A Year in Crypto
Our PR Director reflects on his personal impressions of 2017, and on where 2018 might lead us
2017 has been a year where cryptoassets have permeated the global consciousness. As a mainstream news junkie, it’s been hard not to notice the transition of Bitcoin stories from relegation to the curiosity pages, into front-page news on an almost daily basis.
The talk of “bubble” has usually accompanied it, but in a bewildered sort of way — Is this a bubble? What does a bubble look like? What is a bubble? A glance at the net market capitalization of cryptoassets suggests that even if this is a bubble — which to some extent it almost surely is — the scope for that bubble to continue inflating is still very, very dramatic. The net market cap of all cryptos is currently sitting a little below $600BN USD — still well below the net market cap of Apple, a single (albeit ferociously large) company.
While I say it almost surely is a bubble, part of the promise of ICOs is their capacity to start delivering real underlying value propositions to cryptoassets more broadly. We need to start differentiating between new and inflating assets of real value on one hand, and overheated market manias on the other. We mustn’t forget — fiat currencies are themselves largely faith-based instruments. One need only remember Zimbabwe or Venezuela in recent times, or the images of wheelbarrows of worthless cash that have haunted narratives of broken economies for close to a hundred years.
This year we’ve seen the Ethereum network struggle and collapse with its first true challenge in the form of a limited mainstream adoption (Cryptokitties). While Bitcoin, from a transactional point of view seems effectively useless, at least compared to other off-the-shelf solutions (see: too slow, too expensive). What seems clear to my mind, is that none of the existing major cryptocurrencies are likely to be long-term alternatives unless they can be developed to a far more useful point. Therein lies one of the great promises of cryptoassets from the speculator’s perspective — the unicorn is yet to be found.
For the ICO community by far the greatest problem at the end of this year has been a reliance upon these mushrooming cryptocurrencies for trading into the ICO’s alternative coins. If you can only trade for something that seems to be inexorably rising in value, it seems too risky to swap. 2018 will need to see ICOs think hard about the moorings to which they tie their ships.
There seems to be a trend of late, where people compare the boom in cryptocurrencies to the tech boom. The analysis is interesting though deeply flawed. The dot com bubble saw hundreds of companies with “tech” in their business description boom then bust in value, before monolithic survivors emerged like Apple, Amazon, and Google. The popular narrative suggests that this too will be the fate of cryptos — an engulfing firestorm from which only the strongest will survive.
The reason this time seems different to me is at least two fold. Firstly, the dot com companies were centralizing forces. Essentially and for the most part, the survivors of the conflagration were those best able to control or leverage monopolies. The promise of cryptoassets on the other hand, if it ever reaches it, is true decentralization — a removal of a middle man and an ability for individuals and institutions to connect directly without a trusted intermediary taking a slice.
Secondly, the big tech companies are and were applications upon a new infrastructure — namely the Internet. Blockchain technology is the infrastructure itself. We perhaps shouldn’t confuse the tech bubble for the rise of the Internet, and similarly a Bitcoin bubble for the rise of cryptoassets.
Trying to decide how far this whole thing has run and how much further it can go is a popular pastime. As earlier mentioned, market capitalization of all cryptoassets seems to be the most popular yardstick, yet it’s hard to rationalize the value or the depth of this metric. It’s hard to say a lot of things about crypto. Aspects seem true to historical bubbles, but then there are profound black swan elements to it too.
Much of the internal technical analysis that hedge funds and similar have produced that have assigned bubble status to cryptoassets (at least that I’ve read), have almost inevitably failed to grasp the core concept of the technology, namely a trustless system between two parties. It is that factor — that central premise — which holds cryptocurrency’s deepest allure and its greatest intangibility for companies who fundamentally act as middlemen. The degree to which many business models could be undercut by the rapid adoption of cryptocurrency — by the sort of rapid adoption that we’re already seeing — is dramatic.
The big unknown for cryptocurrency in 2018 and onwards seems to me to not be when the Bitcoin bubble will burst — because it will someday burst (at least to some extent) — but when the bubble of middlemen industries will collapse.
This is a personal opinion, and not necessarily reflective of the Cryptonomos position
