Bitcoin, Blockchain & the ICO frenzy.
Without doubt 2017 was the year that the world officially took notice of Bitcoin. Although the Cryptocurrency has been around for close to 10 years, it was really only this year that Bitcoin hit the mainstream media. Prices for Cryptocurrencies went through the roof in the last 6 months of the year! This in turn fueled a number of related Blockchain technology markets which are currently on the run.
But what does all of this mean? What will happen in 2018 and should we care? What does Blockchain mean to us anyway - and what is an ICO for that matter?
Along with Bitcoin we have seen the popularity of all Cryptocurrencies rise this past year. Although it started with Bitcoin (considered the 'Crypto gold'), currencies such as Ether, Litecoin, Ripple and others have all shot up in value causing market analysts to take notice. This has generated a whole new source of funds overnight, making a number of people very wealthy. And everybody wants a piece of it. When my brother-in-law (who is a non-techie builder) tells me that he is looking at 'buying Crypto this year', then I know it is in the mainstream...
The interesting thing about Bitcoin is its limited supply. Unless the algorithm is changed, there will ultimately only be 21 million Bitcoin in circulation. This will obviously have some bearing on its price, purely because of supply and demand. But the real reasons for this market run seem to point to mainstream financial market adoption along with a recent technology change that will ease transaction congestion. Experts say that the recent successful Beta testing of the Lightning network seems to be a major contributor to this boom.
2017 set the scene for the whole Blockchain market - Blockchain is officially on the map. Although you can find a lot of information on the internet about Blockchain, what it does and how it works, the following video creates a really simple explanation of Blockchainthat I feel summarises the technology nicely. It's worth spending a few minutes viewing this video if you are unclear at all.
In short, Blockchain technologies will transform computing as we know it today. Over the next 10 years we expect to see a new distributed computing paradigm steadily hit the mainstream that will have broad implications on all aspects of our lives. There are endless applications of this technology - from fee-less global financial systems through to single-source identity and asset registers. Here is a link to an article discussing a few of these. The economic benefits of distributed computing are too great for the market not to respond.
Going back to basics, behind all of the hype, the fundamentals of Blockchain technology and its use cases are sound. As the technology matures experts are predicting that we will see the emergence of the next Googles and Facebooks of the world, which will come from this 'Dot Com Mark II' wave. Given that we are 10 years into the cycle, the predictions are that we will see this come to fruition over the next decade.
This brings us neatly to our next subject, the world of the Initial Coin Offering (ICO). With crowdfunding well and truly established and with Blockchain coming to the fore, 2017 saw the emergence of the ICO as a new form of seed funding. And boy has it been popular! Notwithstanding a few bumps along the way, arguably this has been the hottest asset class around. We are currently seeing an absolute feeding frenzy around just about every ICO that gets listed.
You can find a good explanation of what an ICO is from the following article, although there is also a lot of info on the web. Here's another. Currently it is a totally unregulated market for investors to participate in early stage funding of businesses - any of us can participate, all we need is an internet connection. ICO's neatly bypass any regulatory hurdles by selling investors tokens, which are backed by the value of the asset (stock).
And that is the key point about an ICO and the token that you get with it. At the end of the day the value of the token is tied to the value of the asset that you are investing in. In turn the value of the asset (stock) that you are investing in is driven by the value that that business will provide to it's customers and how much its customers are prepared to pay for that value. This needs to be top of mind when buying a token through an ICO - you need to do your due diligence.
Remember that we are talking about a start-up with an idea and, in some cases, a team in place that still needs to build a product... Bottom line, you are backing the team. This is a much higher risk investment than your typical stock, so go in with your eyes open.
Wrapping it all up, doing the analysis and taking all of the expert views on board, it is fair to say that Blockchain & Cryptocurrencies are here to stay. We are just starting to see the emergence of a new computing paradigm. There is too much value in this technology for it not to become part of all of our lives in years to come.
In navigating this world, though, it seems that the most important thing to focus on is to cut through all of the hype and to understand the value that each specific business will bring to its customers. This is where we will see the emergence of the next Instagrams of the world.
Fusion5 Executive Director