Future of Finance January 04, 2018
A year ago, Alex Tapscott (my co-author of Blockchain Revolution ) and I made some predictions for 2017. At the end of the year we compared those predictions to what had actually occurred. Overall they stood up well.
Notably we said: “Bitcoin will hit $2,000 (that’s right: one bitcoin will be worth $2,000). Ethereum will not collapse, post-DAO, but will become a dominant platform for new apps and new business models.”
We were ridiculed by some for forecasting that bitcoin would nearly triple in value.
“You guys are nuts,” was a popular tweet. Of course, only in the wild world of cryptocurrencies can you set a one-year price target implying a near 200% return, and miss the mark by a factor of nearly 10! As for ethereum, the fork happened and ethereum kept on chugging away, became the de-facto platform for the ICO ( initial coin offering ) boom that launched a thousand Dapps (distributed applications), from distributed file storage and prediction markets to collectible kittens.
2017 was a year when cryptocurrency markets dominated the public imagination. While some of us grew excited by the explosion of new applications, platforms and technologies being launched, many others were simply happy to ride the wave of higher prices. Indeed, the value of these assets grew from $15 billion to $500 billion, one of the great bull markets of our time.
Is this justified? Valuations today reflect tomorrow’s value—and tomorrow’s value could be significant and revolutionary. So, taking the market as a whole as the best representation for the future value of blockchain technology, today’s value could be argued to be conservative. However, it’s hard to look at the dizzying price escalation of virtually every cryptoasset, and the euphoria driving the market ever higher, and not feel some vertigo-inducing skepticism.
Consider that at the outset of 2016, only one cryptoasset (bitcoin) had a value of more than $1 billion. Today, the number stands at 36.
The number of newly minted crypto-unicorns ought to make even the biggest bull blush. And it goes without saying that in all likelihood, many, if not most, of these new currencies, protocols and applications will fail. But emerging from this Cambrian explosion of innovation will be the foundational technologies for the new internet of value.
Still, what truly has been achieved?
As Vitalik Buterin, creator of ethereum, eloquently asked:
“How many unbanked people have we banked? How much censorship-resistant commerce for the common people have we enabled? How many Dapps [distributed applications] have we created that have substantial usage? How much value is stored in smart contracts that actually do anything interesting? How many Venezuelans have actually been protected by us from hyperinflation? How much actual usage of micropayment channels is there actually in reality?”
Buterin pointed out that the level of activity is positive, but not significant enough to warrant the $0.
5 trillion figure (Now more than $650 billion).
“The answer to all of these questions is definitely not zero, and in some cases, it’s quite significant. But not enough to say it’s $0.5T levels of significant. Not enough.
”
On the one hand, ICOs have changed the world of venture capital. On the other hand, few if any recently financed distributed applications are running commercially and at scale (i.e. they don’t work…yet). On the one hand, bitcoin has seen massive adoption and a huge run-up in prices, leading to institutional buy-in, mass-market appeal and a futures market .
On the other hand, vexing questions around scaling and governance remain fully or partially unanswered.
Regulatory uncertainty surrounds bitcoin as it moves from fringe curiosity to a legitimate threat to central-bank-issued fiat currencies (as a store of value, if not yet as a medium of exchange).
Ethereum has emerged as the first general-purpose platform for building distributed applications. Yet, a glut in ICO activity or even a spike in the trading of crypto-kitties can slow down or stall the network, as it did in December.
So, despite the awesome potential, blockchain is a long way off from changing the world.
2018 will be the year where the tremendous innovation and promise of blockchain must become real. Otherwise, the market is in for a rude awakening. And maybe that’s not the worst thing in the world. As Chris Burniske, a partner at crypto-fund Placeholder Ventures, said “A strong #crypto bear market in 2018 would sharpen all of us.” In the spirit of staying sharp (and sharpening our pencils) Here are some predictions: 1.
The value of cryptocurrencies continues to grow
We still remain positive on the market as a whole. Forget about a massive and permanent crash. Cryptoassets will be volatile, and there will be melt-downs, but expect an overall increase in value, as long as innovation in functionality continues.
We are still in the early stage.
Oddly, bitcoin’s meteoric price rise makes it easier and not harder for new investors to justify stepping in as it is now a large asset class too big to ignore. 2018 will see widespread institutional buying of bitcoin and other cryptocurrencies but buyers beware—for bitcoin to sustain its rally, scaling solutions must work in the real world, and critical governance challenges must be resolved.
We will see a flood of institutional, retail and family office money entering the market. Many people and organizations have not invested because of custodial reasons—they’re either unable or unwilling to hold private keys. They should probably learn to do that, but nonetheless this problem is being addressed.
Coinbase has vaults where they store crypto assets. There are new onramps being created, such as funds and futures trading offered by traditional financial services companies.
But over the next years, most of the cryptocurrencies on the top 10 will be superseded by platforms that have more powerful functionality just as many of the hot tech stocks of the dotcom era were superseded by new and powerful companies like, Amazon, Google, and Facebook. 2. The cryptocurrency craze broadens to embrace blockchain business transformations
At the Blockchain Research Institute, we’re investigating the ways blockchain promises to transform 10 major industries: financial services, retail and consumer goods, government and democracy, energy, higher education, transportation, manufacturing, media and telecommunications, technology, healthcare, and resources. In all these industries we already see striking innovations piloted by massive organizations. Supply chains are a $60 trillion industry containing juggernauts like Foxconn and Walmart—both who are digging into blockchain for transformative implementations.
As Tom Serres and Bettina Warburg point out in one of our projects , supply chains are poised to become cognitive machines with a “network state,” enriched with knowledge, and imbued with “machine trust.”
Meanwhile, many of the best new startups are architected on decentralized models. This is the equivalent of the dotcom rush of mid- to late-1990s. Many dotcoms failed, as is typical of a wave .