The 600 billion crash and the real value of blockchain

On the intrinsic value and future of crypto

As crypto-enthusiasts and shy market observers alike will duly realize, cryptocurrencies have been slumping for most of 2018. Last week Eric Lam with Bloomberg reported on livemint.com how the total market cap for all currencies tracked by coimarketcap.com fell to a record low of 230 bln USD, the market losing 600 bln in value since January this year.

Cryptocurrencies' $600 billion crash hits a new low_Hong Kong: The 2018 selloff in cryptocurrencies plumbed new depths on Wednesday after the US Securities and Exchange…_www.livemint.com

What does this say about the intrinsic value of crypto?

What does the steep drop starting at the beginning of this year really say about the value of blockchain technology and cryptocurrencies? Not much. If you look closely, you can see the trajectory of the market caps and prices broadly matching the trajectory of blockchain technologies on the tech hype cycle:

Now, my point is to equate the peak in this graph (using bitcoin as a proxy for total crypto market), with the peak in the one below:

Gartner Hype cycle 2017

Where you have to bare in mind that the snapshot you see above is from about a year ago: blockchain was, according to research and analysis from Gartner, about to dive head-first into the ‘trough of isillusionment’.

*If you’re not familiar with it: the Gartner hype cycle basically says something about the expectations that people in the market will have from a given new technology, as related to time. Less directly it also says something about the true (business) value said technology will bring over time, where the most and the most stable value by far comes after the low point and in the ‘slope of enlightenment.’

All this basically shows is that we’re passed peak hype, and now we’re likely to start seeing the true value blockchain technologies can add to the world. And then as a proxy to that, what value they will bring financially.

What value will blockchain ultimately bring?

As I have argued before in my extensive analysis ‘Becoming Blockchain Batman: Getting Rich and Saving the World’, blockhain technology offers two often overlooked essential and new capabilities for humans to organize their world: a new way to back our belief in a currency, and a way to make centralized and privately owned platforms for the distribution of information redundant.

1. A new definition of ‘fiat’ currencyThe most important thing that Satoshi (pseudonym) gave us was a new way to construct belief in a currency. A by all means meaningless virtual chain of blocks made up of code, that we can decide to attribute value to.

What blockchain or cryptography-based coins give us is a new way to back the belief in a currency, or our belief in an idea of money or value. And that new way is our belief in the technology — or in other words, in human ingenuity.

Sidenote: A wonderful surprise was to see one of my favorite authors and thinkers, Nassim Nicholas Taleb, call Bitcoin — and by extension any broadly accepted cryptocurrency — the first “organic currency”. That’s another way to say that we as individuals and as society have the freedom to choose to believe in it.

**2. A way to disrupt the current platform monopolies**The second inherently new possibility blockchain techologies offer — apart from the disruption of the banking/government monopoly over currency — is the possibility to disrupt the platform monopolies. To disrupt the monopolies of the gatekeepers who now control the flow of information and attention, and to bring the same role to decentralized platforms, owned by commons.

If Bitcoin is the poster child for the former, Ethereum is probably the same for the latter.

Trusting each other with the help of technology

So what does this mean for the future? Now, the question is not whether the main value and benefits to society will be found in blockchain tech as a means of payment and store of value or in blochain tech as a platform.

The thing that having a new way to back our belief in a currency, and a way to make centralized and privately owned platforms for the distribution of information redundant have in common is the following:

Blockchain is all about a new way to organize trust: away from centralized institutions and toward global peer-to-peer systems. The excitement in the markets over the value of the cryptocurrencies is just an exponent of the fact that people see ways to make quick and massive amounts of money with it. Tulips, .coms, crypto’s; all the same.

That, combined with the importance of money in our society and the power that governments and financial regulators need to exert over it — the latest slump was just another example of how decicions by governments and regulators world wide can impact market enthusiasm for crypto.

But the long term value — and long term profits- in blockchain will be derived from what I state above: organizing trust in a new way, and disrupting monopolies in favor of commons.

What to expect: an extended ‘flippening’ in terms of volatility and long term value

So what can we expect to see happening over the next year or two? Mind you, I’m no financial analyst. But it seems to me the fact that Bitcoin was reported to have retreated as much as 7% and Ether to have slumped 4%, is in my intuition a maybe symbolic indication of something larger:

Purely monetary oriented blockchain initiatives (not regarding exeptions like Ripl etc.) will most likely continue to be very volatile for quite some time, whereas platform- and application oriented blockchain solutions will prove to become more and more robust in their market valuations, as the wheat is separated from the chaff in those arenas.

So: not the ‘flippening’, necessarily, where Ethereum overtakes Bitcoin as the number one currency in terms of market cap, but an extension of the flippening in favor of platform and application blockchains over mainly monetary ones.

Partly, simply because it seems much more difficult and unlikely for governments and institutions world wide to pass legislation and regulations against peer-to-peer applications and to fight information platforms that are owned by commons.

All in all, we can expect to see much more real value being provided to the world by blockchain tech, both in intrinsic and in monetary terms. And to see more of the (stable, long term) gains coming from platforms and applications than from pure cryptocurrencies.