Before I start this article, I want to clarify the difference between cryptocurrency and blockchain. Most cryptocurrency uses blockchain (a type of DLT — distributed ledger technology), but not all blockchains are used as a cryptocurrency. Examples of cryptocurrencies include Bitcoin, Bitcoin Cash, and Litecoin. These three examples of cryptocurrencies can be used to pay for items online or in store. They are ineffective for in-store purchases because of the wait time for transactions to confirm (aka transactions reaching “consensus” on the network). In addition to lacking effective utility based on lack of immediacy in transactions, there are also dozens of better options for making payments, including credit cards (earning mileage points), prepaid/debit cards, PayPal, Venmo, checks, etc.
It is in my opinion that cryptocurrencies are not dead, but currently lack little utility other than as a speculative investment. This includes all currencies meant to be used as payments, remittances, or virtual gifts (ex: donating to esports streamers). I often stress the importance of utility within blockchain projects. An example of lack of utility lies within Quantstamp, where they recently experienced grief from their community of investors for allowing network payments to be made via Fiat, BTC, ETH, all in addition to their native QSP token. By accepting payments outside of their native utility token, they severely devalue their network’s utility token, thus creating a lot of upset investors. I also believe Quantstamp as a “blockchain as a service” is not effective because smart contract security audits should be done by multiple third parties, programmers, and even lawyers.
“Necessity is the mother of invention.” There is no necessity for cryptocurrencies as a payment protocol, thus rendering many cryptocurrency projects redundant or presently obsolete. On the other hand, blockchain as a technology is growing at a rapid pace. There are thousands of public and private blockchain projects: some get developed by scrappy start-ups, others are already household names, and still a large portion of blockchain projects are private or being developed semi-privately by large multi-national corporations. Some of the most popular blockchain projects like EOS and Tron are more popular for their recent price movements and social media fervor than actual utility, decentralization, function, or roadmap.
At the moment, the market for cryptocurrencies looks very bleak. Most non-hardcore investors and market watchers may feel like the overall state of the market is down or dead. Bitcoin reached a high of ~$20k only to land around the current price of ~$6k. The problem with cryptocurrencies (as opposed to traditional digital currency like Venmo or Paypal) is that they have a high barrier to entry, minuscule local infrastructures (ability to pay bills or quickly deposit/withdraw at a local merchant), varying/developing government regulations and taxes, and lack significant USP to increase adoption against traditional payment channels. On the other hand, utility tokens have slightly lower barriers to entry, assuming they are not listed as securities/currencies. Also, utility tokens have significant value propositions, one of the stronger examples being supply chain blockchains which are being used to assist in tracking sourced goods, finished goods, and confirming product authenticity.
However, these real world use cases have not yet translated into an official dot-com type “boom”. Quite the opposite has happened, and the market seems to be in a never ending decline. This decline has investors thinking that the “scam” has been exposed and that there is no actual value in crypto/blockchain projects. Additionally, the recent crypto market boom that we experienced in December 2017-January 2018 may have been heavily caused by Tether printing and the subsequent pumping and dumping of USDT/BTC.
I believe that there is still significant value in blockchain technology, and that value will show within the next 12 months. I also believe that we are currently experiencing consolidation as a whole. Throughout this consolidation process, the learning curve to understand the basics of blockchain, and the industry as a whole, is getting shorter. My prediction is that hundreds of projects (that lack utility) will capitulate while a handful of utility projects will grow.
Disclaimer: This blog is for educational purposes only. Do not use any information provided by myself or this blog as professional/financial/legal advice or personal suggestion. Please seek financial, legal, and accounting professionals before making any financial, legal, or accounting decisions related to investing.