and a logical user of elastic sidechains. The major benefits in this situation are the reduced gas fees afforded by sidechains as well as faster transaction finalization. Placing the burden of transaction fees onto users reduces usage and adoption. On the other hand, forcing a Dapp to eat transaction fees is also unworkable in the long term.
Sports betting is where we often see Dapps convert from mainnet to one or more sidechains. In the beginning, paying mainnet transaction fees doesn’t cause all that much pain because of the limited volume of wagers. When the volume of transaction volume starts increasing, that’s when we see gas fees becoming a bigger concern.
– Christine Perry, VP, Global Solutions Engineering, SKALE Labs
A development team working on the SKALE Network that has created a sports betting Dapp that uses the Ethereum network to increase transparency into the betting process. It uses Dai as the currency within its operations and lets users place wagers on various sports including the NFL, NBA and NHL.
While the number of wagers on a per user basis may not be all that high, the number of transactions in aggregate can be large. Reducing transaction fees via the use of elastic sidechains therefore has a big impact on the overall economics. One of the keys to making this solution work is the ability to effectively handle the custody of currency and tokens between the public mainnet and the SKALE Network.
This interchange is accomplished via interchain messaging to essentially create a set of locks between chains. The step in the process is to freeze the tokens on the Ethereum mainnet by transferring it through the equivalent of a virtual deposit box. The second step is for the network to create a clone of the token on the SKALE Network side. This step lets contracts interact with these clones as if they were interacting with the real tokens on Ethereum.
On the backend, what the network is doing is creating a reference to the token that exists in the deposit box. Secured by BLS threshold signature cryptography, these clones can be moved within one or more SKALE sidechains. They can also be moved between any number of different users all without incurring significant, if any, transaction fees.
The term of the lockup depends on what the wager is. For something like a Superbowl or World Cup Final, it might be from the time the teams are determined until the game ends. For a fantasy sports league or for a poker tournament, it might extend from the point of joining the league or tournament until the outcome is determined.
The exit from a protocol can be relatively instantaneous once an outcome is known. When the token holder (original or new) wants to exit, the Dapp will burn the clone within the SKALE sidechain which causes the network to release the hook to the deposit box, resulting in a token that is free and clear on the mainnet. Interchain messaging currently works for ERC 20 and ERC 721, with being done to support other token standards including stablecoins.
Requirements List: Sports Betting
Use Case #3 - Online Games
Online gaming is another popular category for blockchain innovation as it shouldn’t surprise anyone that developers want to play around with new technologies. That said, not every game is a fit for blockchain. The 3D capabilities and performance requirements of first-person shooter games, for example, may not gain much from the use of blockchain. At the same time, it’s relatively easy to see how federation of assets across gaming universes, decentralized marketplaces, digital currency, decentralized betting capabilities, and more might have appeal within the rapidly growing gaming ecosystem, especially in areas like MMOs and collectibles where market and trading economies are key fixtures within the games.
For online games, it’s a pretty easy path to deciding to use a sidechain solution. Whether it's the SKALE Network or another chain, they realize early on in the process that they have to move to Layer 2 solution to make for a workable game. The speed up in game play and reduction in gas fees is too compelling to ignore.
– Christine Perry, VP, Global Solutions Engineering, SKALE Labs
With a number of games, it makes sense to develop them as decentralized apps because of the importance of recording and preserving moves within a game. The value in the preservation of moves should not be discounted especially when games have extended and/or derivative values to them. Take for example, a battle game where others can view the battles and place bets on them.
One of the game developers building on the SKALE Network is building a strategy war game where players can build empires and battle with other players. All of the player actions are stored on one or more SKALE sidechains for transparency as well as to serve as validation that players own their land, armies, and other game assets..
This developer wants the game actions to be fast for players as they build out their worlds and execute their conquering strategies. Their main goal is to make the blockchain-based game look, feel, and perform the same as any other massively multiplayer online real-time strategy game such as World of Warcraft, Final Fantasy, or Starcraft.
In this case, it’s paramount to have a universal and transparent record of the events of the game as well as a record of the asset creation, transfer, and ownership. Blockchain in combination with reputable smart contracts is a natural fit here. The money goes into a smart contract and depending on the outcome, it gets paid out accordingly. Very few questions asked and the distribution is all there in the code.
This developer is using the SKALE Network to record the moves and the game states in order to maintain fairness of the game. The recording of events is not as simple as it seems. The game play can be quite complex which results in smart contracts typically having many lines of code.
This complexity creates a big problem when running on a mainnet. Slow transaction times along with large gas costs factor in significantly. If a player has to wait 15 seconds to a minute to just move their assets and execute their strategies, they will quickly lose interest. As a result, game developers will typically use a lot of fast and loose techniques which often involve not really having things finalize on a chain.
When game developers move to a sidechain solution, however, they no longer have to think all that much about developing on a blockchain. They can just develop their game. They are really using a blockchain as opposed to pretending to use one. Making use of one or more sidechains speeds up development, speeds up game play, and decreases operating costs. All wins in the minds of developers and gamers.
Requirements List: Games
This post is the first of a two-part series. The second and final portion of the article will address the rest of the use cases including collectibles and content streaming among others.