The cryptocurrency industry has had a miserable 2018. After reaching all-time highs of over $827 billion in early January, the market tumbled … hard. This week marked it’s lowest point for 2018 so far, falling to $206 billion or nearly 75% down from it’s January high. Needless to say that from a “hodlers” (cryptocurrency holders) perspective, things are grim regarding the price of their investments. So why then are cryptocurrency enthusiasts so nonchalant about the dramatic price decline? Investors in practically any other market would be tripping over themselves while running for the exits. Yet in cryptocurrency circles they exchange memes such as a gif animation of the classic Mr. Bean roller coaster scene where he looks entirely bored whirling through the air while fellow passengers behind him are ecstatic.
Are Warren Buffet and Charlie Munger correct? Are cryptocurrency traders immorally trading disgusting turds while having dementia? Is Bitcoin rat poison squared? Even titans in the banking world such as Jamie Dimon of J.P. Morgan have called Bitcoin “a fraud” and threatened to fire any traders dealing with it. Yet, despite all of this, there are serious reasons to consider the downtrend of today as an opportunity to get into a space that you may have regretted missing at the end of 2017.
Developers, Developers, Developers … and Designers
In the early days of cryptocurrency, development was left to serious programmers. The tools were highly customized, the command line was king, and your plethora of programming choices ranged from C all the way to C++. Times have changed. Today developers of all kinds are able to participate in the crypto revolution, with smart contracts opening the flood gates of talent ranging from contract programmers, web developers and user interface designers. Electron and SPAs (Single Page Applications) have quickly become go-to technology for most of the blockchain networks, opening the doors to full stack developers who traditionally specialize in centralized web apps. Mobile developers, struggling with an oversaturated market of competition are quickly finding their talents much more appreciated in the crypto circles. And tech-savvy designers from the gaming industry are finding interesting and creative opportunities to not only design game assets, but assets that are packaged as unique pieces of valuable art with an immutable identity and associated attributes.
If these improvements over the last few years haven’t convinced you then perhaps the plain numbers might change your mind. Consensys, a leading development organization for the Ethereum network, has an estimated 250,000 developers either interested or actively working in the blockchain space. Truffle, a development framework, has reached over 550,000 downloads in less than a year. And the EEA (Ethereum Enterprise Alliance) has grown to over 500 members, consisting of small groups and corporate titans such as AMD, Cisco, Shell and Pfizer.
Crypto Investment at an All-Time High
I know what you’re thinking. Large companies look into many industries in order to keep a competitive edge. Usually these companies dip their toes in the water and have little-else to show for it, right? Well, not exactly. Yes, there are such endeavors such as Stripe’s recent failed exploration into Bitcoin adoption but the trend of backing out is far overshadowed by the stampede of individuals and groups going full steam ahead.
Since 2017 ICOs (Initial Coin Offerings) in the blockchain space have delivered over 350% more capital to entrepreneurs than traditional Venture Capital firms in Silicon Valley and throughout the world. Let me translate this, in a relatively short amount of time the blockchain space has managed to eclipse the entire mature and powerful venture capital early investment market over three-fold … and growing. These are not numbers to be taken lightly as the traditional investment mechanisms we’re referring to helped drive the growth of organizations such as Google, Alibaba, Facebook and Snapchat.
If 2018 is any indication, the amount of investment isn’t even close reaching its peak. Telegram, a popular online communications platform, raised over $1.7 billion to work on their crypto-related endeavors. EOS, a new blockchain platform for Dapps (Decentralized Applications), was able to raise $4 billion through their year-long ICO. As if that wasn’t enough, EOS creator Block.one also recruited investment from Silicon Valley legend Peter Thiel and cryptocurrency leader Jihan Wu for an undisclosed amount. Not to be outdone, direct corporate investment is extremely active in the crypto industry. Bosch, the multinational engineering and electronics company, invested in the IOTA network earlier this year for an undisclosed amount while IBM has been working closely with the Stellar network for global payments and banking services.
Blockchain. Not Bitcoin. (Yeah Right)
So developers, corporations and retail investors are involved. Big deal. As we read earlier, Wall Street, the real money movers, are totally against cryptocurrencies, right? Well, not exactly. Remember Jamie Dimon of J.P. Morgan? Well it turns out that even J.P. Morgan is getting into the crypto game, appointing Oliver Harris as their new Head of Crypto-Assets Strategy. Participants in the crypto industry seem to be getting a real kick out of seeing Dimon defend his aggressive anti-Bitcoin position while touting the benefits of “blockchain”, a part of the crypto technology stack that many cryptocurrency evangelists claim is hardly revolutionary when decoupled from a public network and consensus system such as Bitcoin.
J.P. Morgan may simply be one of many Wall Street institutions defending their businesses from the growing onslaught of crypto startups that are seemingly sprouting from seed to stalk practically overnight. Coinbase, the largest crypto exchange in the United States, reportedly made over $1 billion in revenues last year, an insane amount considering the age and size of the fledgling company. But when you look at the numbers, as jaw-dropping as they are, it’s easy to see why Coinbase is doing so well. Charles Schwab, one of America’s top-tier brokerage firms, reported in November of 2017 an estimated 10.6 million active brokerage accounts. Coinbase on the other hand, announced 13.3 million accounts around the same time. Let that sink in.
Never known for letting a good profit opportunity slip by, Goldman Sachs has made heavy moves into the space with their funding of Circle Internet Financial and its subsequent $400 million dollar acquisition of Poloniex, a US-based crypto exchange. On the traditional Wall Street exchange front we are seeing all the big players open their doors to the crypto revolution. In April of this year Nasdaq CEO was quoted as saying they “would consider becoming a crypto exchange over time” once the space matures. In the mean time they are happy to support existing exchanges including a technology deal with Gemini, a crypto exchange founded by the well-known Winklevoss twins of Facebook fame. Intercontinental Exchange, owner of the New York Stock Exchange, is launching a new startup called Bakkt to enable cryptocurrency investment for retirement funds (401k) and advancing crypto payments to the mainstream. To prove their commitment they have announced partnerships with Microsoft and Starbucks to help kick off their payments initiative at the appropriate time.
As expected, the crypto community has responded quickly to the actions of the establishment, some positive, some negative. Coinbase, not to be outmaneuvered, recently acquired Keystone Capital Corporation, an SEC regulated broker dealer in order to further its dominance. This, combined with Coinbase’s recent launch of Coinbase Custody, a digital asset custody solution, demonstrates Coinbase’s commitment to becoming an all-in-one financial services solution.
Technical Barriers? No Problem.
As we mentioned previously, cryptocurrencies are not without their failures. Ignoring the many many hacks in the industry, sheer technical capability and companion software is still lacking for real mass adoption. The CryptoKitties craze of late 2017 was just one example of the ongoing struggle to keep up with a growing network demand. Yet, these challenges are known to the industry and actively being worked on.
Ethereum, the crypto-industry’s most popular smart contract network, recognized their scaling limitations last year after witnessing major network congestion from the rush of new ICOs hitting the market. To combat these challenges, multiple initiatives are under simultaneous development, each with their own cool nicknames. Sharding, is Ethereum’s effort to process their transactions in parallel while maintaining adequate security. Plasma is their effort to scale to much larger data sets by offloading the work from the main Ethereum chain. External efforts are also underway including the recently launched Loom technology, Raiden and Polkadot.
Although Ethereum might be the poster child for blockchain’s scaling needs thanks to its popularity, the other networks are not just sitting around. Bitcoin’s lightning network is up and gaining momentum, Bitcoin Cash is faster than ever with its larger block sizes, Cardano is steadily making headway with its academia-centric approach and DPOS systems are live, such as EOS, or in active development such as Lisk. These are but a few of tens if not hundreds of solutions under simultaneous development by that not-so-small developer community that crypto has captured.
If all of this sounds confusing then look at this work from a macro scale. The problems are known and numerous solutions are being developed or actively trialed right now.
The World Wants In
The Dotcom-boom of the 90’s was primarily an American-centric phenomenon. A perfect amalgam of high-quality universities, seasoned tech-savvy entrepenuaers / venture capitalists, closed network communities (AOL, CompuServe, etc) and the emergence of the web browser. This combination sparked a highly-concentrated technical revolution mostly around the San Jose, Santa Clara and eventually the San Francisco area in California, otherwise known as “Silicon Valley”. The revolution would quickly spread across the rest of the United States and the world and create a global industry complete with new innovations and economic models. Thanks to an early head start in adoption, infrastructure and experimentation, many American businesses were able to expediently capture a dominant global position across many online categories. Over the years these positions have solidified and caused concern for many other nations who’s populations are increasingly becoming highly dependent on American-owned online products and services.
When Bitcoin emerged in 2008 from the mind of the mysterious Satoshi Nakamoto, the software spread to only a few curious intellectuals and gradually grew over the course of a decade to encompass millions. Unlike the early days of the Dotcom-boom, Bitcoin was not constrained by geographic proximity or limited infrastructure, Bitcoin was universally accessible from the beginning. Many “alt-coins” would emerge that benefited from the Bitcoin source code or were inspired by it. Variations became numerous and participants across the globe founded new and exciting networks. Ethereum, created by the Canadian Vitalik Buterin, introduced Turing complete smart contracts. Waves, founded by Russian physicist Alexander Ivanov, followed suit with their own take on consensus and contract programming. IOTA, a fully regulated German entity, uses technology separate from standard blockchain-based networks. The list goes on with numerous founders and participants in nearly every part of the world, and the nations hosting these entrepreneurs have taken notice.
Not to be caught off-guard, many nations have reacted quickly to the possibility of an emerging permanent cryptocurrency industry. Some governments concerned about how cryptocurrencies will affect their national fiat, such as China, India and Russia, have reacted in a conflicted manner by both banning certain elements of the cryptocurrency industry while simultaneously encouraging other elements. Nations such as Japan and Malta have taken an opposite approach by fully embracing the cryptocurrency revolution via welcoming regulations and government assurances. A third approach has been that of the United States which has mostly supported cryptocurrency innovation by observing the industry and allowing it to grow without too much interference.
What has become clear is that nation-states have, for the most part, recognized the potential impact of the cryptocurrency industry. Unlike other innovations, such as centralized online businesses, no single nation can shut down these networks. This leaves their leadership in a precarious situation. They must either ignore the industry and hope for the best, leverage the industry for internal efficiencies and competitive advantages, or ban the technology and hope that no underground network (black market) forms via mobile phones, computers or entrepreneurial individuals capable of memorizing twelve words.
Version 2.0 … of Everything
According to the Federal Reserve (Fed) Chairman, Jerome Powell, who recently testified before the House Financial Services Committee, cryptocurrencies have no “intrinsic value”. Intrinsic value is one of those terms often used because it can never be conclusively refuted, its application may rely on the eye of the beholder. Tangible assets and material costs are not the only forms of fundamental value. If you believe that the world should have a censorship-resistant, global and secure decentralized network of value and data, then cryptocurrencies have an intrinsic value.
If you’re one that is not easily swayed by ideological appeals then perhaps actual use cases would help. Many practical applications are emerging from cryptocurrency networks that enhance or expand beyond traditional centralized systems.
Grid+, a hardware and software suite compatible with smart electric meters and solar system installations, can tap into energy markets and use cryptocurrencies to buy energy for your home or sell excess energy from your solar installation. Imagine having the power to cash in on your solar energy sold in the morning to buy dinner later in the day. What about the future for such technology? With solar and wind power becoming more and more popular in remote areas, could this technology enable homes with solar installations to create localized markets for energy?
Golem uses cryptocurrency to enable people to buy or rent out their machine’s unused compute resources for supercomputing, CGI rendering and eventually machine learning. No middle-men, price fixing, or large corporate subscription fees. Just a real-time peer-to-peer market at the lowest possible cost amongst individual participants.
Filecoin is expanding upon the IPFS protocol to enable cheap cloud file storage that is encrypted and hosted across millions of computers in the world. Do you have extra hard drive space on your machine? Want to have it work for you? This year we saw Silicon Valley darling Dropbox go public on NASDAQ. According to Wall Street investors, that company is worth around $12 billion dollars. Why does Dropbox have “intrinsic value” but, according to Jerome Powell, platforms like Filecoin will have none?
These are but a few of thousands of applications, many with serious real-world use cases, being built on cryptocurrency platforms. From a macro perspective it’s easy to look at the industry as a whole and see the space for what it is, a hotbed of technical innovation moving at speeds very reminiscent of the early web and mobile application days.
Welcome to Futureland
Cryptocurrencies may be encountering a variety of technical, political and financial challenges at the moment but the industry is quickly looking beyond such things, peering into visions of automation, crypto-convenience and world-changing infrastructure. Although it is always good to keep a skeptical eye on reality, it can also be good to dream, and if you’re going to dream, you might as well dream BIG. Many of these platforms may fail. Many of these platforms may never reach their goals. But the ones that remain, the ones that evolve, will not only likely change business and society but also change the financial future of millions of people across the globe. As many crypto fan(atic)s will say, you may want to buy crypto now … or regret it later.