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Decade in review and preview – “Cryptos String theory”

Decade in review and preview – “Cryptos String theory”

2016 was a black swan year, with key unexpected events including Brexit, Trump and Demonetization in India.

2017 clearly belonged to Bitcoin. Who could have thought in January that $1,000 virtual coin would become worth $20,000 before the end of the year. And market cap of cryptos will increase from $18bn to $600bn. These stats show why we are all talking about the cryptos, and trying to predict where it may go from here. Like it or hate it, you were involved in Bitcoin debates, and somewhere deep down you also feel you missed investing early.

Unfortunately though, the spotlight on Bitcoin is not so much for its potential usage as a global decentralised digital currency; but mainly as an investable asset. That has led us into a virtuous circle; more these cryptos rise in value, more people invest in it, and more people invest in it, more it rises in value.

Before we move on to predictions for rest of this decade, worth remembering that Bitcoin as a concept started to get away from existing centralized financial services world, into a decentralized peer to peer community driven immutable system. Here is a quick summary of how Bitcoin evolved so far in this decade. It was adopted by hobbyists and geeks between 2010-2013, subsequently by early adoptors including tech companies in 2014-2015, and became talk to the world due to Blockchain’s potential in 2016. The major inflection points for cryptos growth were,

  • Japan legalizing Bitcoin as a currency in April 2017, which led to a massive growth across the year.

  • The involvement of financial institutions (120+ crypto hedge funds cropping up in the year) led to institutionalizing of all Cryptos.

  • Several ICOs raising humongous amount of capital in 2017, especially in Q3.

Cryptos will continue to grow the “parallel” financial world in 2018, creating some friction, synergies as well as fundamental challenges for their existence. String theory of parallel-decentralized world, meeting the existing imperfect but well understood centralised world, through a black hole called the future is what I will try to take a peak at.

Lets project what may happen between 2018-2020.

  1. Bitcoin will stay – Bitcoin will continue to stay as a part of the growing cryptos market for the foreseeable future. Its value may fluctuate, and even in the case of a crash, it will be worth a few thousand dollars for sure. And in case of a Bull Run and supportive external environment, it can touch $50k soon.

– Bitcoin’s efficiency, to deal with transactions load shall be improved with some relevant community driven changes and forks.

– For other cryptos, typically the risk of survival remains when their value is a few dollars (assuming limited supply of a few millions), once they break $100 value mark, and have a sustainable strong reason to exist, they can continue to grow and create value for all stakeholders.

  1. Institutionalization of Cryptos will catapult their valuation growth – As more banks, fund managers and other institutional investors get involved in cryptos adoption, investments, their valuation will continue to rise. Listing of Bitcoin futures on CME, and possibly adoption of other cryptos on exchanges shall catapult the investors access into cryptos.

Though there maybe short term conflicts of decentralization thesis of cryptos, versus involvement by traditional centralized financial services world.

  • For instance, CME Bitcoin futures are regulated, while Bitcoin trading, as a financial security is not.

  • Fiat currency conversions from Crypto currencies is challenging as several Banks have taken over-cautious approach of discouraging such transactions.

Such challenges provide opportunities for newer business models too. New OTC brokers, exchanges, fund managers, ICO platforms, and more efficient tokens will emerge and present great growth opportunities.

  1. Governments will make a failed attempt to ban cryptos or regulate them, together – The whole idea of Bitcoin was to get away from centralization including Governments. If Governments try to regulate them in a coordinated fashion, so they retain control over the financial system; they will certainly fail. Some related examples and factors are listed below,

  • Europe tried for decades to make and grow Europe. Brexit is a classic example of how Europe is failing, trying to keep “only” 25 odd countries together. And Estonia is already outlier European country adoption cryptos at a large scale.

  • Japan and Belarus have also challenged the status quo.

  • US dropped out of Climate Change Convention, which is possibly the biggest threat to humanity on Earth. Keeping several countries in a global cryptos regulation will be a challenge.

So any attempts made by Governments to crackdown on decentralized currencies, tech platforms shall not work.

  1. Globally fragmented regulations around Cryptos and ICOs shall continue – Since all countries are still trying to understand the Cryptos and ICOs, their regulations will continue to be fragmented.

– Cautious or Full Support, with regulation Japan, Australia, Canada, and Switzerland have been more positive in opening up to ICOs. Japan has accepted Bitcoin as a legal tender and has made Bitcoin transactions tax-free too, hence becoming the largest bitcoin trading volume nation within 2017. Several of these countries have cautiously started giving ICO approvals as well, through their regulatory frameworks, sandboxes, and new regulations.

– Countries with Limited or No Support US allows for bitcoin investment, trading, and use as a currency (as along as its used for legitimate purposes). At the same time, US has warned ICO issuers that if any US invests in an ICO, and their token seems like a security, then (strict) US securities laws would apply. As a result, most ICOs have started banning US investors completely. Countries like India

– Banned – China has banned ICOs in September this year, after a major surge in Chinese ICOs. China has pushed away crypto exchanges out of the country too.

  1. Enterprise Blockchains (without decentralized control / consensus) will die – Blockchain had been overused in thousands of use cases, which do not need Blockchain at all, because they don’t need any consensus mechanism, crowdsourcing, or decentralized workflow. Such Blockchains will perish gradually. The Blockchain consortium R3 saying they don’t need Blockchain as such, or Hyperledger losing its members are early signals of this process. And no POC shall lead to any real live scalable project and rationality would prevail.

  2. Litigations around ICOs and Crypto related matters will rise dramatically As cryptos go mainstream, the legal issues surrounding the business and civil matters will become challenging.

  • An Etherium smart contract will not hold as business contract in the court of law.

  • Funds raised via ICOs not giving ample returns, or turning out as scams, will continue to drive lawsuits against the ICO funded companies

  1. ICOs will show potential to be a better alternate corporate structure, co-existing with the current one for a while

ICO is the advanced sale of a platform’s crypto-currencies or tokens, to fund the development of fund raising company’s platform and product. These tokens can be easily sold and traded at anytime, on all cryptocurrency exchanges depending on their demand, providing liquidity to investors and vital early stage funding for entrepreneurs. These tokens are essentially the incentives, for several market participants to use and grow the platform in a decentralized manner. Such incentives are paramount in making a decentralized eco-system operate sustainably.

Constructively curated regulation that encourages ICOs to challenge imperfect corporate

  1. Crypto platforms usage will become easier and secure (maybe like paypal / whatsapp, leading to big adoption) Currently is very hard for an amateur user to open a crypto wallet, secure its private keys, and do the transactions. This is likely to be simplified with simpler UIs, but Secure mechanisms.

    1. new killer apps and platforms shall emerge

    2. “keep it simple” UI will emerge

    3. privacy / security standards will improve

    4. global protocol standards will begin to emerge

  1. Some Governments like Canada / Japan may use blockchain to decentralize wider consensus on several decisions by engaging their public / communities Inspired by cryptos, some countries may use similar technologies to truly crowd-source consensus mechanism in various decision making processes. Governments on Blockchain, crypto currencies rung by central banks etc. are the themes we will witness.

Though its debatable how much value will they create, especially if the control is centralized.

  1. At least 5 firms in the bitcoin, cryptos, blockchain, icos, space will reach $ bn valuation

These firms may include,

  • Crypto investment fund

  • Crypto exchange / wallet

  • ICO led community project

  • Blockchain driven security, identity, or other internet tech platform

  • Blockchain platform allowing for easier development of applications

Happy cryptos 2018.

Appendix – what are we reading and writing

Here are a select few articles you may like to read.

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