This review article attempts to answer the core question: where is the crypto industry heading, and what important events can we expect in a year or two?
In this review article, we offer to step away from the magic of figures and accomplished facts, which already belong to history. Following the logic of current news, we’ll try to anticipate events to try to reveal the trend and look into the future. We’ll make an attempt to answer the core question: where is the crypto industry heading, and what important events can we expect in a year or two?
However, before we are ready to make serious generalizations (which will help us take valuable investment decisions today), let’s take a quick look at recent news, which, in their uniform logic, are already beginning to form an ephemeral fabric of the future right before our eyes.
IT Giants Step In
The first summer week of 2018. This week, we have got the third dump in the press, and this is already the third source over the past six months stating the following:
‘According to sources, Facebook is very interested in creating its own digital token, which would allow more than 2 billion users to have easier intranet transactions. This social media, one of the most popular ones, is also considering other possibilities to use the blockchain technology.’
Yes, this time, the network has officially acknowledged that the company has formed a new team responsible for exploring the distributed register technology and the possibility to attach it to the main FB service. The group is headed by David Marcus, a Facebook executive, who, probably by chance, is also a member of Coinbase’s Board. According to the company, the aforementioned group also combines at least ten leading Facebook engineers.
Let me remind you that, last week, Vitalik Buterin also boasted on his Twitter of receiving a job offer from Google itself, which is the bitterest enemy and a competitor of Facebook. Right ahead, he was offered to join a similar project within Google. Interestingly, the job offer will remain valid for a short time only. We can interpret this in such a way that they have no time to wait and want to launch a new blockchain project quickly (i.e. “Google is reportedly working on “blockchain-related” cloud technology”).
To complete the picture, I’ll also cite another press release (of May) issued by another giant:
‘Microsoft will use the Bitcoin blockchain in its client identification system. This Microsoft’s decentralized identification system will use the Lightning Network technology.’
The client identification service is a core Microsoft service incorporated into all services of the company. Apparently, it will be launched on Bitcoin’s stack. It is worth mentioning that storing a user’s identity directly on a blockchain is probably one of the most reasonable applications of blockchain.
There is also similar insider information from other companies of the same scale, but it is too early to discuss it publicly though. For instance, according to our information, a big gaming giant from the GameDev world is now silently working on building a token to become a universal currency in the world of computer games and online entertainment.
That being said, the Telegram messenger, which has recently set a loud fundraising record during its ICO with TON, will not feel lonely for a long time. Big IT giants have smelled prospects and at last got trust in crypto, so they begin developing their own hybrid solutions combining the power of their platforms and the audience of the latter with the possibility to create an internal economy based on their own token and blockchain.
Judging by all latest news and insider information, a new era of corporate blockchains with their own crypto economies is coming. It will be followed by market reformatting and a new balance of power across top crypto projects.
Metcalfe’s Law Decides
More and more often, we can read and hear from many experts that prices of so many altcoins are too high. Each bitcoin drop causes a short dip in most altcoins, which lack internal value. They have a negligible effect on the market, and their liquidity is extremely restricted. Typically, a small sect forms around every altcoin, which involves truly believing fanatics living with the expectation of an oncoming miracle.
When big and renowned IT platforms, such as Facebook with its almost unlimited audience, enter the market with their own crypto, this is an absolutely different situation. Threading the audience on their proprietary token right away (and leaving their users no other choice), we receive new potential monopolies. According to Metcalfe’s law, when we have such a large-scale expansion, quantity transforms into quality. Almost from the very beginning, we get an internal economy with high liquidity, which is saturated with the mass audience and supported by the top-layer player’s flawless authority. Combined, this generates high intrinsic value of such corporate token.
Here, a real-life case comes to my mind, when Microsoft, with its huge Windows platform and an immense audience tied up to it, entered a hype market of Internet browsers, where Netscape was a monopolist at the time. They just made their Internet Explorer a free and integral part of this huge and popular ecosystem. The result of the battle was significant: Netscape’s business was literally torn apart. Now, something like this is brewing on the crypto market. This growing and trendy amidst broad masses market attracts more and more attention of states and the largest businesses. In part, this resembles a painful death of most small retailers (formerly successful) when big retail networks started deploying their businesses on the growing consumer market.
Today, it is already obvious to many people that 2019 will certainly be the year of advent of crypto unicorns. As for now, there are only two of them: Telegram, which managed to raise about $2 bln through ICO, and EOS, which raised $4 bln. Their resources are radically superior to those of altcoins on the current private blockchain market. The second crucial factor, after the market capitalization, which will distinguish these new super-players from other competitors, will be their immense user audiences, compared to which most altcoins will look unpromising or even comic in a way. As soon as such super-players finish the preparatory work and enter the market, Metcalfe’s law will do its job and reload the crypto market for a new development era.
The phase change here is that blockchain stops being lone dreamers’ toy and becomes appropriated by IT corporations with their armies of developers.
A Series of Conclusions
Recognition of the crypto world on the top level longed for by so many crypto projects can play a rather bad trick with them. Eventually, they will have to compete with multibillion budgets and multimillion audiences of the world’s biggest IT-projects.
Let me finish this futuristic excursus with some short suppositional conclusions resulting from the proposed logical model:
- In the long-term perspective, altcoin markets will experience an extremely severe shock and loss of a significant part of their capitalization: given the presence of crypto unicorns, these markets will be reserved for marginal players and small speculators.
- In a year or two, the cryptocurrency Top 20 will change radically: many new names will appear, which will enter the short-list almost right after the project launch.
- The market redivision is inevitable. New players will take away significant shares from older ones. Only the biggest projects of today like Bitcoin, Ethereum, EOS, Ripple, Litecoin etc. can expect staying at the top.
- Despite numerous pessimistic forecasts predicting slow deflation of the crypto market capitalization, we expect, in the middle-term perspective, a reversal to occur, while the advent of new big players will cause the capitalization growth, significant global audience increase and a new wave of grassroots interest.
- Creation of the Telegram.Passport service (as an example) and the general trend of incorporating the crypto industry into existing banking systems (total KYC implementation on exchanges and ICOs to comply with rules set by current regulators) show that circulation of such secure coins as DASH, Monero, ZCash etc., which are extremely anonymity-oriented, will be more and more problematic. The recent mass delisting of all coins of this type from Japan exchanges is another proof that such instruments will be isolated from the mainstream market and marginalized (which will inevitably have an adverse effect on their capitalization).
- Overall, we can see that the era of private blockchains has achieved its climax (or is about to do so). It will be followed by the advent of big and renowned IT platforms to this market (they will incorporate the crypto as an auxiliary solution; for example, Facebook and Telegram with their proprietary coin tokens). And, eventually, on the third stage, we expect the advent of states to such areas as production, regulation and using their own national cryptocurrencies.
- Each new stage will reload the industry (which will be preceded by a prolonged crisis of the previous formation) radically changing the balance of power and rules of the game, attracting new big players and new capitals, and further globalizing the market. In general, as the financial crisis in the old offline world deepens, we shall inevitably see new super-players entering the crypto market. They will have to look for new models to monetize their growing online audiences. This is true not only for IT-players (while they will be in a privileged position), but also for bank and financial groups (for example, a surge of Goldman Sachs’s activity in the crypto world).
- And a final marginal generalization: the crypto economy is the Internet 2.0, a result of the exponential growth of the Internet described by Metcalfe’s law, where the event achieves a scale when the online economy starts sucking in and transforming according to its own needs the offline economy. Creation of autonomous transnational crypto economies by big players like Facebook (which actually deprives states of their seigniorage right) will force nation states to get involved more actively, which will finally complete the formation of a new digital era on the verge of 2020.