The start of 2018 has been nothing but upsetting for cryptocurrency investors and simply traumatic for those that decided to take the plunge in December/January. The euphoria that had gripped so many has now subsided, making way for the denial and now despair phases of the classic bubble cycle. When CNBC published this awkward video of “how to buy Ripple” we should have known they were calling the top. Magic Internet Money is now becoming Toxic Internet Money as those hyped into leveraging their positions have the horrible reality of paying interest on their debt. Mark Carney, the Head of the bank of England is not surprised either: “It has pretty much failed thus far on … the traditional aspects of money. It is not a store of value because it is all over the map. Nobody uses it as a medium of exchange.” claiming that the bank of England saw no value in digital currencies. Perhaps the only success story so far in 2018 is that of stablecoins like MakerDAO’s Dai token; demonstrating that under enormous economic stress they are more than capable of holding value.
Despite the massacre and the complete turn off from retail investors, the show goes on. In the 9 year history of cryptocurrencies there has never been more development and engineering than there is today. The latest crash may have put an end to the remortgaging of homes to buy crypto, but you can bet the teams pushing for a decentralized future have only upped their game. So far this year we have seen AMD, Ernst & Young and Pfizer join the Enterprise Ethereum Alliance, Vitalik Buterin and Joseph Poon are working on Plasma to bring “potentially billions” of transactions per second to Ethereum and even PayPal has filed for a Bitcoin-related patent. This does not touch upon the countless ecosystem developments from the likes of Augur who are developing a prediction market and oracle for digitizing real-world outcomes and FOAM who are building a spatial index for Ethereum smart contracts. 0x, a decentralized exchange protocol is also nearing a production-ready state, increasing security for users and taking the ecosystem one step closer to ending $500M hacks.
Unfortunately for investors, the continuing improvements in the cryptocurrency space has been somewhat overshadowed by regulatory concerns, particularly with regards to the U.S. Securities and Exchange Commission’s treatment of ICOs. What could possibly reverse this bearish trend and convince investors that the potential returns remain extraordinary? Certainly Bill Gates’ recent comment that “cryptocurrencies cause death in a fairly direct way” won’t help, but Bill has become cynical in his old age. As one comment put it, a young Gates would have been building on the blockchain, not criticizing it. But equally the choir of evangelical millennials singing praises of the blockchain won’t do much either, regardless of how successful this strategy was in 2017. What’s needed now is a real demonstration of value that Ethereum and others can provide. Discussing hypotheticals once captivated minds, but people now need to see concrete realities. There are a slew of exciting projects with world-changing visions, but the vast majority will struggle to even get a sniff of success before disappearing into obscurity. A successful blockchain-project with a blatant value-add to society will not come until at least 2019, so if we’re to see a turnaround in the price of crypto this year, what’s needed?
One of the main challenges facing any decentralized application (dapp) today is the limited throughput on the blockchain. Ethereum nearly ground to a halt following the launch of Cryptokitties (a blockchain collectable) in November last year, demonstrating clearly that there is no room for a mainstream-scale dapp. It is certainly true that a dapp with billions of users would simply be non-functional today, but network upgrades that aim to dramatically improve the transaction throughput of the Ethereum blockchain (Plasma, Proof of Stake and Sharding) are edging closer to reality. As the teams behind these protocols provide updates and announce launch dates, the turnaround in sentiment for Ethereum – and crypto more broadly – will be dramatic.
Major brand adoption
When the major gaming marketplace Steam decided to stop accepting Bitcoin deposits last year the crypto community had to accept that the technology was no longer fulfilling its original vision (peer to peer electronic cash). While a number of groups jumped on this story (and others) as confirmation that Bitcoin was dead/is dying, the truth was that – as with so much new tech – reality did not live up to hype. Steam has dropped cryptocurrency payments for now, but as these network upgrades come into fruition a more confident and learned wave of big brands will begin taking advantage of what crypto has to offer. Who knows what PayPal and others might be up to.
Billion dollar token sales
Messaging app Telegram is expected to raise as much as $2bn by the end of its token sale this year, promising to deliver an entirely new blockchain, the “Telegram Open Network” (TON) by October 2019. The size of the sale is impressive, but more importantly this level of funding will attract other large players to the scene whilst also helping to fast track better regulation for ICOs moving forward. Going even further, there is a high probability that at some point this year Estonia will announce details of a state-sanctioned ICO which may look to replace currency and identity systems in the country.
Of course, all of these major stories could be irrelevant in prompting a turnaround in the current bear market; clarity over regulation and a non-hostile outcome from the SEC and others may be all it takes to prompt investors to clamber again at the chance to ride the growth of the new Internet. As always, the fundamental value that has so far attracted billions of dollars in investment remains unchanged and the development goes on; the next major bull run to new highs is only a news-cycle away.