The Future of Blockchain
Even when the digital currency hype was at its highest, in late 2017 and early 2018, there were loud voices predicting the inevitable burst of the cryptocurrency bubble.
I think that a healthy dose of scepticism is good for any market, let alone one that is still in its infancy. What I cannot agree with, however, is the dismissive attitude that many critics have towards crypto. The way that they confidently declare that crypto is doomed, that digital coins have no intrinsic value and that they will never reach mainstream adoption. Well, crypto coins may ultimately fail or they may succeed, but I doubt we can make such confident predictions at this point in time.
I happen to be a believer, because I believe in the success of the technology behind crypto – the blockchain or, to use the broader term, distributed ledger technology (DLT). The blockchain is, in my view, one of the most important technologies of the digital future.
Interest in blockchain
Interestingly, even many cryptocurrency critics recognise blockchain’s potential. J.P. Morgan is currently developing a stablecoin, which Dimon believes can become a “consumer” product.
The trend continues on a national level too. In September, 2017, China banned crypto mining, exchange cryptocurrency trading and initial coin offerings (ICO). However, the country’s authorities have indicated on a number of occasions since then that their goal was for the country to become a global leader in blockchain technology.
Earlier this month, China’s cyberspace administration published a list of companies registered as blockchain service providers. Among the 197 companies included in the list are Internet giants such as Tencent, Alibaba and Baidu, as well as financial institutions and smaller technology firms.
Also this month, it was reported that China is No. 1 in the world in terms of blockchain related projects. Reports in the media suggested that there were 263 such projects in the country, or 25% of all blockchain projects currently underway in the world.
Other regions are also taking significant interest in blockchain technology. The European Union, for example, considers the technology as an important part of it vision for a digital single market and is looking to establish an EU-wide regulatory framework for the technology.
“Blockchain may bring great improvements for the European industry – from start-ups to large corporates, administrations and citizens. It can enable the provision of more efficient services and the emergence of new ones,” the European Commission writes, as part of a policy aimed at developing a “common approach” on blockchain for the EU.
Is it too late to invest?
There is plenty of evidence that blockchain is regarded as an important emerging technology, both on a government and corporate level. This makes the sector a very attractive proposition for investors. But is it too late to invest?
I don’t think so. The technology is still in its early stages of development, a fact that it is often ignored by critics doubting its potential. Consider that Satoshi Nakamoto’s “Bitcoin: A Peer-to-Peer Electronic Cash System” white paper, which kick-started the whole blockchain movement, was published in 2008. Do you remember what the online services landscape looked like 11 years after Tim Berners-Lee invented the World Wide Web? I seem to recall a certain bubble bursting around that time.
The blockchain sector still has plenty of room to grow, which means there will be plenty of lucrative investment opportunities, as the technology matures.
So what is the best way to get involved in the sector, as an investor? Well, given that cryptocurrencies are the most well-known application of blockchain, they seem to be the obvious choice. After all, an investment in digital currencies is, in a way, an investment in the success of their underlying technology. A vote of confidence in blockchain’s ability to realise its immense potential.
This could be a risky route, however, given crypto assets’ infamous price volatility, their unclear regulatory status in many regions and the outright hostile stance of some countries, like the aforementioned China, towards them. Not to mention that digital currency trading is still predominantly conducted on unregulated exchanges or over the counter. Cyber security is also an issue, with multiple exchanges having been targeted by hackers over the past couple of years.
Still, with regulators around the world having made steps towards implementing stricter rules for crypto trading, a growing number of reputable platforms have started to emerge. Finding such a platform should be a priority for any novice crypto trader.
There is also another way to look at cryptocurrencies – not as a general vote of confidence in the technology’s future, but as a bet on the success of a particular project. Do you believe that Ethereum will succeed in reshaping the modern Internet landscape, or do you think that TRON will be the superior platform for dApps? What about EOS’ aspirations to become the leading smart contract platform? Can IOTA’s DAG-based (direct acyclic graph) protocol really become the future of DLT? Will it ever support a “machine economy”?
The answers to these and many similar questions will determine which coins are worthy of investment and which aren’t. Some investors have taken this approach even further.
The majority, if not all, of blockchain start-ups are not public companies, such as the fintech startup DARB, which means that retail investors have limited opportunities to invest in them. Many of those companies however, have created proprietary crypto tokens, which are tradable on a multitude of crypto exchanges. Many investors are using such tokens as proxies to get exposure to certain companies.
A prime example of this is Binance, one of the world’s largest digital currency exchanges. Under the leadership of its influential co-founder Changpeng Zhao, Binance has enjoyed success since its launch in 2017. The company has developed a token called Binance Coin (BNB) and designed to serve as a native token across the firm’s ecosystem. BNB’s price has seen big gains since the start of the year, boosted by positive developments around that ecosystem and Binance’s business.
Initial coin offerings
The trend of blockchain projects creating their own tokens intensified amid the ICO market boom in 2017. Initial coin offerings allow blockchain start-ups to create new tokens and then sell those tokens to raise funding for their projects. The majority of crypto assets today have been created through ICOs.
ICOs provide an opportunity for people to invest in blockchain projects during the early stages of their development. However, in many ways, this is a riskier alternative to regular crypto trading. It means investing in an unestablished project that may only have a white paper behind it, or is an outright scam.
Following a period of rapid growth, the ICO market has cooled off significantly in recent months, while regulators have increased their oversight on the sector. Perhaps this could help reduce the number of bad actors in the sector.
For those who do not want to engage with the crypto market directly, there are some, albeit limited for now, options to gain exposure to the sector. One is the nascent market for cryptocurrency derivatives. Currently there are two major US exchange operators – CME Group and Cboe Global Markets – that offer Bitcoin futures, with a new platform, backed by NYSE owner Intercontinental Exchange, expected to launch later this year. Unlike CME’s and Cboe’s offerings, which are cash-settled, Bakkt, as the new exchange is called, plans to offer physically-settled BTC futures, meaning that the buyer receives real Bitcoins at the end of a contract.
Then, there is the chase for a Bitcoin-based exchange-traded fund (ETF), which many believe could create a catalyst for a new digital currency rally. So far, the US Securities and Exchanges Commission (SEC) have rejected multiple Bitcoin ETF proposals.
Meanwhile, the Swiss stock exchange SIX has already listed several cryptocurrency exchange-traded products, including an ETP tracking the performance of five major digital coins – BTC, ETH, XRP, Litecoin (LTC) and Bitcoin Cash (BCH).
Even if it is successful, J. P. Morgan’s blockchain project will probably never have a transformative effect on the US bank’s core business. Such a scenario is less likely when it comes to technology companies. In today’s ultra-competitive tech sector, companies rarely have the luxury to ignore emerging trends. So the future tech sector may very well be dominated by the companies that secure an early advantage on today’s emerging trends, including blockchain.
As mentioned above, Chinese Internet giants are particularly active in the space, but a similar trend can be observed across the wider Asian region. For example, online messaging services such as Japan’s Line and South Korea’s Kakao, have been working on their own blockchain initiatives, while phone makers Samsung and HTC have added support for crypto and blockchain applications in certain handsets.
Meanwhile, big Western tech companies are also starting to pay attention. Jack Dorsey’s mobile payment company Square already supports Bitcoin trading in all 50 US states, while social media giant Facebook is reportedly developing a stablecoin for its messaging service WhatsApp. Meanwhile, more traditional tech giants like IBM and Microsoft are looking to develop blockchain-based solutions for enterprises.
Like cryptocurrencies, blockchain also has had its fair share of criticism from sceptics who are quick to point to the technology’s current shortcomings. It is undeniable that the tech still has a long way to go to reach its potential. It may look at times like blockchain offers a solution to a problem solved long ago. But as I see it, blockchain’s proposition is simple, yet extremely attractive. It promises a revolutionary new way of storing and distributing data for an increasingly data-driven world.
Just this week, the EU Blockchain Observatory and Forum released a report, centred around the tokenisation of physical assets with the help of blockchain, as well as the impact of other emerging technologies, namely the Internet-of-Things (IoT) and artificial intelligence. The report explores in detail how these three emerging technologies can work in concert to shape a “digital world”.
“The world has changed fundamentally in the last 20 years. With the advent of computers in everyday life many job profiles have changed and completely new jobs have been created. In recent years, this has been summarized under the ambiguous term of Digital Transformation. A parallel digital world, which is becoming more and more similar to our physical world, has been created.
Well, we might get true digital gold, after all.