Blockchain consultant - Ecosystem development, adoption, & retention Featured Writer - Cointelegraph
Everyone knows about the time in 2017 and early 2018 when bitcoin hit over $20,000 USD and Ethereum was sitting nicely at $1,300+. In fact, the total market cap for coins and tokens listed on CoinMarketCap, had just ticked over $800,000,000,000. Everyone was going to be a millionaire.
But it only took a short 90 days for everything to come crashing down, and less than a year for the market to have corrected almost 800% of the all-time highs.
What went wrong? Nothing. Was it the wrong time? I would argue it was the right time. Any establishing market needs to push its boundary, and in a sense, break before it will be strong and established enough to move past this and set a new boundary. I often liken of the turmoil created by these crazy market pushes, as the turmoil created by a war resulting in an absolute rush in technological innovation.
If you look back in the past, and the most effective thing for technological advancement is war, as crude as it sounds.
There were plenty of things that came out of the last Bull Run. We saw the rise and fall of the Initial Coin Offering (ICO), like an unregulated IPO, this transitioned into the creation of the Security Token Offering (STO), and the latest, being the Initial Exchange Offering (IEO).
We saw a flurry from government bodies and authorities to attempt to provide regulatory clarity on how cryptocurrencies will be treated. We saw a hard but much needed lesson on scams, risks and tribulations that arise from unregulated and decentralized networks.
Arguably the biggest benefit from the latest Bull Run, is the fact that now everyone knew what cryptocurrencies were.
We then went through a crypto drought for 12 months where the only thing that was seen on the horizon was blockchain development and businesses quietly doing their own research and development. Everyone was almost ashamed to mention the word cryptocurrency, it was a taboo, only the risk-takers or criminal world would associate with.
At least that is what the rest of the world thought was going on, when in reality, there were thousands and thousands of developers working day and night in this silent period on their respective projects, finally undistracted by the media, hype, family and friends.
Here we stand today, having come through the fire; refined, stronger and more stable than we ever were. But in the back of many minds is the question, “Is this just a repeat of the previous Bull Run and later, bust?”
I can say unequivocally and without a doubt, no. This is nothing like what happened 12–18 months ago.
Let me explain.
This market cycle of a bull run followed by a bear market is one of the most recognizable cycles in financial markets from all of history.
First, let’s look at a previous example, something that can give us a rough idea of how the world reacts to a new market. Let’s look at the history of the NASDAQ, one of the largest stock exchanges that everyone knows. Now, the biggest difference between the stock exchange and the cryptocurrency market is that one is regulated and the other is not.
I suggest, that regulation will not actually have that much of an affect, except to slow down any pattern that may emerge. Have a look at the history shown below, then look at the comparison I have taken from the total market cap of the cryptocurrency markets. These images are unedited screenshots, but they both tell the same story.
First, we needed a bull run and bust, to check the boundaries before breaking through them completely. So if traditional markets are to go by, then we are due for a bull run which will see the total cryptocurrency market value hit between $1–2 trillion dollars.
Now everyone knows that almost any influential market is tied back or at least influenced by the US financial markets. Maybe not as much as 10 or 20 years ago, but it goes without a doubt that should something happen to the US market, we would see ripples all around the world. But what is the state of the US financial market?
Unstable would be an appropriate statement. Without going into too much detail, I can safely say that as time goes by, the traditional financial markets in the US and around the world are losing the confidence of the people.
There are plenty of fears about a trade war between the US and China, and the overall global economic outlook is far from optimistic.
Now, imagine an emerging market which gives the people complete control of their finances in a way that is not tied to any government or corporation. This market is coming into another bull run, just as traditional markets become unstable and lose consumer confidence. Where would you put your money?
Now this next point might seem counterintuitive to my previous point. But it is crucial and does affect the current situation in a very impactful way.
At the end of 2017, if you tried to make money or invest in the Blockchain industry, then you were either a scammer, or were being scammed.
Many enterprises were cautiously looking into the technology, but would never have let it be known publicly without taking a ‘real’ PR risk. Fast forward to now, and I cannot think of a large enterprise that has not announced in some way that they are looking into or have already implemented a blockchain solution.
Two months ago I researched for an article, which enterprises were involved in the industry, and I had to stop writing the list at almost 1,000. Instead of being seen as ‘associating’ with an unstable and criminally focused industry, now one is seen as ‘forward thinking’ and innovative, pushing ahead of the game.
Even the banks, which were always seen as the biggest losers by this new technology, can’t put enough resources into blockchain R&D. The latest and most significant movement in the corporate and global sphere is the announcement of Facebook’s Libra Blockchain, with partnerships from Visa, PayPal, MasterCard, eBay, Stripe, and many other multibillion dollar tech giants.
So let me get to the point of how this affects our new bull run. Well, to put it simply, the last Bull Run consisted of only the risk takers and individual investors, and was seen as a sketchy investment. This Bull Run, has the backing of almost every industry in the world, the majority of banks and governments and is seen as a smart investment.
See how much more money is now unlocked to be invested in blockchain now that enterprises are onboard!
The last bull run was rife with scams, anyone who wanted to get some free money simply created or copied a whitepaper, paid someone $20 to make a website, and then disappear once they have received enough from innocent and deceived investors.
Even legitimate projects were not immune. There were numerous cases where ICO wallet addresses were swapped to a scammer’s wallet or simply cleaned out by an external third party.
I often refer to the last 12 months as the refining fire for our industry. Not only did it provide many of us the time to understand and protect against the many scams that existed prior, but it also removed many weak projects. Many projects have died, in fact, some figures estimate as high as over 80% of projects that ran an ICO in 2017 have collapsed.
Many of those investing in cryptocurrencies have not got much experience with investing in businesses. There are many indicators to look for to understand the potential of a particular project. Looking back, there are many examples of what works and what doesn’t work, we now have a past to learn from.
Personally, I am much more careful about who I invest in. In 2017, I invested small amounts into many projects, now I invest large amounts into only a few projects.
If a project wants to run an ICO, they not only have the scrutiny of the wider community, but they also have many regulatory bodies watching them closely. There were multiple scenarios where projects were forced to return all funds raised in an ICO.
People will think twice now before trying to raise funds, lowering the potential risk to investors and the industry as a whole.
In ancient times, after harvesting wheat, the gatherers would winnow the grains. This separates the chaff from the grains, or removes the worthless from that of value. The dry period that we experienced throughout 2018 was essentially winnowing the cryptocurrency community. There was little money to be made from short to medium term investments, and many investors lost money.
The weak hands have been shaken out, those in it for the quick money and did not believe in the technology have left. This is very important as these investors are led by emotions and do not understand the fundamentals that this industry is built upon.
When a large portion of a community is led by their emotions, many negative situations can arise. Volatility will increase, undue pressure will be put on projects regarding secondary goals, resulting in a compromise in primary goals.
For example, a project might be so focused on meeting their mainnet launch date due to the pressure from the community, that they might release a poor quality product on time, rather than a high quality product late. If they decide to ignore the emotional sentiment of the community, then this could hurt the price of their token, which in turn puts a different stress on the project.
Another concern about these emotion-led communities, is the inherent susceptibility for these investors to be scammed.
They don’t understand the tech properly, thus cannot see through a well put together presentation deck or whitepaper. They do not employ the ’too good to be true’ test.
They are like sheep led to the slaughter. In traditional investment scenarios, most people would not invest without seeking advice from financial advisors or investment firms.
What makes the cryptocurrency industry so basic that people think they don’t need to do the same research? If anything, it is more complex, since it is a new industry with little precedence, high volatility and complex, ground-breaking technology.
So now we have a much more serious and fundamentally, more knowledgeable community of investors and developers.
Finally, I want to touch on the technology. Everyone can agree that the technology of the industry in 2017 has grown in leaps and bounds to where we stand now. The excitement that spread around the world, ultimately fueling the bull run of 2017, came out of the realization of theoretical use cases of DLT.
We knew it would change the way we did business, but it was all a theory, it was all in the whitepapers, not in application. Once, we understood how blockchain can be applied to the real world, we then needed to develop the technology to catch up. Between the scalability trilemma, regulation, and front end application development, it was obvious serious development was required for any major adoption to occur.
The scalability trilemma states that any application cannot provide a solution to decentralization, scalability and security. To be a solution for two, the third must suffer.
Fast forward to today, and we have solutions to the trilemma in projects like aelf and Cosmos. Not only are governments scrambling to provide regulatory guidance, but they are openly supporting and testing the technology within their own ecosystems.
We have applications, fully designed and active, utilizing blockchain in the supply chain, finance, retail, gaming, marketplace, utilities and social media industries just to name a few. We have moved from theoretical use cases, to practical adoption.
This is where the real value will come from.
I have not even touched on the fact that Ethereum has already announced their roadmap to switch from Proof of Work to Proof of Stake, with an increased performance of about 1,000 times, nor have I mentioned that bitcoin is coming up to its halving of miner rewards which will shrink the input of new bitcoins to the market. These two markets account for almost 75% of the total cryptocurrency market cap.
If I knew the answer to this question, I would be God. The truth is, no one knows 100% what the future will hold, but what I can say is that the situation we are currently faced with in this positive market is nothing like what we faced 18 months ago. I’m not going to speculate on the price of Bitcoin or where the cryptocurrency market will stabilize again, but I will say, we are in a much better foundational position for major growth. All aspects are pointing towards strong growth, from the economics to the community, to the technology and the wider industry sentiment.
At the end of the day, these markets are driven by supply and demand, for most projects, supply is fixed, but demand will continue to grow as adoption spreads.