Since the announcement of bitcoin in 2009, we’ve seen a veritable explosion of interest in the blockchain space. Many terms and news have been flung from relative obscurity to the forefront of innumerable magazines.
We’ve seen the first ICO conducted by Mastercoin in 2013, the collapse of the Japan-based then most voluminous bitcoin exchange My Gox in 2014, the launch of Ethereum with its smart contract functionality in 2015, the $75m fundraise by Coinbase in 2015, an announcement of an IBM partnership with major European banks to develop a blockchain-based trade finance platform in 2017, and a warn of an SEC Chairman Jay Clayton to investors putting money into cryptocurrencies by the end of the same year.
We’ve also seen the introduction of various use-cases for blockchain such as tracked supply chain process, efficient transfer of digital assets and secure information sharing.
The blockchain history encompasses 9 years, but is experimentation phase with blockchain over and where do we stand today? Let’s take a look at a few of the trends that took place in 2018.
1. Reverse ICOs
Due to their comparatively simplistic nature and effectiveness in raising funds, ICOs have rapidly become a popular way to attract investments by blockchain startups. ICOs have attracted more than $14 billion in investments just during the first eight months of 2018. Not only are ICOs a mean for fundraising, but the tokens generated through an ICO can enable transactions on respective blockchain platforms, give access to services or provide ownership of the network.
As blockchain industry gets developed and entered by new players, a new trend worth watching today is the emergence of reverse ICOs — the process where an established company raises funds through an ICO and moves the whole or a part of the business to the tokenized business structure.
Today, established actors such as the messaging application Kik taken the route of reverse ICOs to raise funds for their decentralized offerings.
The benefits of reverse ICOs are that they are launched by companies that already have a working business model, a measurable track record, established user- and customer-base, a team that has a history of working together and an existing infrastructure.
Companies such as Google, Microsoft, General Motors, ExxonMobil or JPMorgan can utilize reverse ICO structure to offer new decentralized solutions, as well as attract funding for their new blockchain-based platforms.
The concept of a reverse ICO signals a shift for established actors, and while today it is rather a rare occurrence, it may be only a matter of time, a developed regulatory environment and technical advancements before reverse ICOs become massively adopted.
2. The institutionalization of the Crypto Market
A regulatory-accepted byway into cryptocurrency investing will enable a sizable growth of the cryptocurrency world in a comparatively short period.
In the meantime, Goldman Sachs is developing a custody product for crypto to provide a better service to institutional clients and protect their holdings while a major cryptocurrency exchange Coinbase is looking into adding crypto assets for storage only to their custody service.
In addition, the Intercontinental Exchange (ICE) along with Starbucks, Microsoft and BCG (Boston Consulting Group) announced the launch of Bakkt — a venture that will offer a regulated market for Bitcoin. Recently, Bakkt revealed their bitcoin futures product.
Thus, institutions are busy building crypto operations while waiting for the regulatory green light so they can flip the switch. But when is that going to happen? What is the regulators’ stand on the crypto market? What else can help to bring cryptocurrencies to the masses?
3. A changing regulatory environment
Since the majority of first supporters of the blockchain industry were those who believed in free markets, it is understandable that many people consider blockchain regulation as a bad news. However, a defined regulatory framework will, in fact, empower the blockchain industry.
While many institutional investors are intrigued by the blockchain industry, to realize a sizable influx of institutional players and funds we need a more robust regulatory environment.
A robust regulatory environment will reduce risks associated with running and investing in blockchain companies and crypto assets. It will also incentivize traditional organizations to join the playground, and increase a consumer and investor trust. All these are needed to provide resources and consumption to grow the industry.
One of the recent actions towards this trend is the discussion around crypto ETFs — cryptocurrency exchange-traded funds. SEC is currently reviewing ETF proposals; however, no decision has been made to date. November 5 2018 is set as a new deadline for reviewing nine bitcoin ETF applications. Many hope this will be positive news to the crypto world.
South Korea recently decided to regulate cryptocurrency exchanges as banks. This not only brings a government support to a crypto trading, but sets an important precedent for other nations.
However, the regulatory environment differs majorly between different countries. Russia has stated that it aims to push new cryptocurrency and blockchain-friendly regulations through the state Duma. Dubai has famously integrated blockchain into numerous “Dubai Vision” projects, and Malta has been championing cryptocurrency-friendly regulation to become a Mediterranean hub for cryptocurrency and blockchain.
Yet due to the cryptocurrency’s borderless nature, it is harder to set protections from crimes such money laundering and weapon trading across the nations. Therefore, a crypto regulation environment needs to be global, or at least the regulations of different countries have to be aligned with each other.
4. The era of security tokens
A recent trend showcases a strong preference for security tokens. Security tokens are offered through an STO — Security Token Offering — which works much like a traditional ICO, except that it issues the shares of the relevant company’s equity. Security tokens bridge the gap between the traditional finance sector and the blockchain industry.
While STOs are viewed differently in various jurisdictions, in the US security tokens are positioned to protect investors’ interests, as they are deemed as financial securities compliant with SEC regulations. US-based investors willing to invest is STOs have to be accredited investors.
Security tokens are hailed as having the power to dramatically change traditional finance and enable the development of even those projects that currently do not have an easy access to venture capitalists. As projects can present their offerings to investors globally, the investor base increases exponentially.
5. Continuous blockchain development
Amidst heated ETF debates, an emergence of reverse ICOs, a hyped and somewhat painful shift towards security tokens and a rapidly changing regulatory environment, blockchain developers are tirelessly working on the subject of it all — the blockchain technology itself.
Continuous technological advances slowly but surely take us towards a strengthening and an establishment of the blockchain industry.
For example, cutting transaction fees through new protocols presents a radical improvement that enables an increased adoption. Monero promises an upcoming bulletproofs feature, which will be able to cut fees of up to 80%. Similarly, technologies such as Lightning Network are working on tackling slow transaction speed that is fundamental for enabling easy cryptocurrency payments.
Another of this relates to Zero-knowledge proof technology, which Ethereum’s co-founder Vitalik Buterin has referred to as being the ”single most under-hyped thing in cryptography right now”. Zero-knowledge proof technology is already being used by ZCash to provide greater privacy for the end user. Privacy is one of the foremost promises of blockchain technology, as they help realize the vision of a fully decentralized blockchain-based economy.
Companies such as ThunderCore, Oasis and Solana are working towards improving the scalability problem— an important advancement for onboarding millions of people to the blockchain-based platforms. Essentially, a project with good scalability is “future-proofed”, as once this foundation is established, the platform can be used in a much greater capacity.
The blockchain sector is rather a nascent industry. Nonetheless, the abundance of interest and its ability to enable sizable transformations of existing industries show the power the blockchain sector holds.
Among the rapidly evolving trends, one thing is clear; the blockchain sector is in constant flux with many disruptive trends on the horizon. Only time will tell which of these trends materialize most quickly.
Disclaimer: This article does not constitute investment guidance or legal opinion of the author or any entity associated with the author.
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