The future of cryptocurrencies and blockchain technology has been a hot topic since Bitcoin crashed in December 2017. Everyone has an opinion. INVAO looks at the facts.
Author: Frank Wagner, CEO and Co-founder of INVAO
“Bitcoin will go to zero,” said Jeff Schumacher from BCG Digital Ventures at the World Economic Forum in January. He was not the only one making such harsh predictions for cryptocurrencies, at what some consider to be the world’s most elite annual gathering.
And indeed, the market has been bearish all year round. But, here is what many don’t understand: Cryptos are not dead and what’s happening right now is actually quite normal.
Blockchain technology on the Gartner Hype Cycle
The technology consulting firm Gartner has come up with the Gartner Hype Cycle for Emerging Technologies . According to this theory, most new technologies go through the same 5 stages: Innovation Trigger, Peak of Inflated Expectations, Trough of Disillusionment, Slope of Enlightenment and Plateau of Productivity.
The cycle helps to explain the development of the internet over the last three decades. A comparison between the early days of the internet and the current state of blockchain might not be exact, but there are similarities. For example, the early fascination with the technology, instead of a focus on practical solutions.
In the case of cryptocurrencies, the “Peak of Inflated Expectations” was, most likely, when Bitcoin stood at $19,783 in December 2017. If blockchain technology is going to develop according to the Gartner Hype Cycle, there is light at the end of the tunnel.
There are two primary reasons to believe that this positive development of blockchain and cryptocurrencies into the future will happen. Firstly, decentralization will become a long-term trend. And secondly, there are several promising signs that blockchain is primed for mass adoption.
Decentralization will become a long-term trend
Decentralization is going to become one of the most dominant trends in the 21 st century. New technologies could greatly enhance transparency, reduce costs, and increase our independence from central institutions.
With the introduction of the internet, various forms of a “shared economy” emerged, for example through peer-to-peer lending platforms. Despite this development, the internet’s “shared economy” is not decentralized. There are many ‘middlemen’ involved, and some of these have created massive centralized data monopolies. As a result, corporations and governments often have access to our data and may use it for purposes that are outside of our control. Decentralization has the power to reverse this trend.
In the past, Open Source Protocols often created value for users, but not for developers. Blockchain-based token systems have changed this, allowing developers to monetize decentralized platforms. In the future, we will see more of these systems being introduced into the marketplace as developers take advantage of this opportunity.
Blockchain technology is primed for mass adoption
While some do think the value of Bitcoin will go to zero, the data suggests otherwise. The number of on-chain transactions and the percentage of high-value cross-border transactions have been increasing. More trading activity means more dynamic markets and increased proliferation of the technology. Corporations are also investing more resources into global cryptocurrency mining, which supports the value of cryptocurrencies.
A second trend that points towards long-term adoption of cryptocurrencies is the fact that many governments have begun to create a legal basis for the technology. More nations are introducing crypto regulations, including Singapore, Russia, France, Switzerland, and Liechtenstein. Transnational regulations are also being discussed. In December 2018, two leading European financial market watchdogs advised the EU-Commission to investigate pan-European regulation of digital assets.
Thirdly, large corporations are implementing blockchain projects. The World Economic Forum has forecasted that 10% of the global GDP will be based on blockchain technology by 2025.
Moreover, institutional investors, who have so far stayed away from blockchain technology, have signaled their readiness to pour funds into the industry. Fidelity, for example, one of the five largest financial services firm globally, will offer crypto custodian and trading services via its newly formed subsidiary Fidelity Digital Asset Services LLC. Morgan Stanley, a leading Wall Street bank, has recently declared cryptocurrencies an institutional asset class.
Next stage: the Slope of Enlightenment
Going back to the Gartner Hype Cycle, we are currently somewhere in the Trough of Disillusionment. Maybe we have already seen the bottom of it, maybe not. It doesn’t matter — what is important is understanding how the journey will continue.
Once institutional investors enter the field, increased funding will propel the industry’s development forward. We will also see simplified investment products, that will make it easy for unsophisticated retail investors to invest in blockchain technology and cryptocurrencies without the need to fully understand the technical details.
As soon as the first blockchain startups have successfully established themselves in the market, second-generation products and services will emerge. That’s already happening in today’s crypto markets, where new coins are building on the value proposition of existing coins while solving some of their challenges.
The Slope of Enlightenment is not far away — we might already be there. From here, the industry can only move forward, and it might accelerate faster than most of us think. Who would have thought in the early 2000s, that an online dictionary showing personal profiles could one day become a big thing? Now we all have Facebook profiles and the company is worth $470 billion.