2018 has been a tough year for cryptocurrencies.
As I write these lines, the prices of major cryptocurrencies such as Bitcoin, XRP, and Ethereum are the lowest they’ve been in over a year. The price decline, which started roughly in January, has been relentless: The cryptocurrency market cap shrunk from its all-time high of about $830 billion to just over $100 billion. The sentiment on crypto-related chats, groups, and subreddits is grim: Everyone expects the prices to fall further. Some vocal critics, like Nouriel Roubini, are gloating over what they see as annihilation of the crypto bubble.
Perhaps even worse than the falling prices is the uncertainty over where crypto’s headed next. Bitcoin (and its derivatives) failed to become the new money (or even new gold), and it doesn’t look like that’s changing anytime soon. Ethereum’s vision of becoming a global, decentralized computer is plagued by obstacles and likely many months away, and the ICO craze that fueled its growth appears to be over, at least for now. And numerous cryptocurrency projects, even well-funded ones like ConsenSys and Bitmain, are laying off staff due to the cryptocurrency market’s decline.
And yet, there’s hope ahead.
While the cryptocurrency bubble appears fully deflated on most charts, if you look closely, the prices of Bitcoin and Ethereum are still far, far above than what they were just two years ago.
In May 2017, the value of Ethereum and Bitcoin soared, propelling the total market cap of crypto to $80 billion. And back then, the experts were mostly in agreement: That sort of growth isn’t sustainable, and the entire space is likely in a bubble. The bubble kept growing, but to be fair, there was no sane reasoning behind that growth except greed and the type of reckless optimism that borderlines with madness.
This could, of course, mean that the prices could plummet even further. But if you look at the cryptocurrency space as an exciting, new technological playground instead of a big casino, you’re probably well aware that even the current prices aren’t earned. Cryptocurrency might one day disrupt finance, online betting, gaming, logistics, and content creation, among other industries, but none of that has happened yet.
The sentiment I often see among experts is that the bursting of the crypto bubble, while painful for many, should clear the way for the smart people working on blockchain (and related) technologies to create something great. In crypto lingo, it’s time to stop thinking about HODLing and start BUIDLing.
Feeling really bad for genuinely idealistic and good people who are being hit hard by the cryptocrash, especially those who risked their human capital and careers based on promises of stable careers others had no business promising. At same time, there’s a test of values.
— (((E. Glen Weyl))) (@glenweyl) December 9, 2018
Time to BUIDL
So, what is the cryptocurrency space building towards? Some proponents dream of a world where people have the option to cut out the middlemen and take their finances into their own hands. A few years ago, that concept mostly included owning Bitcoin and using it for payments. That didn’t work out (so far), but the space has already evolved.
Nowadays, when we talk about the future of money through the lens of crypto, we can include far more advanced concepts like lending money or raising a loan, trade derivatives or purchase tokenized assets such as real estate or bonds — all through decentralized, trustless, permissionless services.
Amazingly, this future is already here; these services all exist today, though some are still in beta stages of development. Dharma is a platform that lets developers build a variety of lending products, dY/dX is a protocol for decentralized margin trading and derivatives, and two companies called Propellr and Fluidity have partnered up to offer Manhattan real estate in tokenized form.
For these products and services to disrupt anything, though, a lot more people needs to start using them, and the underlying blockchain technology needs to mature, both in terms of the security it offers and in terms of scalability (most of these products are based on Ethereum, which needs to be orders of magnitude faster to really support them).
The examples above are just a small taste of what’s being built on the blockchain or similar technologies — for an interesting overview of non-financial applications of blockchain technology, read Vitalik Buterin’s tweetstorm, below.
1. Time for a brief tweetstorm on non-financial applications of blockchains. As blockchain scalability gets better and better, and UX improves and fees drop as a result, this will become a bigger and bigger part of the story.
— Vitalik Non-giver of Ether (@VitalikButerin) December 10, 2018
And many hurdles to adoption are being solved as we speak. For example, crypto’s notorious volatility found a solution in a special, new type of coin called the stablecoin. Scalability issues which are hampering Bitcoin and Ethereum are being worked on. Lightning Network, which aims to speed up Bitcoin transactions, has been picking up speed lately. Ethereum is attacking the problem from several angles, most importantly by planning to adopt a database-relate technology called sharding. Projects like EOS and Cardano claim they’re already further ahead than these “old” blockchain platforms, and upcoming ones like Dfinity are promising an even more advanced approach and faster transaction speeds.
Big players are, finally, coming
And then there’s the institutional money. While some cryptocurrency diehards don’t want anything to do with Wall Street and pension funds, the terrain is being prepared for big money to enter the space, for better or for worse. January should see the launch of Bakkt — an ambitious cryptocurrency market backed by the Intercontinental Exchange, Microsoft, Starbucks, and Boston Consulting Group.
Given the volume of interest in Bakkt and work required to get all of the pieces in place, we will now be targeting January 24, 2019 for our launch to ensure that our participants are ready to trade on Day 1
— Bakkt (@Bakkt) November 20, 2018
And though SEC has been turning down proposals for cryptocurrency ETFs throughout 2018 (mostly on the grounds of these markets being easily manipulated), crypto markets are slowly maturing. If this trend continues, a positive verdict from the regulator feels like a matter of when, not if (although it may be a long wait). SEC has also hardened its stance towards unregulated initial coin offerings (ICO), and while this means people likely won’t be scrambling to buy ether to jump on the next ICO anytime soon, it also brings a degree of order to the often chaotic — and fraudulent — crypto crowdfunding space.
A lot can still go wrong. Development of popular cryptocurrencies could be slower and more complicated than anticipated. After the horrible year crypto had, institutional investors might be wary of joining the fray. Regulators might retain their tough stance for years instead of months. The stock markets could go tumbling down and drag crypto prices (and interest in the space) with them — though the opposite could happen as well.
Still, it feels like too much has been set in motion for crypto to just wither and die. VCs — some with very good track records — have invested a lot of money in the space. An entirely new ecosystem of platforms, markets and exchanges was built for crypto in a few years. And, most importantly, a lot of smart people are working on blockchain tech. It might take a while for all of it to amount to something real, but I’d be very surprised if it all turned out to be just smoke and mirrors.
Disclosure: The author of this text owns, or has recently owned, a number of cryptocurrencies, including BTC and ETH.