What will be the next chapter for Blockchain?
Every story has to start somewhere, and blockchain’s started with the emergence of Bitcoin. This ground-breaking technology showed the world that trustless value transactions can be enabled by digital assets through an emergent consensus of a group of self-interested actors.
The second chapter relayed the story of Ethereum, which integrated a scripting language with the distributed ledger of Bitcoin in a bid to create a decentralised system that could run numerous apps, host new digital assets and enable smart contracts. In this respect, Ethereum provided us a glimpse of the immense possibilities that the blockchain could hold beyond just value transfer.
Ten years and $200 billion dollars-worth of market capitalisation later, it’s worth asking what’s next for blockchain? We’ll consider the question below, while appraising the innovations that are likely to continue blockchain’s incredible narrative.
Then and Now – Blockchain in the Modern Age
Ever since Ethereum ignited the ‘altcoin craze’ and the most significant wave of mainstream interest in mid-2017, it is increasingly apparent that use-cases for crypto assets can now be divided into two broad categories.
These are the currency use case convincingly demonstrated by Bitcoin, and the newly growing non-currency use case that promises to unlock enormous value through application of the digital ledger.
The mega-hype of the smart-contract platforms was brought back down to earth by countless bugs on all major platforms. The poor transaction scalability of Ethereum was revealed by its severe congestion by the crypto collectibles game Crypto Kitties. It subsequently became clear that one of Ethereum’s true value-adds was the creation of digital assets and which enabled a fundraising platform for initial coin offerings (ICOs).
The more innovative applications for blockchain have seemingly been shelved for the time being. Many optimistic dreams of decentralised prediction markets, blockchain-based distributed computing, and other fanciful ideas have hit the hard wall of coding reality, causing us to rethink precisely how blockchain’s narrative will evolve in the future.
What’s Next for Blockchain?
So is there any merit to the non-currency use cases of the blockchain? What is going to make the overall crypto-pie bigger and kick-start the next chapter of blockchain? The race is on to write the 3rd chapter of the blockchain story and prove that distributed-ledger technologies can indeed unlock the massive societal value that they promised.
Let’s first take a look at the macro trends in the space so far in 2018.
It is clear that VC firms and retail investors are betting big on the blockchain moving forward – there was more money invested in initial coin offerings (ICOs) in Q1 of 2018 than the entire 2017. By April of 2018, Coindesk estimated a staggering $6.3 billion was invested into ICOs around the world. The total number of funds dedicated to cryptocurrencies has also increased to over 225 from just 58 by the end of 2017.
These figures demonstrate a stark disconnect between the pessimism of the current bear market and the risks eagerly being taken by the ongoing investment in ICOs.
It is essential for us to not throw the baby out with the bathwater.
The general quality of ICOs is actually improving over time and there will be many real gems amongst the next waves of ICOs. Opportunity pokes its head out in bearish times, and substantial returns can be made by diligent investors seeking out real value. There is a fundamentally strong optimism underlying this ICO craze that is being under-reported in mainstream media.
Regulation and professionalism are coming to crypto in a range of domains that will influence its global uptake. Conversations surrounding taxation, securities laws, ICOs, fundraising models, anti-money laundering (AML) and know-your-customer (KYC) procedures for crypto are taking place in USA, Canada, Australia, Japan, South Korea, Switzerland, China and many other countries around the world.
Smaller nations like Malta, Bermuda, Switzerland, Gibraltar and several others have moved to legislate favorable regulatory and tax frameworks in the race to claim the title of the most crypto-friendly nation. It is too early to tell which jurisdictions will win over entrepreneurs and businesses to win the title
As the space heats up again, we will no doubt see even more fierce competition between nation states to be the geographical hub of the massive amount of invested capital which will flow into blockchain projects and companies.
The lack of accessible institutional custody solutions has long been quoted as the primary obstacle preventing traditional finance from dipping their toes in crypto. This is owing to the considerable complexity associated with generating, storing, securing and auditing crypto assets.
Unlike traditional asset classes, additional risks of managing crypto include hacking, insider theft, loss of access and other issues unique to crypto. The immutability of crypto transactions ensures stolen and lost coins are irretrievable. Overcoming these hurdles are difficult and many services that reduce friction in storage and management are in the works and launching in 2018.
Since the early crypto exchange, Mt Gox, was compromised in 2014, crypto exchanges have continually been a target for enterprising hackers. In early exchanges and even today, exchanges have played three roles, the exchange, the broker / dealer and the custodian. This puts a great burden on exchanges to perform and execute each of the roles perfectly without mistake. Reputable services allowing separation of these roles is coming soon and will be one of the keys to improving the safekeeping of crypto funds.
Maturation of the space through increased professionalism will be required to facilitate the avalanche of capital that will invest in the plethora of tokens and other digital assets that are being created daily.
A few candidates
So which use case will emerge and write the third chapter of the blockchain and crypto story? There are several exciting candidates.
Tokenization of existing assets is another incredibly exciting trend in crypto. This involves creating a digital asset representing a company’s stock, a tonne of steel, a residential apartment block or an Andy Warhol painting. Tokenization would allow the emergence of a hyper-liquid, 24/7 marketplace for traditional assets like stocks, bonds and commodities in the manner that current crypto assets are traded.
Tokenization can also allow fractional ownership of traditionally highly illiquid stores-of-value, in the case of fine art, creating entirely new asset class.
Global prices of gold and silver have long been suspected of artificially suppression by paper derivatives market through the issuance of naked shorts. The rise of independent, transparent and auditable tokenized gold storage companies could be the building blocks of a new blockchain-based financial system based on private, gold-backed digital currencies.
Tokenized property could permit investors to allocated 0.5% of their total portfolio to a diversified collection Lower Eastside Manhattan office buildings or 10% to residential property in London.
Blockchain based supply chain solutions integrating internet-of-things devices could bring transparency and useful data to improve efficiency across a range of industries. Using RFID chips and other mobile technologies, several projects are aiming to revolutionise supply chains of luxury goods, clothing, pharmaceuticals and food by enabling point-to-point tracking through each stage of manufacture.
Digital identity solutions could transform our online interactions by creating a unifying ID that assign digital watermark on every online transaction of any asset.
State-issued digital currencies are also appearing on the horizon, for example China is experimenting with state issued fiat yuan based on the blockchain. Imagine a world where every town, city, province, state and country each issue multiple crypto tokens on the blockchain.
Whichever candidate rises to ascendancy first, we can be confident that new use cases will continue to push the boundaries of innovation across multiple industries.
With the astonishing diversity in projects and the brightest minds flocking to crypto and blockchain, we can be sure that the next chapter in this story will be a very interesting one.
- #CryptoInsights: The Bubble Doesn’t Matter – The Technology Does
- #CryptoInsights: What will be the next chapter for blockchain?
- #CryptoInsights: Is the Crypto Market Hindered by a Lack of Liquidity?
- #CryptoInsights: Diversifying Your Portfolio – Part 2
- #CryptoInsights: Diversifying Your Portfolio – Part 1
In this edition of the #CryptoEssentials, we take a look at what are Privacy coins and do you need them? … Read More