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What follows is a brief summary of where the blockchain industry has come from over the past 10 years, where (I think) it’s headed over the next 10 years — and a lens to help understand why. It’s lighter on the deep-history and heavier on the more recent and forward-looking perspective.
Where we’ve come from
Bitcoin Emerges (Jan ‘09)
Bitcoin launches in Jan 2009. Initially, awareness is limited to a small handful of people. Over the next 3 years, Bitcoin receives an increasing amount of media attention — but still very minor relative to what it receives today. 99% of people that hear of Bitcoin dismiss it — and not unjustly.
After all, in its infancy, Bitcoin is still a crazy, far-out idea with implications that are difficult to appreciate. Even most people cognizant of Bitcoin’s potential implications are skeptical — after all, there have been many prior attempts at creating digital, non-sovereign money.
Given the limited track records and limited economic value at stake, it’s easy (and not unreasonable) to dismiss Bitcoin at this point.
Bitcoin hits parity with the USD (Feb ’11) then rallies to $100 (Mar ’13), then $1K (Dec ’13)
The rapid price appreciation quickly shifted the narrative from ‘something that won’t work’ to a comparison to ‘tulips’. Suddenly, pundits were universally ‘reminded’ of an event in the Netherlands that happened 300 years before any of them were alive.
At this point, understanding and appreciation of Bitcoin’s decentralization and resiliency was severely lacking — most pundits simply stated that Bitcoin would clearly be “shut down”. Wrong.
Alongside the rise of Bitcoin was the rise of infamous darknet marketplace ‘The Silk Road’ which lent itself well to a new narrative that “Bitcoin will only be used by criminals”. Wrong again.
Bitcoin “crashes” from $1k to $200, “blockchain not bitcoin” emerges(2014–2016)
Bitcoin skeptics feel vindicated by the price decline: “See, tulips, I told you”, “now that Silk Road is gone, nobody will use Bitcoin”. Wrong again.
Importantly, this led to a major shift in the industry’s narrative to “blockchain not bitcoin”. The idea was to harness the power of the technology without dealing with the digital assets built atop these networks.
Again, not an unreasonable idea for a 101-level understanding — which, admittedly, is nearly everyone at this point in time, even industry insiders. Powerful new technology can be difficult to understand.
This led to a race to ‘blockchain’ all the industries from healthcare to energy.
Bitcoin re-emerges & broader “crypto” steps into limelight (2017)
After 2–3 years of ‘blockchain not bitcoin’ and hundreds of pilots and ‘PoCs’ (Proofs of Concept), ‘blockchain not bitcoin’ implementations failed to bear fruit.
There’s myriad reasons why these efforts failed to generate significant value but, most importantly, three main reasons:
1. Open networks are more powerful than closed networks — see intranets vs the internet
2. The digital assets native to these chains are the critical component that makes these chains functional and useful
3. ‘Private blockchains’ are really a re-hash of database architectures that existed long before Bitcoin — nothing new here
Meanwhile, Bitcoin re-emerges — really, it never went away — but it storms back into public awareness with more users, more transactions, better security, and more supporting infrastructure than ever.
The broader market and industry begins to acknowledge and accept that open networks beat closed networks over time — that public blockchains like Bitcoin that allow anyone to participate and anyone to build atop are the root and core of the blockchain opportunity. People begin to realize and accept that Bitcoin and “crypto” isn’t going away.
This led to a mainstream rush to find and launch a ‘better Bitcoin’. Surely if Bitcoin was the first iteration, we can do much better, right? Again, not an unreasonable idea.
Around this time and in the years following, there was a rush to create new public blockchains that made tradeoffs to optimize for one (or more) particular feature(s). In this period, we saw the launch of chains that optimized for various features such as speed / throughput, privacy, and expressiveness.
Adding fuel to the fire, many of these experiments were funded via ICO which exacerbated the interest in launching experimental chains with different tradeoffs and optimizations. While there were many well-intentioned efforts and a few that had genuinely interesting technical optimizations, most were ill-advised experiments with inferior tradeoffs relative to what already existed in the wild — and because this industry’s complexity demands specialization, it was difficult for most outsiders to separate the wheat from the chaff.
These were all experiments being launched and tested in the wild in an effort to see whether their optimizations would be sufficient to drive traction and, ultimately, surpass Bitcoin in terms of adoption and utility. Each of these chains optimized on one particular front at the expense of another — there is no free lunch here.
New chain tradeoffs / optimizations fail to sufficiently differentiate (2017–2019)
The launch of new chains with different tradeoffs and optimizations marked a battle to become the standard — the base blockchain for the future of programmable money. Too often, industry insiders and outsiders alike focused exclusively on the technical tradeoffs as the leading indicator of potential to be the foundation of programmable money.
Of course, this has proved to be an excessively narrow scope of evaluation — as history has proven repeatedly, standards are rarely determined by “best-tech”.
As it turns out and the market has subsequently validated, Bitcoin was the ‘0 to 1’ moment — the step-function leap in progress. Some newer chains offer minor improvements (going from ‘1 to 1.1’) but most really just make inferior tradeoffs relative to what Bitcoin offers (going from ‘1 to 0.5’).
Overall, in evaluating the probability of any of these chains or coins surpassing Bitcoin two thresholds must be met:
1. ‘Does your set of tradeoffs actually present an improvement over Bitcoin?’ The vast majority — if not all — don’t pass this first test.
2. “Is your ‘improvement’ sufficient to overcome Bitcoin’s network effects, brand, distribution, security and first-mover advantages?” Despite myriad optimization experiments, no chain has successfully offered a sufficiently compelling advantage to overcome Bitcoin’s established (and rapidly expanding) network effects, brand, distribution and security.
As a result, most of these new chains — many of which feature a shiny new “breakthrough” consensus algorithm — are the equivalent of Chinese ghost cities: Seemingly beautiful designs and construction that lack organic demand.
Where we’re going
From lateral competition to vertical construction
While the prior period marked a lateral battle to become the foundation underpinning the future of programmable money, the market will continue to coalesce around 1 (or, at most, a couple) winning protocol(s).
Overall, even inside industry participants drastically over-weighted the probability that a new chain would surpass Bitcoin.
In reality, it’s not an even race: Bitcoin has a massively disproportionate probability of taking the lion’s share of the market over the next 10 years. Nobody cares about the 2nd best email protocol after SMTP.
This is a winner takes most market and Bitcoin is the far and away leader — by any metric.
Why? Bitcoin has more users, more value at stake, more awareness, more onramps, the best supporting infrastructure and, arguably, the most prudent set of ‘tradeoffs’ in the public blockchain landscape (one that emphasizes security, long-term scalability, and perfectly predictable monetary policy).
To make matters even more challenging for competing chains, securities regulators in the US and elsewhere have made it clear that fundraising and launching a new chain/coin is a legally dubious proposition — giving Bitcoin somewhat of a (unnecessary) regulatory moat.
Bitcoin’s dominant position is reflected in the sampling of charts below — there’s many more that could be added that effectively all tell the same story. In a winner takes most market with first-mover advantages and network effects, it’s objectively difficult and far-fetched to imagine any of the competing chains surpassing Bitcoin at this point.
In short, Bitcoin has already come a long way from its humble beginnings: Only six years ago, few people had even heard of Bitcoin —and even those who had largely regarded the fledgling digital asset as a“tulip phenomenon”.
In contrast, as of Spring 2019, 89% of the American population has at least heard of Bitcoin and the younger generations are diving in head-first: Among those aged 18–34, 60% are familiar with Bitcoin, 59% see Bitcoin as ‘a positive innovation in financial technology’, 48% think it’s ‘very’ or ‘somewhat’ likely that ‘most people will be using Bitcoin in the next 10 years’,and 42% say they’re ‘very’ or ‘somewhat’ likely to buy Bitcoin in the next 5 years. (source: https://medium.com/blockchain-capital-blog/bitcoin-is-a-demographic-mega-trend-data-analysis-160d2f7731e5)
So where do we go from here?
From here, the building begins in earnest.
That’s not to denigrate the engineering efforts behind all of the new chains that have launched but to emphasize that this next phase of building will produce the layers, protocols, applications and services that will actually be used over the next decade — in contrast to the vast majority of chains which don’t see any meaningful economic traction (“ghost cities”).
Development and building activity will shift from launching insufficiently differentiated new chains to improving and building “up the stack” of the winning protocols.
In many ways, this phase is already well under-way: the Lightning network is a 2nd-layer/protocol built atop the Bitcoin network that facilitates fast, cheap, peer-to-peer Bitcoin transactions. Similarly, there’s several dozen (if not hundreds) of companies and developers that have built infrastructure, applications and services for Bitcoin.
As this vertical construction plays out we will continue to see more supporting infrastructure emerge as well as a lush and diverse ecosystem of applications and services emerge that facilitate a wide range of functionality for Bitcoin as programmable money. This industry began with a financial asset (Bitcoin) and financial infrastructure (the Bitcoin blockchain) and in the years ahead will continue to find the most utility in the realm of (non-sovereign) programmable money.
Importantly, this transition will take years to play out: We’re still in the onboarding phase of Bitcoin — which is why exchanges have been the most profitable crypto companies to-date, much like how ISPs were the most profitable internet companies in its early days.
Of course, these phases aren’t strictly sequential: While we’re only in the first or second-inning of the onboarding phase, the Bitcoin stack and the applications and services that it supports will emerge concurrently and accelerate the onboarding phase.
Bitcoin has and will continue to undergo many ‘phase transitions’ in the years ahead. Namely, Bitcoin will continue to transition from a volatile and speculative commodity — which is how it is (not unjustly) viewed today — to broader recognition as the empowering foundation of programmable money.
A new dynamic at play
There’s an important dynamic at play as the Bitcoin stack emerges: Changes to the base-layer are intentionally slow*, deliberate and careful — there’s no ‘playful tinkering’ when there’s $100B+ of value at stake. As such, changes to the Bitcoin protocol itself require network-wide consensus from (nearly) all key economic stakeholders.
In contrast, building up the Bitcoin stack has a different dynamic: developers can innovate and iterate quickly because these are opt-in protocols, layers, applications and services that don’t put the underlying network at risk and don’t require network-wide consensus. For example, the lightning network could suffer a catastrophic failure and the Bitcoin network would continue functioning as intended.
By design, Bitcoin itself is difficult to change but anyone can freely build and innovate atop the network. So while its intentionally challenging and tedious to make changes to the Bitcoin protocol itself, the pace and range of innovation up the stack will be considerably faster and more expansive.
The rough analogy here is that making changes to a jet engine mid-flight necessitates extreme caution — but there’s little risk in designing a new in-flight entertainment system. Indeed, once a base-level of flight safety is assured, an improved in-flight experience that’s more comfortable with better entertainment and fresh food increases the appeal of flying.
Similarly, as people get more comfortable with Bitcoin itself, augmented functionality up the stack will drive broader adoption.
Ultimately, as Bitcoin charges ahead, it offers fertile ground for vertical growth. As industry venture investors, we look forward to the next decade of investing in the infrastructure, applications and services that enable people to unlock the power of natively digital programmable money.
*“slow” here is relative to the pace of innovation that many have become accustomed to in software. In reality, given the stakes, Bitcoin’s development has been far from slow
The post The Past & Future of Blockchain: Where we’re going and why appeared first on BlockchainCapital.
Bitcoin: Here’s the long-term signal you might be ignoring
Bitcoin’s market capitalization hitting $1 trillion corresponded with a surge in price on the charts. In the said case, the last of the market volatility and network momentum pushed the price higher, before the drop that followed. However, if we look at Bitcoin as an asset to be used as collateral, there is wider scope for the vertical growth of its market capitalization.
Arcane Research’s latest report looked at the journey from $1 trillion to $20 trillion, a figure that is the value of the global market for collateral. Currently, while this $20 trillion market is dominated by government bonds and cash-based securities, there is a widening gap that is creating systemic risk in the system.
This makes it possible for Bitcoin to bridge the gap and make the collateral system largely risk-free and stable, unlike the fragility being observed right now. Counterparty risk and credit risk are currently the top two challenges in the collateral system and Bitcoin could emerge as the ideal solution in such a case.
Based on the aforementioned report, it can be estimated that around 6,25,000 BTCs are being used as collateral in the crypto-market. At their current price, that would be worth approximately $30 billion. However, right now, Bitcoin accounts for just 0.15% of the total collateral market. With the figures for the same expected to rise, the same is likely to have a positive impact on the price in the long-term.
Of late, whenever Open Interest on derivatives exchanges has hit a peak, it has coincided with times of high volatility and hikes in Bitcoin’s price, with corrections following soon after. An over-leveraged market is closer to price correction, based on past instances in previous cycles.
The attached chart, for instance, highlights the OI in Bitcoin Futures corresponding to March 2020’s Black Thursday and the recent ATH of $58,330. Since derivatives markets were the ones to first introduce Bitcoin as collateral, a hike in OI in Bitcoin Futures signals there may be an increase in the amount of Bitcoin being used as collateral, and eventually the price of the asset, in the long-term.
Now, this metric may not influence the price in the short-term as much as other metrics like trade volume, exchange reserves, and the SOPR. In the long-term, however, leveraged futures may lead to a hike in Bitcoin’s price.
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ProBit Exchange Lists EXGold (EXG) | Gold For The Digital Age
EXGold (EXG) has officially listed their token EXG on ProBit Exchange as the digital gold solution solidifies their partnership networks with one of the top South Korean exchanges and its global demographics.
EXGold was developed to capitalize on the burgeoning stable coin niche through its innovative, digitized protocol. Eliciting unmatched price stability and promising conceptual NFTs, EXGold will offer a reliable revenue stream for holders willing to subscribe to predetermined lockup periods.
Pegged to the price of gold, EXGold will reflexively mirror the price of its real-world counterpart. This relationship is immutable, meaning 1 EXGold token will always be worth the price of 1 gram of gold.
Grounded in the Ethereum protocol, EXG offers frictionless transferability and inherent scarcity, with a circulating token supply fixed at 5 million. EXGold ensures a fair, secure incentive structure with programmable smart contracts and predetermined lock-up periods. Soon to be available on Uniswap, EXGold developers are pushing to establish EXG as a potentially leading stablecoin and safe-haven asset.
EXGold’s recent partnership with a Peruvian mine, enabling direct tradeability, is a first of potentially many, real-world partners and the platform is transforming how traders interact with gold and view the “buy” and “hold” process.
EXGold is a digital secure way to buy and hold gold and is pegged to 1 gram of gold.
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Bitcoin: Another Correction Stage is Over
By Dmitriy Gurkovskiy, Chief Analyst at RoboForex
The digital currency is actively recovering after a deep correction. For bulls, it was important to make the price rebound from the support area at $42,500. A lot of investors are scared by such high volatility of the cryptoasset, even hedge funds are pretty sure that the number of institutional investors, who are ready to invest in BTC, will significantly increase after these fluctuations slow down.
Citibank experts believe that there comes a crucial moment for Bitcoin and the digital asset may either become a global payment method or end up with another speculative blowout. JPMorgan specialists are very active in recommending their clients to hedge from other types of markets, such as stocks and precious metals, and invest up to 1% of their investment portfolios in Bitcoin and other digital currencies.
In the daily chart, BTC/USD has once again rebounded from the area between Moving Averages and that’s still an indication of a bullish impulse. The previous movement from such an area resulted in further growth of the asset by more than $29,000. Possibly, this scenario may repeat this time as well and BTC may reach $72,000-75,000. Another signal in favor of this idea is another rebound from the support line at the RSI. However, the bullish scenario may no longer be valid if the instrument breaks the rising channel’’ downside border and fixes below $42,950. After that, the price may move downwards with the target at $29,135.
The current asset growth can’t even be stopped by growing criticism of the primary cryptocurrency. Bill Gates is sure that the performance of transactions in the Bitcoin network is extremely power-consuming if compared with conventional transfers, and that causes a lot of harm to nature in the long run. Rakesh Jhunjhunwala, who is called Indian Warrant Buffett, appealed for regulating authorities to ban BTC in India and said that the asset was just a speculation of the highest order.
Many investors think that the current aggressive growth of Bitcoin is just a temporary phenomenon caused by heightening interest among major investors. As far back as a year ago, Ray Dalio said that with cryptocurrencies moving higher and being accepted everywhere, these assets may face aggressive criticism as well as an eventual ban by authorities. This is exactly what we are witnessing right now.
As we can see in the H4 chart, BTC/USD has broken the descending channel to the upside and may continue trading upwards to reach $65,000. However, one shouldn’t exclude that the pair may resume growing only after returning to the broken border. A strong signal in favor of a further uptrend will be a rebound from the support line at the RSI.
Any predictions contained herein are based on the author’s particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.
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