Chapter 2: THE BIRTH OF THE FUTURE
It’s been a hype. It’s gone unbelievably fast. And there have been some speed bumps down the road. Is the world of cryptocurrencies just a rising star waiting to be absorbed into a black hole? No, definitely not. We’re seeing the beginning of a new dawn. Up until recently, it’s been an arena for gold-diggers and early adopters. Now it is taking a giant leap to change the foundations of the world as we know it.
Following his new book on digital strategy How To Become A Digital Marketing Hero, Rufus Lidman is now translating all his knowledge to the most revolutionary field in the world. A field in desperate need of a digital strategy. In a series of articles, we will get an upclose view of this new mind-blowing market, seen through the eyes of a digital strategist.
A Very Speculative Theory
When it comes to blockchain and cryptocurrencies, I would lie if I said that there hasn’t been a few speed bumps on the way. Unfortunately, the business world is one of a hype, earned or not. And when it sees the golden ticket, it’s bound to quickly get on the train. To give some examples. When the British tech company Online PLC last year changed its name to Online Blockchain, their stocks immediately saw a 400% increase in value. As with the American fintech company Longfin. Only days after their own initial public offering on Nasdaq, they bought a small blockchain startup (owned by Longfin’s own CEO, no less) and their own stock value grew by 2 000%. And if the speculative nature of the business has been felt in the stock markets, you bet it’s been felt in the currency market.
The Birth and Rise of the World’s First and Biggest Cryptocurrency
The hype has a considerably longer history than that. The first application of blockchain technology, after it’s first invention in academics during the early 90s, was as most of you know through Bitcoin (BTC). Initially a rather quaint and charming idea, wherein a “program donor”, back in 2008, wanted to democratize a universal monetary system that operated outside of the traditional bounds of corrupt and centralized national economies. The reality of the situation became something completely different, however. The cryptocurrency was picked up by drug dealers and various other criminal elements, who desired more than anything to keep their transactions off the books and in the dark.
You also found speculative buyers, looking to ride the exchange rates for profit. And true enough, many have in later years become millionaires with BTC. Among the 22 million BTC owners in the world, 1 000 of them own 40 percent of the cake, with an average wealth equivalent to over 17 million USD per person. On top of that, BTC founder Satoshi, whoever he or she is, is presumed to own Bitcoin to the value of 20 billion USD, and Chris Larsen, founder of Ripple is presumed to own over 40 billion USD worth.
After that, many more have followed into the fortune fest, including, in what can only be called a kind of karmic retribution, the Winklevoss twins. After the prolonged legal battle against Zuckerberg, over the rights to Facebook, the Winklevosses invested a large amount of their settlement money in 11 million USD worth of Bitcoin, which to date has grown to over 1.3 billion dollars.
Even in Sweden there are hyped up stories of people who have sold all their stocks and taken out all their life savings to invest in BTC, increasing their funds by a factor of 460. Compare this to those who initially invested in the success story Spotify and at the initial public offering will be able to cash in on 400 times their initial investment.
“The total value of all existing cryptocurrencies was estimated to be 700 billion dollars in January this year.”
Some might ask, how was this “digital gold mining” even possible? Well, the simple answer to that question is that we aren’t just talking about increased demand here, but another very important aspect — the fact that the supply is constant as well as finite. Compare this with traditional currencies, where a government, through its central banking authority, can issue new money. It is then up to the public to accept and trust that this ability won’t be abused (despite numerous historical precedents to the opposite). The coins of cryptocurrency, however, are actually just like golden coins. The former gold standard was a finite resource with an absolute max limit, just like how gold on earth is a finite resource, with an increase of supply only possible through an exploding supernova.
The limited supply is ensured in two ways. One being the use of blockchain technology to ensure the security of the currency, making it impossible to falsify or forge, as it renders the double purchase problem obsolete. The other being the fixed max amount of Bitcoin in existence — 21 million. Of which, 17 million have already been ”mined” in digital resource mines and is today in circulation. This is the core of Bitcoin’s increasing popularity, despite its many problematic associations.
The total value of all existing cryptocurrencies, to date 1360 all in all, was estimated to be 700 billion dollars in January this year. A monumental increase from “only” 20 billion USD just a year earlier. Bitcoin, which takes up the majority of the market at 265 billion, saw an insane increase of 1300% during 2017 alone. That is a 6 million percent (!) increase since its initial introduction in 2010. To put it in context, it’s as if the price of a pizza went from a fifth of a penny to the price it has today.
The Giant Explosion
If we move into the more dynamic phenomenon Initial Coin Offering (ICO), we will see an increase just as dramatic. This part of the industry is all about companies using blockchain technology to make reality of a bunch of revolutionary things. Bringing in capital to grow and expand, in order to further develop ideas for commercial products and applications.
In terms of capital, it is the equivalent of a kind of crowdfunded Initial Public Offering for a company using the blockchain technology for new business ideas. Just instead of shares, you sell a blockchained coin or token, that can be used for future applications. These tokens are inextricably linked to the project and can, for example, entitle the investor to a direct share of any future profits.
During 2017, the larger such IPO-like offerings were estimated to a record-breaking value of 3.7 billion USD. If we include the smaller ICO’s, we’re looking at more than 5 billion dollars.This is an extreme increase in capital –nearly 40 times the amount offered in the previous year. During last year, 50 such offerings were made per month, where the five biggest ones were in figures over 100 million USD. And if we’re looking at speed, well, the fastest ICO (for the new web browser Brave) generated 35 million dollars in 30 seconds (that’s right — seconds).
The interest rates on investments have in the successful cases often been in the same range, with average in returns being around 1280%. And crazier still, the three highest returns on investment were all approaching or hitting 10 000%. Let’s compare that to Nasdaq, which during the last good year went up by… 27%.
“We’re approaching a level which can only be described as a fourth industrial revolution.”
The Ethereum platform is clearly playing in its own league here. Eight months after their start in mid-2015, they had already been valued to over 1 billion USD. Ethereum last year became known as “the” platform of ICO’s, with over a thousand launched “DApps”, or Distributed Applications, resulting in a wild discussion about something they call the “flippening” . Flippening is seen as a paradigm shift in the cryptocurrency world, where the values of altcoins are no longer primarily based on the value of Bitcoin. Those who put stock in this flippening are arguing for the end of Bitcoin’s market dominance among cryptocurrencies, with Ethereum ready to take its place. This is all based on the respect given to the broad value chain of Ethereums crypto Ether (ETH), where companies can easily launch an ICO through the Ethereum network from anywhere in the world. This is believed to possibly become the catalyst for a worldwide explosion of innovation, because it has simplified fund runs for upstart tech companies. This entails, not only a sudden drastic influx in innovative tech startups, but a further decentralized society of collaborative efforts on a global scale between investors and companies. We’re approaching a level which can only be described as a fourth industrial revolution.
Even payments for ICO’s have most often been made in BTC or Ether (ETH), which meant the ICO’s themselves have also contributed to the increased demand on both currencies.
The Dinosaurs are Roaring
All of this doesn’t occur in a vacuum, of course. On the contrary, we all reside right in the eye of the storm, centered squarely on the enormous polarization we’ve seen worldwide during the past few years. While the heavyweights, the global and most often digital companies have assumed more and more of the power in both the marketplace and society itself, so too has individuals, both at the expense of the political arena. Where it was once obvious that the governments ruled both corporate and individuals with an iron fist, that same statement is far from a universal fact today. To add to that, social media (they too, ruled in part by the global mega-corporations as well as individual entrepreneurs), have completely superseded traditional media in relevance and importance. Partly because of this, block-averse statements have rained down from both established companies, such as traditional venture capital, but also from the financial elite of Wall Street, such as JP Morgan and Vanguard, as well as academics and Nobel Prize-winners. All proclaiming they avoid bitcoin like the plague.
Above all though, this is all happening in an age where one of the few monopolies the old governments retain, aside from violence, is monetary creation and management. To regard the blockchain as the start of the collapse of the concept of nations is far from an impossibility. Therefore, governments won’t anytime soon give up their dominion of money management and currencies without a fight.
As a direct result of the more speculative elements of cryptocurrency, countries such as Israel, have proposed a complete ban on bitcoin-driven companies on the stock market. South Korea recently banned anonymous trading in cryptocurrencies. In Sweden, the Financial Supervisory Authority has issued formal warnings about ICO:s.
Our dear governor of the Swedish Central Bank has even stated that people who invest in cryptocurrencies are to be ”left to their own devices”. Then again, Sweden has both the oldest Central Bank in the world, as well as the oldest currency still in use, having a strong nationalist incentive in its politics to oppose any and all kinds of cryptocurrencies.
A clear divide between first world and third world countries, in terms of adopting future technology in general, is becoming readily apparent. This is also true in regards to the adoption of the disruptive blockchain technology in particular. Which we will look into more deeply in our coming chapter. Don’t miss it!