A year ago, talking about “crypto” was a bit like talking about quantum mechanics. The topic was obscure and not immediately interesting to most people.Worse still, unlike quantum mechanics, crypto had sort of a bad smell to it.
What a difference a year makes! Crypto is no longer obscure, and it is of immediate importance to lots of people. What happened? Of course, the amazing explosion in bitcoin valuation was part of it. On the first day of trading in 2017, Bitcoin topped $1,000. That seemed unsustainable at the time. Today, even after a rather severe correction in value, Bitcoin is trading at over $13,000. That is huge. On January 1, 2017, Ethereum was trading at around $8. It is now over $800. Other crypto-currencies have exploded in value as well.
The conventional wisdom is that this is a bubble that will pop at any minute. And looking at the above in historical terms, it is heard to argue with that assessment. At the same time, there is also a sense that no matter what happens, the interest in crypto will not disappear. There is a growing sense that we are seeing something new and valuable, even if the bubble pops.
So what is this new value? We are likely to understand this better in 2018. First, the value in crypto is as much — if not more — about the value of crypto’s underlying technology, blockchain, than the various crypto-currencies that run on blockchain. Why? Blockchain is billed as a tool that will promote decentralization of information flow. It removes the need for “gatekeepers” who charge for securing the integrity of data flow. Gatekeepers? Like banks, government, etc. If this promise is fulfilled, even in part, blockchain will be a big deal. Expect a lot more discussion of this in 2018. At a minimum, this could lead to huge cost reductions in transaction related data flow.
Blockcahin has given us another crypto dimension as well, so called “initial coin offerings” or “ICO’s”. These are launches of crypto-tokens as a way of bringing in participants in new ventures. Think of the potential of ICO’s as crowdfunding on steroids. Your participation does not just give you a one off reward, it gives you ongoing access to an ecology. First the bad news — The bulk of ICO’s launched in 2017 will fail. And in 2018, expect a growing chorus of “I told you so” from folks who think all ICO’s are frauds. But in 2018 we may see emerging standards for ICO’s that bring trust to this as a global market. That is a big deal for people who want to participate in value adding ecologies beyond traditional business relationships. In other words, it is worth paying attention to ICO markets this coming year. And again, this is a global rather than jurisdictional phenomenon.
An example of how ICO’s are changing – the crowdfunding platform Indiegogo now allows projects to attract funding through token sales. This “SEC compliant” type of ICO is likely to become more common in this new year. We may see better standards for “utility tokens” as well (tokens that are not meant to act like securities).
As usual, the new technologies are bringing in new vocabulary. To get a sense of this new talk, listen to Joe Lubin, CEO of an ethereum based software engineering company.