Yet another look at the crypto-currency evolution scenario.
Bitcoin and other crypto-currencies have been shocking the public throughout 2017 with their firm and progressive pump. With the onset of 2018, the general growth surprise was replaced by their surprising fall. At the beginning, everyone was waiting for the end of Chinese New Year holidays, then the reduction of negative market news, then a miracle… but the miracle failed to happen and capitalization continued to decline. What are the reasons for this trend? Let’s try to figure it out.
The heart of any crypto currency is the blockchain, which has a great application potential besides financial transactions though. There are many other use-cases for this new emerging technology. In reality, investors’ funds are not just being blurred by numerous crypto-currency projects and forks, but also being flowed out into adjacent business segments to fund blockchain systems which are not related to crypto-currency at all.
Moreover, 2018 has become a transitional period from the anarchically spontaneous use of new payment instruments (crypto currency in their existing form and ICO tokens) to a more meaningful and orderly utilization. It is also necessary to take into account the active interest of the banking community. For example,
- The activity of the R3 consortium (more than 100 financial institutions from six continents https://www.r3.com/about/) aiming at creation of an integrated interbank environment based on the distributed ledger platform for the exchange of documents and financial transactions;
- The SWIFT Distributed Ledger Technology initiative, which has successfully completed blockchain proof of concept(PoC) together with 34 participating banks (https://www.swift.com/news-events/news/swift-completes-landmark-dlt-proof-of-concept),
and other projects, which will certainly lead to the emergence of competitive international corporate driven crypto-currency systems. In addition, the successful projects of individual banks, as well as the emergence of the national crypto-currencies, will complete the creation of a serious competitive environment and will definitely challenge the very existence of many “early crypto-currencies” operated on a voluntary basis.
The situation is further complicated by the fact that despite the already long circulation of Bitcoin and other popular crypto-currencies, they have not been able to find a decent market niche providing a constant consumer transaction flow, which is a necessary prerequisite for a stable level of capitalization. But instead, all the beneficial properties of crypto-currencies have been used exclusively for developing of a “new generation speculative environment”. Today we observe the consequences of such an evolutionary stage. Once the speculators were exhausted and could no longer inflate the capitalization bubble of the crypto-currency market, the economy flew down, destroying along its path the fate of many latter-day traders and young “crypto investment funds” that appeared on the wave of rapid market growth.
Crypto-currencies will have to find a ground in the form of a mass and everyday-used applications, which can attract and hold millions of new users other than those who already understand IT and hi-tech products. Only in this way will crypto-currencies find their space under the sun not just for a couple of years, but for many decades. And this process will no longer be directed by technology enthusiasts, but rather by experienced professionals, corporations, banks and the States.
Considering the widespread recognition of the blockchain technology benefits for secure transactions, as well as the advantages that crypto-currencies promise to a global financial system, the emergence of national crypto-currencies and other instruments created by Central Banks and States, will soon turn to the pervasive reality. In parallel with this process, international settlement technologies using national crypto currencies will be defined and adopted. They will become the new standard and further evolution stage of crypto technologies and blockchain for cashless payments and banking services. At the same time, non-state public crypto-currencies will feel even greater pressure from national and international regulators who will strive to squeeze them out of the market.
All cryptographic tokens that are currently being issued by numerous ICOs will soon be finally grouped into three large groups:
- Electronic shares and liabilities secured by real assets;
- Mass market utilities (crypto-tokens, bonuses, points, valued objects for computer games, certificates of authenticity, etc.);
The instruments belonging to the first two categories will be governed by the relevant regulatory rules and laws, both national and international. The third category is the pure loss of today’s investors. Nowadays it is very important to locate and understand the valuable properties of blockchain and crypto-currencies for every particular application in order to make a conscious decision about the appropriateness for business or attractiveness as an object for investment. There is a certain information vacuum in the market. Numerous training courses and seminars are devoted to investment and trading, but just a tiny fraction really correspond to blockchain technology and few are aimed at a broad audience. This situation is typical for times of market hype. But it shall be changed in the near future. Thus development will take the evolutionary path and technology will become more accessible.
Whatever happens with the market and, no matter what changes are applied by regulators and authorities, those who quickly understand and master new technologies and learn how to apply them in practice shall benefit first.