Sep 26, 2017 teemulaurikainen
I was first introduced to Bitcoin in 2013 when my friend approached me to tell about “a cool new currency”. “How is this any different from digital money sitting in my bank account”, I thought. Luckily for me, my friend decided not to accept my skepticism and tried to further explain to me by showing a few instructive videos and not stopping to talk about it. I read about the technology for a couple weeks, and I was hooked. I couldn’t stop reading.
I slowly became fascinated with the idea how trust could be represented mathematically in a decentralized network, with cryptographic proof. It became clear to me at that point that the world was going to change because of this technology.
According to Coinmarketcap, the cryptocurrency ecosystem has grown from ~10b to ~150b in the last two years, and this only counts the market capitalizations of the crypto tokens combined. If we include the new companies without any token and their market capitalizations to the calculations, the total crypto industry today is in the hundreds of billions. The remarkable growth has woken even the larger corporations from their caves, most notably with leading investment banks admitting that “it is harder for institutional investors to ignore cryptocurrencies.” In addition, there has been a surge from hedge funds in an attempt to get exposure from the booming cryptocurrency markets.
Clearly, there is an increasing interest towards the crypto sector, but what is the underlying driving factor? Why are cryptocurrencies becoming more widely used and adopted? Surely speculation plays a role, but does pure speculation create an industry worth hundreds of billions out of nothing?
No, it doesn’t.
Speculation might cause short-term bubbles, but it is important to study the long-term underlying technology trend, which is extremely strong. Furthermore, media’s role in new technologies is often misleading to the actual technology. It is much more newsworthy to talk about global money laundering schemes and hackers than some mildly positive news, such as merchant adoption or ecosystem growth. It should be obvious by now that the current crypto revolution is not a revision of the infamous tulip mania in the 17th century, but a complete game-changing technology in many industries.
The large trend I see here is moving from a centralized economy to an economy with decentralized ecosystems. These ecosystems are often based on public, open-source blockchain projects, which allow people to transact value peer-to-peer, without a centralized, a trusted third party. The transactions in a blockchain are secured by miners (in Proof of Work model), who are typically incentivized by block rewards and transaction fees. This dynamic ties cryptocurrencies to blockchains, making it unusual (and in most cases, impossible) to have one without the other.
The perfect example of this ongoing transformation is Bitcoin. Instead of having to send money from centralized companies to another (in this case banks), we are today able to transact value directly in a peer-to-peer decentralized network – globally, almost instantly, and with a low cost. There are also some very interesting projects currently being built on top of Ethereum that all relate to the bigger trend of decentralized economies, such as Golem (decentralized computing), Storj (decentralized storage), and Augur (decentralized prediction marketplace).
Are there competitors for these decentralized ecosystems? One could argue that there are. For Golem, it could be Amazon, Google or Microsoft. For Storj, it could be Dropbox. For Augur, the gambling marketplaces. The key difference is that by owning the corresponding cryptocurrencies, you are actually owning a part of the “economy” or “ecosystem”, whereas owning a part of Google means owning the company stock. This also means that companies are increasingly facing competition from decentralized blockchain-based ecosystems. If I am sending monetary value to my friend around the world with a cryptocurrency wallet application, the ecosystem or network (which I am part of) is effectively taking market share of global remittance companies.
Looking at the crypto space, the trend is obvious. According to Balaji Srinivasan, founder of 21 Inc and one of the thought-leaders in the space, “everything scarce will be ultimately tokenized. That means cash, stocks, bonds, commodities, houses, cars, digital goods of every kind, and perhaps human time.” The decentralization of economies or “tokenization” might be the most world-transforming trend since the Internet, and you should pay notice.
Here are my 5 quick learnings for understanding the crypto revolution and to make the personal transformation from an uninformed skeptic to an educated enthusiast:
Article by Teemu Laurikainen, COO at Slush 2017
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