Consensus Conference 2017, one of the largest blockchain conferences in the world, took place recently here in New York City. With more than 2,000 attendees from big financial firms, regulatory institutions, and fintech startups from all over the globe, the event highlighted the importance that blockchain will have in the years to come.
The total market cap of the top three crypto assets – Bitcoin, Ethereum, and Ripple – is currently around $70bn. This is an extraordinary number, especially when compared to the AUMs (assets under management) of Blackrock, Vanguard, and Fidelity of $5.4trn, $4.0trn, and $2.1trn respectively.
It may sound ironic, but current applications of blockchain all fail to solve the problem of trust. Corporations do not trust public blockchains, which is a problem that needs to be solved if blockchain as a whole wants to take the next big step.
For a guide on building a startup on blockchain, read this article from an expert in the industry.
Here are 3 obstacles that blockchain will have to overcome in order to live up to its incredible potential.
#1: Governments Should Create Their Own Cryptocurrencies
Frankly speaking, I am surprised that governments seem to be waiting so long to act in this space. There are some tokens that are accepted in a number of countries and trading at pretty good liquidity and volume by speculators and investors from all over the world. There is a possibility that some of these tokens could replace the world’s traditional currencies.
Why are most country leaders not even discussing the possibility of going paperless and introducing the e-Dollar, i-Euro, or z-Yen? Compared to Bitcoin, Litecoin, and Ethereum, which are really only backed up by the computational power of the network, an e-Dollar would be way more resourceful from a fundamental point of view. However, no country seems to be willing to take the leap of faith. The two exceptions seem to be Russia and China, both of which recently announced that they are seriously exploring the possibility of introducing a federal cryptocurrency.
To fully grasp how massive this space is, take in this graph of total market cap of the industry:
With impressive numbers like these, the question that has to be asked is when is the market cap is big enough for state officials to start considering launching their own cryptocurrencies? $100bn? $1trn? $10trn? At the current rate of growth, even these outlandish numbers don’t seem impossible.
#2: The Blockchain Boom Cannot Be Like the Early Internet
Media outlets have been talking about the phenomenon of blockchain as “the new internet”, which is an incredible comparison to make. Human brains are more perceptive to stories, and the story that new kid on the block, blockchain, can overturn the “dinosaur” internet is super appealing to the general audience.
When corporates read these articles, they instantly think back to 2001. Given the recent hype in the news and abrupt price hikes across the board of the crypto-universe, corporates are sure the ugly correction is coming. When? Who cares, it must be coming shortly, since the asset can’t grow that fast and for that long without improving fundamentals at its core.
Yes, the dotcom crash is famously known for the fraudulent WorldCom and the perhaps prematurely launched Pets.com. But let’s not forget that both Amazon and Google came out of the 1990s era as well. And no, Amazon is not losing money anymore (but is still trading at obscenely high P/E ratio of 180).
You don’t have to believe in Bitcoin or Litecoin specifically to believe in cryptocurrencies as a whole. The right candidate might not be Bitcoin or Litecoin, it might not be Ethereum or Ripple. But it is pretty hard to disqualify the value-add functionalities of blockchain. So if any of the cryptocurrencies above aren’t the ultimate digital currency, the next one might be.
#3: Corporates Must Trust the Technology
Sure, the processing speed (at the moment) of any public blockchain is not where it should be. But is this the only excuse for not partnering up with the public chains? Corporations put too much emphasis on the technological part of the equation, completely avoiding the fundamental principal of blockchain: trust. Yes, trust is ensured by a network of miners, but in order to join the network in the first place, you must trust the system.
Lots of research shows that millennials place more trust in companies like Apple and Google than traditional big banks. Trust is not given by default. Trust is something you earn. Instead of being laser-focused on blockchain and distributed ledger technologies alone, financial firms and regulators should be focusing on earning trust they lost. Hiding in private consortiums and building private blockchain walls are great short-term solutions, but they only hurt relationships with the new wave of customers down the line.
Strategic partnerships with the fintech community are absolutely necessary. Blockchain architects should be accompanied by evangelists who would help reshape the message that needs to be communicated to consumers. Once these partnerships are struck and the right questions are put on the table for discussion, the issue many find with the speed of processing will be solved very quickly.
Blockchain can change the world we live in, and this space is in need of some changes before it can truly shape the future.
