This is bonkers. Do you really think gold has less value because it has real-world uses? Do you believe it would go down in price if some vastly worthwhile new use was found for it making lots of people want to use it beyond the people who already wanted it for it's other uses and value?
It's not that it's value would go down if a real world use was found, it's the fact that it ceases to be of monetary value if it goes out of circulation due to its utility.
Most of the world's gold supply isn't stuck in people's teeth or in your home Hi-Fi contacts. It's sitting in vaults doing nothing but functioning as a monetary unit.
A monetary medium that also has a utility value DOES detract from its monetary value because it makes it a targetable commodity in its own right and therefore inefficient in it's monetary role. Cryptos are almost perfect in this sense because they have almost zero utility value. They are pure monetary tokens and are therefore one step closer to monetary perfection than gold was.
If you really need it spelled out, think of it this way - a funfair uses plastic tokens as "money" to pay for rides. Those plastic tokens are almost worthless in the hardware shop where they only have utility value. On the other hand, inside the "funfair economy" their value accrues to maybe 10,000% of their utility value. The difference is their monetary value when used as a currency - i.e. the price you pay for their "monetary role".
Now lets say you increase the utility value of those plastic tokens by having them perform a function - say, monitoring your heartbeat. Now they will perform less well in a monetary role because a load of them go out of circulation and eventually there's not enough left to effectively use as a currency. A few are still traded and have high value (higher than before even possibly) but they're not used as a currency any more due to being a poor monetary medium.
Finally, one day along comes another company selling cheaper heartrate monitors and blows away the valuation because we no longer have "universal adoption", just utility in a very specific sector.
I don't see this as a real problem for many different reasons.
1: Gold supply has actual physical limits, Crypto does NOT (that limit is as virtual as the currency itself).
It is impossible to get more Gold than what the Universe - or more practically Earth - has to offer and it's not practical to trade smaller amounts than what you can see with your naked eyes and/or measure fairly accurately with fairly simple equipment. It wouldn't be feasible to trade with 0.00001 grams of gold. You can't even see it, you can't measure it with a simple scale, etc...
Crypto is practically unlimited. We already have a lot of decimal places and I think it's possible to add more. You have virtually infinite number of coin portions. You can buy and handle your 0.00001 gram of "gold" the exact same way as you would buy and handle your 1 kilogram gold bullion (and you don't need machines to move your 1000 kg worth of bullions, your wallet always has a similarly small size...).
2: I don't think this service will ever have a significant impact. A few people might use it from time to time but won't be as popular as some people might anticipate.
3: I guess this is just one of many possible services which could all have different effects on the usability/price/etc of the coin. It won't look like as the main selling point, just an extra.
