It has been a brutal year for crypto.
Even before the dramatic collapse of the FTX trading platform last month, the price of bitcoin had fallen significantly in 2022 — the product of rising interest rates, its growing correlation with dejected tech stocks, and instability emanating from other corners of the crypto ecosystem.
After reaching an all-time high of $64,400 in November 2021, these fluctuations had this fall caused the price of bitcoin to fall to $20,000.
Then FTX, one of the world’s most prominent crypto exchanges, crashed in November as accusations of embezzlement from clients began to fly. Last week, a federal judge in New York ordered the release of FTX founder Sam Bankman-Fried on $250 million bail. He will be under house arrest at his parents’ home in Palo Alto, California, pending trial.
Bitcoin price fell further as the FTX drama unfolded. But not only did its price not fall to zero, but it settled at around $17,000 and remained stable around that point for over a month. Even with this year’s roller coaster, if you had bought a bitcoin at the start of the Covid-19 pandemic, in March 2020, you would still have earned around $11,000.
Although it is still very early in the next chapter of crypto, many optimists insist that recent events are just another of the ecosystem’s periodic fading.
“The problems we’ve seen in this space have been caused by individuals and institutions making mistakes or taking too many risks, or worse,” said Daniel Stabile, partner at law firm Winston and Strawn and co-chair of the digital assets and the company’s blockchain technology group.
Critically, experts say, nothing that happened in the crypto market in 2022 undermines the inherent value of blockchain. It is the distributed peer-to-peer network that handles bitcoin transactions and which technologists regard as the fundamental innovation of cryptography.
Although they allow users to easily buy and sell cryptocurrencies, centralized exchanges like FTX go against the spirit of crypto by relying on centralized authority, experts say.
True blockchain-based products, on the other hand, allow end users to control their transactions. While most consumers will continue to rely on traditional financial products, a growing number of users believe that these solutions are inherently less secure and more expensive than those based on blockchain technologies.
This does nothing to challenge the power of the technology itself,” Stabile said. “So while it came as a shock to the market, many people in the space remain optimistic about the future of blockchain technology.”
Among the faithful of the blockchain: the CEO of Goldman Sachs. In a recent Wall Street Journal editorial, David Solomon said he still believes in the promise that the encrypted database system can disrupt finance. For example, he said, individual investors could own and trade digital shares — or “tokens” — of real estate. Blockchains also enable faster settlement of complex financial instruments, he said.
“Blockchain technologies such as peer-to-peer payments and the tokenization of traditional assets are changing businesses from how they raise funds to how investors trade stocks,” Solomon wrote. “This has far-reaching implications for the global economy.”
In other words: the same technology that allows people to buy and sell bitcoins could one day change the way people buy and sell everything else.
extinctions
Yet recent events have caused many to pause and reflect that, so far, there are few identifiably successful blockchain-based projects left beyond those that are purely commerce-focused. cryptocurrencies.
For most people, the concept of blockchain technology is still hard to grasp, said Avivah Litan, a distinguished vice president analyst at technology consultancy Gartner. She contrasted the evolution of blockchain with the advent of email, which more easily became a consumer product, like in the beginning, when households accessed email through internet service providers like AOL.
To that end, some providers are now avoiding using the term “blockchain,” she said.
“Everything else needs significant improvement in terms of user experience, controls, security, and customer service,” Litan said. “A ton of things need to be changed.”
Indeed, the last two months alone have seen two major blockchain extinctions. First, the Australian Securities Exchange canceled a project designed to replace its outdated clearinghouse system with a blockchain-based system. And another effort, called Tradelens, by global shipping giant Maersk in conjunction with IBM, which aimed to put its supply chain management system on blockchain, was cut.
“The first generation of these projects simply cost too much money and many were too broad in scope,” Litan said. written in a Dec. 2 blog posts.
Barley Seed Tracking
Still, Litan said, there are individual cases of crypto and blockchain-related projects sprouting across the world. She highlighted the Indian state of Jharkhand using blockchain to track and trace seed distribution, and a project by AB InBev, the beverage maker behind Budweiser and Michelob beers, which uses blockchain to track and trace supplies. in barley.
These two projects are led by the Belgian technology group Settlement. Its CEO, Matthew Van Niekerk, acknowledged that it will be easier to implement blockchain-based use cases in areas where there is no system in place, or in the developing world, where financial regulation may be weak.
“In the developed world, we have systems that already work,” Van Niekerk said.
But the fundamental ideas that make blockchain, like the ability to prove ownership of any asset — including a digital asset — or verify information without having to trust a third party, should have universal appeal, Van said. Niekerk.
It’s just about creating the right apps that attract users. Van Niekerk estimates that almost a million farmers have now registered with the seed tracking platform in India, almost none of whom are technologically sophisticated, he said.
Blockchain-based solutions could challenge big processes in the developed world in the long run, said Gil Luria, director of institutional equity research at DA Davidson Financial Group. He said trading stocks, buying and selling real estate, and borrowing and lending money remains ripe for disruption by blockchain technology.
These processes, he said, are cluttered with intermediaries who can charge fees that he ultimately deems unnecessary. Real estate transactions, for example, require multiple third parties and can take 30-45 days to settle, or even longer.
“Even if we (buyer and seller) both agree on the price,” Luria said, “it could be done instantly.”
Luria acknowledged that many attempts to reform these systems remain at the “sandbox” level – but “the promise is there”, he said.
Ethereum Potential
David Abner, a former executive at crypto group Gemini and now a director at Dabner Capital Partners, said he reserved judgment on bitcoin’s price trajectory. However, he suggested that its price could fall even further from current levels given that it has so far proven to be less valuable than Ethereum.
Although the price of this cryptocurrency also fell sharply at the beginning of this year, it has remained stable at around $1,175 for the past six months.
“The Ethereum blockchain could turn out to be that major infrastructure layer for the future of technology services,” Abner said. “Bitcoin’s investment merit and its use case are not as clear to people as Ethereum’s use cases or potential use cases. There has been more application development which are based on the Ethereum network as opposed to Bitcoin.”
Gartner’s Litan said the main difference between bitcoin and ethereum is that the ethereum blockchain enables smart contracts, which allow users to program the terms of use of a token.
“Bitcoin is good for an alternative to gold, and Ethereum is good for programming and building apps,” Litan said, adding, “It’s the killer app for blockchain.”
Yet, she said, the ability to program or even access Ethereum applications remains out of reach.
“Most mortals can’t use it – it’s too complicated,” she said.
The future of regulation
Ryan Hunter, CEO of Alphaverse Capital, an institutional asset manager focused exclusively on crypto, said his fund is betting on the long-term viability of Ethereum, noting that its network has never gone down since its inception in 2015.
He said would-be crypto users should be prepared for a steep learning curve in the future, as it ultimately means trusting only yourself to be in charge of your assets. philosophy, said “not your keys, not your coins,” would have saved many the heartache of having assets placed in the hands of a centralized exchange that ultimately failed, such as FTX.
Others, like Davidson’s Luria, believe the crypto ecosystem won’t truly mature until US regulations are clarified. While the initial impetus for the advent of crypto may have been to transact outside of any formal legal constraints, “that’s not the world we live in,” Luria said.
While a debate erupted over whether the existing regulations were adequate to stop the alleged fraud that occurred at FTX, it is in the long-term interest of crypto builders to agree to new regulations. , said Winston and Strawn’s Stabile.
The lack of regulatory certainty — like whether crypto should be treated like stocks or commodities — likely prevented the creation of groundbreaking new apps, he said.
“It prevents emerging companies in this space from entering the US market,” Stabile said. Who knows how many businesses could have been developed here. But the entrepreneurs thought the risk was too great to bear. So that’s a very important thing for regulators and legislators to clarify.”
The underlying work to create crypto applications continues nonetheless, Luria said.
“This idea of decentralizing the financial system to put more power in the hands of users and less in the hands of intermediaries and governments? That will continue to be compelling,” he said.
“It doesn’t change because people have lost money.”
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