Between “Bloodbaths” and Safe Havens

Bitcoin celebrates its 10th anniversary in January of 2019, and it’s worthwhile to take stock of the world of cryptocurrency today. Few would have predicted a decade ago that Bitcoin would be a mainstream topic of conversation, or that cryptocurrencies would be worth more than 100 billion USD cumulatively. By any reckoning, cryptocurrencies have come a long, long way in their profile and general awareness.

Yet not all is rosy when it comes to the fortunes of cryptocurrency. In essence, cryptocurrencies today are complex, mathematical value reserves written as data. But cryptocurrency is anything but a stable pool for holding assets.

Look no further than November 14th of 2018, when nearly every significant cryptocurrency plunged between 10% to 20% of their value. Over the past 12 months, we’ve seen the cryptocurrency market spike from incredible highs to frightening plunges. The one thing we haven’t seen is an attribute many desperately want in a cryptocurrency: Stability.

The question is whether a solution or answer to the issue of instability in the world of cryptocurrency exists. But examining the issue requires reconciling the multiple facets within the blockchain community.

Largely, the world of blockchain can be grouped into two camps. In the first, users are concerned with trading cryptocurrencies, buying and selling on exchanges, and essentially using cryptocurrencies as vehicles for speculation and stores of value. In the second camp, we have those more concerned with developing the actual cryptographic structures that later become coins, tokens, pegs, and protocols.

These two groups often have wildly diverging priorities and desires for the future of blockchain-based applications and solutions. And frequently they have very little contact or interaction between themselves. Yet these two groups need each other. It’s obvious that without the developers, we’d have no cryptocurrencies at all. On the other hand, the speculators and traders have contributed to the growth and enthusiasm pushing the blockchain world toward new developments.

It’s a bit disappointing to see how little progress the next wave of blockchain-based solutions has made over the past year. The massive wave of ICOs seemed poised to deliver exciting new platforms to showcase the potential of blockchain technology. But in reality, it seems that the majority of ICOs were more interested in raising money from uninformed investors desperately trying to jump on a bandwagon. [2]

It’s possible to question whether the recent developments in the crypto worlds make a case that a decentralized economy is truly a better alternative than the status quo fully regulated and controlled centralized system. Which is a particular shame, because concurrent developments in the larger sphere of technology make a strong case that we need a decentralized economy more than we ever have.

More and more, the broader world of technology is dominated by the titans in the industry. Apple, Google, Amazon, Facebook, Netflix, Uber, and so on. We, consumers, devote incredible amounts of time, money and trust to these monolithic tech giants. But is this world of benevolent technocratic corporations the true reality, or are we deluding ourselves as to the potential consequences of entrusting so much of ourselves to these entities? Apple CEO Tim Cook was the latest to formulate the idea, “If something is free, you probably are the product.” This concept has been applied to television advertising in the past, but the tech giants like Facebook and Google are reaching new heights in leveraging their users. As we ‘live’ more and more online, the massive corporations managing that space are able to commercialize and monetize us with greater power and precision. Unfortunately, this process can have some dark consequences. A recent example was Facebook and Cambridge Analytica, where the intimate personal details of tens of millions of Americans were leveraged for a political campaign, to see that these tech corporations overseeing our digital lives may not be worthy of our trust. [1] Cambridge Analytica is likely to be the tip of the iceberg when it comes to our uneasy coexistence with enormous companies whose interests are in making as much money as possible by using our lives as content.

More than ever, we need systems in our world that are secure and fair. The only real way to guarantee this is if these systems are decentralized. This is the promise that blockchain offers and recent underwhelming progress don’t dim that potential in the long term.

The potential applications for decentralized networks are vast. In fact, one could argue that decentralized networks could theoretically replace or supplement nearly all of our digital-based applications and solutions. Imagine a blockchain-based decentralized platform through which users could make contributions in exchange for tokens convertible to fiat currencies. Or a decentralized version of Airbnb, where people are able to swap tokens for lodging throughout the world. These are only scratching the surface of the potential applications a decentralized network can offer. The core issue with any network is trust. Throughout history, we’ve always needed to turn to institutions of government or corporation to act as middlemen and gatekeepers to regulate transactions between entities. There’s never been any way around it, and so we suffered through all the downsides of setting up gatekeepers and facilitators to manage our commerce and transactions.

The decentralized model is the antidote to all the problems inherent to a system in which we’re forced to offer trust to governments and companies all too often unworthy of that trust. And the exciting news is that we continue to make progress on the technical side toward developing the tools we need to make it feasible.

Developments in creating decentralized systems with binary Byzantine consensus protocols are leading to greater confidence in theoretical future blockchain-based networks. This is one major piece of the puzzle, with another being the development of a proven and stable data structure. With these elements in place, there’s every opportunity for blockchain to take that next leap in terms of integration with all aspects of people’s lives. But again, a part of the issue comes back to stability.

The crypto world has been aware of the value of a stable crypto asset and has attempted to address it previously. But past attempts have been lacking, for a variety of reasons. One of the highest profile failures in attempting to create a stable crypto asset is Tether, a venture that tried to create a stable token at the cost of losing decentralization. Tether’s problems are numerous, not least the fact that they’ve been unable to guarantee the exact stability at the core of their concept. [3] The idea of a stable coin or token is a necessary one for cryptocurrency as a whole to advance, but we haven’t seen that ideal stable token just yet.

One of the reasons the concept of a stable token is so crucial to the progress of crypto is that it takes much of the mysticism and uncertainty out of using cryptocurrencies for mainstream users.

As things stand, new entrants into the world of crypto are presented with an opaque, confusing and at times menacing landscape. In order to safely and successfully use cryptocurrencies, you need to possess quite a bit of technical knowledge. And even worse, where’s the guarantee that the crypto asset you bought for $1 USD won’t be worth $0.50 the next day?

As a community, the blockchain development world is working toward an economic landscape of stability, though that work is still in its early stages. More progress needs to happen, though some important steps have been taken recently. One significant initiative has been the announcement of the ‘Terra’ stable coin, launched by Chinese cryptocurrency exchange Binance. This project looks to bring an asset of predictable value and the ability to utilize the resources of some of Asia’s largest e-commerce markets. [4] The Ethereum-based stablecoin Dai has also shown promise over the past several months. A more recent development was a conference on stable coins held in Budapest during the first week of November. A range of luminaries within the blockchain community were present, including seminal blockchain developer Nick Szabo, who is best known for his development of the proto-crypto asset project Bit-Gold.

Nearly 10 years after Bitcoin was created, cryptocurrency has come a long way. And yet in some ways, it feels like we’re so far from seeing it unlock its revolutionary potential. Progress has been frustratingly slow at times, but we’re witnessing some real strides that show promise in making a better tomorrow for blockchain-based solutions.

[1] — The Cambridge Analytica Scandal, in Three Paragraphs, Robinson Meyer

[2] — Why Most ICO’s Will Fail: A Cold Hard Truth

[3] — What is tether? Controversial cryptocurrency causes chaos for bitcoin price, Anthony Cuthbertson

[4] — Terra is an ambitious crypto project to build a stable coin through e-commerce, Jon Russell

[5] — Global Stablecoin Association to be Established at Blockchain Budapest Conference, Max Moeller

Chairman of Polimex and founder of Andersson Family Foundation. Significant interest in new technology and its influence in today’s global business and economy.