What will people use the token for?

Given that the technology itself is set to transfer much of the surplus to the users, the question that then needs to be asked is how would the users actually use the token. The different ways society uses money now will provide a glimpse into how individuals will approach the tokens of the future. As was hinted above, people generally require money to exhibit different characteristics based upon the situation.

We store money in the bank for security even though we end up paying a lot through lost interest (look at the difference in interest paid when we borrow from the bank compared to when we lend them our money). We buy property with money in the hopes of having a nest egg even though we end up paying extra through mortgage payments and lost liquidity. We exchange money for gold when we lose faith in the government even though gold has very limited uses.

We carry cash in our wallet so that we can trade whenever we want even though we risk losing the cash. We use different cards in different situations to accumulate benefits or save costs even though it is inconvenient to do so. We transfer money into various company/mobile wallets so that we can more easily access their services even though we lose out on any interest payments. We buy redeemable coupons or kickstarter products so that we can save through bulk buying or early access even though it means our money gets locked up until we get the service/product.

One of the main outcomes of the above is that the use case will determine how long we want to hold value in that particular form. We place money in the bank because we don’t intend to use it anytime soon. We buy financial assets if we have enough capital so that the value stored can weather future inflation. We trade for gold as a hedge against future calamities. On the other hand, we would only carry enough cash as necessary for the next few days or transfer just as much as needed to other accounts/coupons so that we don’t lock up our money and lose out on interest payments. As such, our store of value needs will be closely intertwined with the holding period.

Consequently, people will tend to hoard store of value forms while minimizing the time as well as amount for medium of exchange or utility forms. This effectively means that the less the medium acts as a store of value, the more likely we are to trade it only when we require access to the platform. As such, the costs of using the platform becomes the determining demand factor for such tokens. If the token price and transaction costs are not decoupled, the network will not be able to scale. Even if completely decoupled, the token’s value will only grow linearly with the demand for the underlying utility and as covered in the section above, market dynamics are constantly pushing the costs of such utility downwards.

It can be argued that there might be a single cryptocurrency that successfully competes as both a store of value and medium of exchange due to the specific advantages the technology has over monetary store of value as well as specific payment forms. Nonetheless, given the competitive nature of crypto’s protocols, it is more likely that society will choose to store value in a particular asset while continuing to take advantage of increasingly specialized protocols suited to particular use cases. This is even more so considering the progress that we have seen around cross-chain swaps or inter-chain operability. With reduced friction converting between tokens, users would have less reason to hoard non store of value tokens.