With the Bitcoin bubble testing astronomical prices every day, cryptocurrencies and the blockchain technology that drives them are currently taking their turn in this one-tech-fits-all role.
A blockchain is a cryptographically protected dispersed ledger–it is what protects you or anyone else from creating a copy of that Bitcoin you just purchased. You've probably heard about the prevalence of blockchain technology in the financial industry. In reality, anything that it is possible to make a record of, you can manage with blockchains. Ambitious programmers and entrepreneurs are planning to utilize these to rework everything from how we monitor land ownership to how we distribute medication to how we grant diplomas.
Initial Coin Offerings (ICOs), that present new cryptocurrencies into the world, have increased $4 billion up to now, mostly in the last year–which has turned them into a craze of their own. A future in which each of us has our very own personal currency remains unlikely. But one in which each big tech platform problems a token as the coin of its own realm is most likely not far off.
Before that can occur, here are three issues that the industry will have to resolve: Are ICO tokens mainly investments, or tools? Could we give up the idea that cryptocurrencies are a new species of traditional currencies? And can developers end the jolt of specialized problems surrounding Bitcoin and every other cryptocoin? The continuing growth of cryptocurrencies in 2018 depends on just how much progress the crypto planet can make on those questions.
What's A Token?
Initial Coin Offerings (ICOs) started out as a different means for funding new protocols and infrastructure in the crypto world. Through this process, businesses make and sell tokens; the tokens could be viewed as investments, or utilized to accomplish tasks in their platform.
Some jobs, hoping to reassure skeptics and qualify for more institutional funds, specifically model their cryptocoin projects on conventional investment vehicles. The startup incubator Science, for instance, increased $12 million in an ICO aimed at benefiting from ICO-mania to kickstart a whole venture fund's value of investments in blockchain-related businesses. Science structured its ICO to meet Securities and Exchange Commission rules, and purchasing in the Science ICO was not that different from buying into any other seed investment round.
Others take a more complex view of the part of tokens: engineers building new protocols and platforms do not just spend the cash raised in the ICO; the tokens they sell also produce incentives and carry out basic functions in the systems they are building, so the components will not just sit in investment balances. That is the approach that lay behind the recent $50 million ICO from Blockstack, a startup which envisions a decentralized, blockchain-based net where your immediate interactions with companies, associations, and other individuals are powered by its own Assets. Blockstack's system uses its own browser and also plans prototype programs from independent programmers for data storage, Airbnb-style home lease, music publishing, and personal health records.
Right now, the ICO world happily embraces both these models. A year from now, we ought to have more proof to show which one makes more sense. The investment model offers more confidence that any particular ICO will not be an outright scam; the “put tokens to function” strategy opens up more revolutionary technical advances.
Bitcoin was first explained to the public as a form of digital money, and that's the way its successors and competitions–such as Litecoin, Filecoin, and Ether–have been framed as well. Every one of those “monies” resembles traditional money in certain ways–they're abstractions of financial value; they can be traded; they each use unique symbols. But not one of them is appropriate to playing the most elementary job of currency, as a comparatively stable medium of exchange–that is, as a simple method to get and sell stuff.
There is too much friction involved. Each transaction takes too much time, uses an excessive amount of energy, and entails too many dangers. (Bitcoin, for instance, is shockingly easy to lose–one misplaced password and you are in trouble.)
In 2018, the smartest move on the part of companies making ICOs and Bitcoin-related products will be to wean the public and the press off the “digital cash” concept. It's a metaphor that no more makes sense, and it's getting in the way of our properly understanding a brand new technology that is resembles money but really isn't.
Still Working Out The Bugs
The biggest issues with Bitcoin have emerged since the mechanics of purchasing and holding bitcoins are so inscrutable that almost everyone pays third parties to handle them. They have been hacked; their systems go down; they get arranged by governments and regulators to report transactions that users believed could be anonymous.
In 2018 you can expect to see an escalating competition among suppliers of these wallet services to make customers' trust. It will not be easy, because the inflation in Bitcoin's price has pushed a frenzy of involvement that strains these companies' capacities. But when the Bitcoin world doesn't solve this problem, it is going to sour the entire industry's prospects, since it crops up for each new coin or token which catches fire.
Every one of those three challenges which cryptocurrencies face comes down to a question of trust. Paradoxically, the libertarian dreamers who guessed of Bitcoin and its brethren imagined a universe of “trustlessness,” where you didn't need to assess the reputation of the counterparty in any trade, or any middleman establishment, because the whole process was ensured by the blockchain's irrefutable, crypto-secured record. But nothing that's happening in the world of ICOs and Bitcoin now has transferred us any nearer to such a trustless state. People are still making gut-driven bets based on religion: Is my wallet firm the most dependable? Which token is most likely to last and appreciate? Which developers are moving at the cleverest direction?
Those bets will last so long as the market keeps rising. The cryptocurrency boom has been constructed on wealth–equally in funding (because interest rates have been so low for so long) and in specialized resources (since there were plenty of idle CPUs prior to the cryptocurrency frenzy started).
The technical resources have started to dwindle, which is why gamers must pay more because of their graphic cards – that the Bitcoin miners have bought up all the hardware. The slightest whiff of a financial catastrophe will tighten the available fiscal resources, also. The real test for cryptocurrencies, next year and beyond, will be if they can evolve to be more effective.