Blockchain Trends That Are Here to Stay in 2018
Two years ago, the full market cap of cryptocurrencies was about 3.7 billion dollars. Let’s fast-forward two years and the market cap for cryptocurrencies passed 600 billion dollars (as of December 20th, 2017). It’s a pretty insane jump in just two years. The market cap is actually not just concentrated in Bitcoin anymore but in a wide variety of different cryptocurrencies like Ethereum or Litecoin.
The second shift that’s really important is that the conversation is actually shifted past just the cryptocurrencies and now is talking about the underpinning technology of the blockchain itself.
You can see the CBN graph from sites trends tool and notice that around when the Bitcoin spike happened, there is almost equal amounts of talk about Blockchain as well as Bitcoin itself.
Source: CB Insights
Corporate is also taking a notice about this. Abigail Johnson, CEO of Fidelity Investments, said that ‘Blockchain technology isn’t just a more efficient way to settle securities – it will fundamentally change market structures – and maybe even the architecture of the internet itself.” It is now extending past financial services. We’re seeing it in any other centralized areas like marketplaces or the internet itself.
What is Blockchain and why should I care?
What is it exactly about blockchain that makes it so potentially disruptive? Firstly, it’s immutable and its blocks provide immutable ledger of record. Therefore, there are implications for anti-fraud in cybersecurity. It’s distributed so it’s powered by a wide network of different nodes that are monitoring the transactions and the ledger is held by all the nodes in the network. Lastly, there’s a consensus so decisions are made without a centralized authority.
Once you combine those aspects together you have an Internet of Value where these digital assets are unique, immutable, secure and scarce. Hence, you can see things like digital currency which has an implicit value and can be used to transact on the blockchain. You have property value that is a source of truth for physical and digital assets so you can understand how much of what and what’s happening to a given property at any given time. Lastly, it creates value of identity that if you’re unable to have unique identifiers that are not attached to any centralized authority. It’s like having a social security number but it’s not attached to any central government.
Blockchain Investments
Who are the people that are actually making the blockchain space a reality today? Databases like Crunchbase or CBI show more than 550 million dollars invested in Blockchain startups across 130 deals in 2016 alone. However, it is just equity investments. Now we’re seeing a trend of a lot of blockchain companies that raise money through ICOs which its acronym means Initial Coin Offerings. Blockchain startups issue out tokens that people buy with the premise that those tokens will become more valuable over time as the network becomes more valuable. Additionally, it is bypassing traditional equity investment that you might see for some of these early-stage companies. ICOs are sort of competing now with the amount of VC investment in the space.
Source: CB Insights
Blockchain Trends and Segments
Startups in the blockchain space are attacking a wide variety of areas. Initially, startups were working on wallets and exchanges as the primary use cases. Although, now lot more specific applications are in places like distributed computing, distributed storage or even more enterprise specific applications like healthcare or capital markets. We can notice FinTech blockchain startups in segments like:
- Wallets & money services – Bitpay
- Exchanges & cryptocurrency trading – Coinbase
- P2P market places & P2P lending – OpenBazaar
- Merchant services – POSaBIT
- Enterprise services – BigChain DB
- Cryptocurrency mining – HashRabbit
- Regulatory – Coinfirm
- Capital markets – LedgerX
- Financial services – Hirjo
Furthermore, it’s not just startups but also corporates that are getting involved. They’re developing their own blockchain consortiums, in-house standards or launching their own projects. And there are two different approaches to blockchain – using private blockchains to eliminate a lot of the inefficiencies in the back office and public blockchains which are trying to reform how the transactions are actually done in their entirety.
Corporates like IBM are rolling out its blockchain services. IBM Bluemix offers clients to join blockchain network service to model and create your own blockchain use cases with Hyperledger Composer toolset. Additionally, you can utilize ready-to-use peer network to invocate and validate transactions, a Certificate Authority to issue secured certifications or initiate a new blockchain network.
Another worth to mention example is ISITC Europe that created a working group for blockchain. A set of standards and benchmarks have been established to support adoption of Blockchain Distributed Ledger Technology (DLT) for financial services. You can visit ISITC Europe website to learn more about DLT Working Group Standards.
Total value of Bitcoin
Even though the market cap increased quite a bit, it’s important to remember that this is still relatively small. Compared to other sources of wealth or places where financial transactions happen, all the cryptocurrencies are much smaller.
Source: Marketwatch
Due to huge interest in Bitcoin, alterative cryptocurrencies (or altcoins) are catching up the wave as well. Litecoin (LTC) has skyrocketed and gained over 8000% YtD. Funny fact, companies that are not yet involved in blockchain are gaining as well. Long Island Iced Tea Corp. spiked almost 300% thanks to its rebranding to Long Blockchain Corp. as the company states that is going to be heavily involved in the space. There is countless number of cases like this.
Although, the underpinning technology of the blockchain is here to stay, value of Bitcoin and other cryptocurrencies is believed to be a bubble. Some may argue but its valuation is perfectly described and compered to other World’s biggest bubbles.
Source: Elliot Wave International, Yale SOM, St. Louis FRED, GlobalFin and Convoy analysis
Looking ahead – new use cases for decentralization
As the technology and the infrastructure layer for blockchain is built out, we’re starting to see more use cases for decentralization in other industries. Everything from music, asset management, identity, monitoring land title’s, cloud storage, VPN, etc. We can expect to see more and more applications being built out.
As blockchain matures, we see use cases out of the financial industry. Sectors where blockchain startups are involved:
- Music – OPUS
- Predictions – Augur
- Land title – BitFury
- Cloud storage / Storage – STORJ.IO
- Voting – Votem
- Identity / Content Management – Uport
- Internet of Things – Filament
- Cybersecurity / Security – Guardtime
- Computing – Golem
- VPN – Mysterium Network
- Social & browsers – Brave
For instance, polish based Golem is open sourced global supercomputer that allows to utilize its computing power to do stock market predictions, rendering CGI in minutes instead of days, or simulating highly power consuming protein folding and DNA analysis.
Another great example outside of finance is Filament deploys blockchain-based software to enable highly secured distributed network for Internet of Things.
One of the things that has been pretty hot recently is the idea of smart contracts. It means getting earn outs when transactions are recorded and verified on the blockchain. Given its cryptographic security, we can execute blockchain-based contracts for cases in insurance where you pay-as-you-go, in copyright for royalty payments or in provenance for tracking items through supply chain.
As a lot of industries start moving to smaller and smaller transaction sizes, something like blockchain becomes a really attractive option as it’s fast, secure and you can track it very quickly.
Governments
What do centralized governments think about these decentralized processes? Well, it’s a mixed bag at the moment. Some countries are trying to stop it outright, some countries are trying to issue their own digital currencies and other ones are trying to figure out how they can be regulated sensibly. The SEC has taken notice of these unregulated markets. Just like with any other technology, they’re always going to be some bad actors. Like with Initial Coin Offerings, some people would be raising money through the ICOs and just running off with the money. Hence, the SEC is trying to figure out ways that they can sensibly regulate and monitor this space.
Even though there are bad actors in the spaces, there are also a lot of potential benefits. Chris Dixon from Andreessen Horowitz says that tokens and ICOs provide a new way that we can incentivize people to start contributing and using blockchain projects from the get-go. It actually incentivizes people to contribute to open protocols and open networks in a way we never could have imagined before.
Regulatory Hammer
The surefire way to stop progress in the space is to drop a regulatory hammer. Or, we can let the cryptocurrency community scale without any strict plan to architect these systems. Hence, we can progressively understand, monitor and regulate these spaces. We can do so by understanding how private and public blockchains should be working together with one another, how can we issue coins to the general public that’s safe for investors and how can blockchain be rolled out in a way that’s societally beneficial.
Afterword
The key things that people should think about when they approach this space is that it is still in the early days. Even just understanding what parts of your business are susceptible to decentralization or could be helped out by decentralization and blockchain systems is a good place to start. It’s imperative to understand the implications that trustless internet of value might hold for your business.
Then, what flavor of blockchain makes the most sense for you? Should you work with one of the consortium and these private blockchains? Should you operate on the public blockchain? Or does the blockchain solution even makes sense for you and your organization from the beginning?
You should start with aforementioned questions before making any move and then decide based on your findings.
What do you think is the next big thing in blockchain? Comment down below and share your opinion on the matter!
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