1 min read

Blockchain without crypto?

Cryptocurrencies are the primary application of blockchain technology. Bitcoin was the first, and every blockchain created since has followed suit. No one builds a blockchain without at least one cryptocurrency baked in. Even "utility" chains like Ethereum require you to own the cryptocurrency before you can take advantage of the utility.

Even with the advent of smart contracts, fungible tokens (aka cryptocurrencies) were and still are one of the most common types of contracts. Almost every dApp creates a token--even when that's not the point of their application. Why is this?

There are three main reasons why blockchain needs crypto:

First, cryptocurrency makes it easy to align economic incentives. This is the same effect as owning stock in a company. You want to see your stake grow, so you do things that either earn you more stake or increase the value of your stake. For a decentralized system, it's easy to encourage good behavior and discourage bad behavior with economic incentives. It's difficult to mandate any particular behavior because everyone is here willingly. Your dApp has no power to coerce people into doing what you want.

Second, resources are scarce. You could come up with a system for allotting a portion of the available resources to each person, but that's very difficult to do without someone taking advantage of the system. Network resources are not an unalienable right, they are a commodity to be bought and sold. It's a very typical supply/demand curve. Using cryptocurrency is a very simple and effective way to manage the market rate for access to the network.

Third, in order for a blockchain to be fully decentralized, it needs to be owned and controlled by many distinct people. This ownership needs to come with voting rights, much like stock in a company. Deploying a cryptocurrency is an easy way to get the benefits of publicly traded governance shares without the regulatory hoops and bureaucratic hurdles.

You could have blockchain without crypto, but the systems you would need to build to adequately replace these functions would be much more complex and much less desirable for many applications.


P.S. KAP isn't its own blockchain, but we will still have a token for these same reasons.