When is it safe to get back into the markets?
There have been a lot of articles and news stories recently around blockchain and crypto-related articles that keep questioning whether have we reached the bottom and are these technologies safe to enter back into. It is an interesting question and certainly something that many of us ask ourselves when assessing the risk of taking such an action. The first thing I would say to most is to ignore the price for a moment and make sure we understand the underlying use case that these technologies represent. One thing that I feel fortunate about is that in my career I have worked across a broad range of technologies and businesses that have given me a lot of different problems to solve along the way. Based on this the way I look at these technologies is via the simple table below.
Running through these use cases now:-
Store of Value – If you held a lump of coal next to a nugget of gold out to a 3-year-old and asked them which one was better they would likely pick gold but only because it is shiny. Logically they are both rocks that are found in the ground and ironically at least the lump of coal could go into a fire and keep you warm. From a practical standpoint, gold can’t do anything for you other than shine and look pretty. The reason we value gold so much is that we are educated that it is a store of wealth and humans have done this for thousands of years. Its properties show that it is rare and can’t be tampered with. Politicians can’t simply want to impress voters and create a bunch of gold to hand out to everyone. With this in mind, we can trust it as humans can’t tamper with it making it an ideal commodity to hold when governments start printing that other store of value called money.
Looking at Bitcoin it’s based on the same premises. It can’t be tampered with as a network keeps validating the creation and transactions that take place. A good way to think about a blockchain and how it works is that imagine you are at work and someone sends you an email CC’ing a few of your colleagues that contained offensive material. They suddenly realize this mistake and look to cover up their mistake and change the email on their machine or go to delete it, even try to recall it from their mailbox. You confront them but they deny it and say check my PC, sadly for them your colleagues who also got the email to confirm that person’s actions and show the evidence and proof that they also got to see. This is what establishes the trust in the network in that many others are always checking things so that no one can cheat. Better yet with Bitcoin, there are only 21 million to ever be created making it rarer than Gold. The final bonus with it all is it’s a heck of a lot easier to transport than Gold popping it on your mobile so you don’t have to carry heavy bricks of Gold around.
Operating Sytems – Just like Windows and Mac OS these are the platform that runs all those useful applications. This is the same as blockchain and how it works with the applications that run on these. Sadly it also has the same limitation that the applications that run on Windows can’t be copied to Mac limiting its development community and the number of people who use each limits the respective markets. There are more “operating systems” or Layer 1’s as they are called in blockchain however just like in the software space this eventually consolidated down to two dominant players. From my own perspective, Ethereum was the first and is still the most dominant just like Windows was. Solana is fast cheap and easy making it primed for business or enterprise adoption. They have a good business mind innovating real-world uses of their technology like Solana Pay which challenges Visa and Mastercard to make payments with smaller fees than the big players. Lastly, they are releasing a phone which will look to push that last frontier around blockchain and the mobile space which we all use so much.
Data feeds onto the blockchain – A blockchain can only check or validate the information that is stored on a blockchain. If you are writing a set of code for a financial contract that is linked to the price of oil for instance in that an event would trigger if it hits $50 a barrel you are going to need that from somewhere. These values are live and aren’t a transaction stored normally, this is where the blockchain needs an “Oracle” or a store of knowledge for these. Today most people would fire up google and get the information needed. Chainlink has developed a huge range of trusted data sets that can feed this information into the different blockchains. Blockchain as I have written about before will be all about smart contracts and automation. These data feeds will be just as important to this ecosystem the same as Google is to the internet.
So now that we have understood the lay of the land when do we get back in? Let’s take a look at the last 6 years for a moment and understand what creates innovation in the space.
In each big boom, more people are drawn to look into the technology and learn from it. As a result of this more people start to create new technology or projects inspired and driven by a new understanding of what the technology can do. I am one of these people starting a new business looking to plug existing software into the blockchain to effectively bypass the banks so that the business can directly benefit from its use. This will take time though and just like the gap between the first and the second boom this will be the same till the next. It’s going to be at least 2 years till things get moving again. We say many headlines of airlines, movie cinemas, and stock exchanges kicking off projects to look at adopting the technology but these won’t happen overnight. Once we start to see those headlines of big business rolling out mainstream products onto this technology then we know it’s game time and that the next boom is beginning. Till we see that mainstream everyday use coming to it we will not see that next big push. The price of these tokens such as Ethereum, Solana, and Blockchain is driven by the use of their product. Based on this until we see masses of people driving those transactions we just don’t have the fundamentals in place to drive a higher price point. For that reason, I’m keeping my powder dry for the moment.
The last thing I will say is that just like we have faith in our banking system keeping us safe and that is usually due to laws they should be following the same is now coming to the blockchain. Just like the development above taking place these will take a couple of years to kick in. Once there businesses and consumers can adopt and use the technology with the piece of mind that rules are there to be followed and protect us from bad actors we have seen recently. From where I sit looking at a two-year time frame on these points I will slowly start to buy up over the next 12 months as 2024 is shaping up to be an exciting year for everyone who is involved in this space.
