CRYPTO CURRENCY MARKET WATCH: INTRODUCING THE NEW CRYPTO ASSET CLASS
>> Welcome to the first weekly crypto currency market watch <<
Crypto currencies became within a few years a new asset class on its own.
This new market now weights nearly 400 billion USD, while it was valued around 33 billion 1 year ago. Those 400 billion USD represent 1.5 times the total market cap of the Visa company.
Crypto currencies are used to being presented at the opposite of regular assets such as bonds, stocks, currencies and commodities. Especially when we have a look on its high volatility and the drop that we can note in the crypto currency space (we remind the reader that the crypto currency market capitalization is still -47% since its all-time high at 800 Billion USD).
Nevertheless, it is undeniable that the underlying technology it exploits (the blockchain) and the great variety of processes that can be disrupted using crypto currencies (and decentralized ledger in a more general way) managed to mobilize a very dynamic and innovative ecosystem. This community is united by the conviction that blockchain and crypto currencies can have a significant impact, on every level of the economy, and on the society taken as a whole.
In this first crypto currency market watch, we will manage to build the basic principles in term of information, knowledge and concepts that will help you understand this new environment. We are adopting a technical point of view so you can judge the extent of the ideas which will be developed, but with a very didactic approach because we think our role is to make those innovative concepts accessible to everyone.
We will approach blockchain discussing 2 points :
I) What is a blockchain and how does it works ?
- What is the purpose of a blockchain?
The blockchain allows a group of parties (people/companies/organizations) who do not know each other, or do not trust each other, to build confidence by using a secure and unfalsifiable way to exchange information, without any centralizing entity that would have played the role of trusted third-party. The confidence that was previously given to this third party is now placed in the blockchain algorithm itself, as it provides a specific, encrypted and secured procedure (described below) to write in blockchain, shared by every actor, and that makes consensus among them.
- Technically, what is that procedure?
The blockchain is literally a chain of blocs of information. To be more specific, those blocs are just receptacles which contains a set of individual information.
Let’s take an example with Bitcoin: the bitcoin blockchain is a list of blocs containing a transaction (more precisely a group of transactions). Therefore, the bitcoin blockchain is just a list of transactions, the accounts balances being completely determined by the succession of incoming and outgoing transactions.
Those blocs of information are ordered one after the other. For a better understanding of the way, each bloc is linked to the others: we are introducing the concept of signature (represented by the hash block in the following illustration).
Given the information contained in every bloc, we can generate a unique signature (hash bloc), using cryptographic methods. If 2 blocs contain different information, they will produce different signatures. It is impossible, given a signature, to retrieve the information that lead to its generation.
Let’s come back to our blockchain and consider a chain composed of one unique bloc containing a set of information. If a new bloc has to be added to the blockchain, we will generate the signature of that unique bloc and add this signature to the set of information that is contained in the bloc we are adding. Therefore, if we add a third bloc to our blockchain, we will have to generate the signature of the second bloc, which is dependent on the signature of the 1st bloc.
Finally, every bloc signature will depend on all the blocs that came before. That way, you cannot modify any information written in the blockchain as it will modify the signature of the modified bloc, and the signature of every bloc which will come after.
- Ok, but why is it so important to have such a level of protection?
Because this blockchain is shared and might be writable by anyone.
If we were a bank and had to write the loans offered to our clients in our registry, we would not have this problem as we would be the only entity with the ability to write in this registry.
If we used a decentralized (shared) ledger for this purpose, then the commercial bank that receiving the money also has the authorization to write into that registry (or ledger) and could potentially erase that loan (which is equivalent to stealing money…). Most of the time, the different actors that can access and write in the blockchain have opposite interests, and the blockchain allows them to communicate and share information/deals with the highest level of transparency, following pre-established but evolving rules.
II) What possibilities are offered by the blockchain excluding its use as a crypto currency ?
The power of blockchain and the trust it initiates among its participants has also been implemented into existing business models. Let us present what kind of purpose can be developed by using it.
- The blockchain can enhance the value of a product/service:
One recent example is the tracking of the origin of the food that is sold in stores through a blockchain. Using a blockchain to track food’s distribution chain is a very interesting approach as: 1) Current methods to assure the traceability of those products is complicated logistically and is subject to multiple human manual interventions 2) the quality of this traceability has often been questioned following sanitary scandals all over the world and the blockchain is able to ensure consumers that the product hasn’t been modified or manipulated.
Using a blockchain could lead to significant higher performances by allowing producers, markets and consumers to share their information, providing a fully transparent guarantee for the consumer.
- The blockchain can create new markets by making services purchasable:
Another very interesting use could be setting a blockchain that would store professional pictures and automatically manage the royalties it generates. Kodak tried to help their professional customers by presenting a blockchain that stores their pictures and allows any actor eager to use this material to pay the asked price to the photographer, through the acquisition of a token. The payment and availability of the picture are managed by the blockchain and do not require any human intervention. It also makes the picture accessible to everyone in the world, as the blockchain is shared and accessible everywhere.
- The blockchain can be seen as the final state of the ongoing digitalization process:
Currently, the fund industry does not benefit from this new technology. Traditional funds manage clients’ inflows and outflows in a very inefficient way, meaning that 1) the client is paying when he enters the fund 2) he also pays when he wants to get out of the fund 3) the invested minimum amount is often high and acts as a barrier to entry for the middle class of the society 4) the fixing of the NAV is done once a day, and this does not allow the client to invest or withdraw any time he wants…
We consider that all those constraints are out dated, and we aim to use the blockchain to build a very accessible way to invest in our fund, bringing us closer to our client than any other actor in the industry. Furthermore, the underlying management will be achieved without all those irrelevant fees and delays, as everything will be automatically managed by the blockchain, in total transparency. We are currently building this infrastructure, and we will soon be able to offer you a fund without any managing fees, with instant and free execution of your orders.
QUICK MARKET OVERVIEW OF THE PAST WEEK
· The current dynamic is still quite bullish in the crypto currency market taken as a whole. Nevertheless, that dynamic is decelerating (XLM, notably, is not appreciated since almost a week). ETH is the outperformer of the week thanks to the market temporary relief on the SEC subject while investors are still eying the 10K threshold for bitcoin. Volumes are up on a MoM basis but are stabilizing since 10 days around 25 billion USD daily.
· The SEC and CFTC are currently examining whether ETH should be considered as a security in the US. The market seems to expect a happy ending for this examination. Regulators, including the CFTC and the SEC were meeting on May 7th. XRP is also concerned about this issue as an investor is suing Ripple for breaking Security Laws.
· In the same time, South Korea plans to ease the local crypto currency regulation following the arrival of a new Financial Supervisory Service Governor. Therefore, the Kimchi Premium is back on the S.Korean market, demonstrating an increase of demand from local investors.
Next paper subject: How machine learning and blockchain can develop synergies. Publication date: 15/05/2018
ICO Launch Fall 2018
Disclaimer Reference prices are based on closing prices. The information contained in this publication and any attachment thereto is exclusively intended for a public base consisting of professionals and qualified investors.
