Blockchain was probably the most fashionable technology of 2018. Just recall when British company On-line Plc decided to add the word “Blockchain” to its name, and its share price soared by 400%. Its shares later collapsed along with the entire cryptocurrency market. However, blockchain is still here. And that's because blockchain is not a business, but a technology. And, it is one that will be profitable for those who use it effectively and appropriately.
As a starting point, let's look at the key events in the blockchain industry in 2018 and then dive to the top trends for 2019.
Lots of Blockchain Projects Collapsed
When the hype began in the industry, barely anyone had analyzed the availability of the product or the background of the teams. And although throughout the past year, interest in the industry has been declining, in 2018, crypto-projects collected a total of $21.5 billion worldwide, according to CoinSchedule. Other agency estimates show lower numbers, but the figure is still substantial.
The tragic thing is that about 80% of all ICOs turned out to be fraudulent. And even if not all of that money ended up with the scammers (some of the funds were returned), the amount of stolen funds is still impressive.
A similar situation existed with the dot-com bubble at the beginning of the century: almost 90% of the projects collapsed. However, from the ashes of those Dot Coms came companies like Facebook, Yahoo, Amazon, Google and others that have become today's tech giants. This is also how it will be for the blockchain project market. Among the surviving projects, «Google-on-blockchain» is one that is still lurking. And if you have invested in it, good for you.
Attracting Financing has Become Complicated, and That's a Good Thing
In 2018, the STO replaced the ICO. Initial Coin Offering is the free sale of coins or project tokens. This method of crowd-funding rode a wave in 2017, the decline of which we observed throughout 2018. An STO, or Security Token Offering, refers to the selling of security tokens.
However, selling security tokens is difficult because of the increased attention they attract from regulators in different countries, notably the American SEC. The fact is, security tokens are similar to company shares, and the process of selling them is strictly regulated. Violation is punishable by criminal law and serious penalties; there is no way to disguise security tokens as utility tokens.
Now IEOs have come onto the scene. An Initial Exchange Offering refers to selling tokens on stock exchanges. The procedure of stock listing, of which KYC and AML verification are an integral part, should bring market participants into less opaque waters. 15 exchanges have already either created platforms for IEOs, or have announced plans to do so. IEO projects collect their Hard Cap in an extremely short time, but it is worth considering that here, either a ready-made and working product is required, or at least a serious community that stands behind it.
“Crowdfunding is not nearly as easy for cryptocurrency projects in 2019 as it was at the peak of 2017. But you certainly wouldn’t know that by looking at recent IEOs, which have all sold out within minutes”, commented Artur Boytsov, Vice President of Priority Token, one of the world's strongest ICO / STO agencies in 2018. Artur adds: “We’re starting to see IEOs growing in popularity similarly to ICOs in 2017, and the projects which can manage to qualify for an IEO are likely to raise money quickly and easily, as far as it looks now. However, there are more rigorous requirements for IEOs than ICOs...”
Crowdfunding is moving in the direction of classical investing, and we would not be at all surprised if it turns out that venture capital financing is sufficient.
The Number of Countries Regulating Cryptocurrency has Increased
Last year, cryptocurrency attracted considerable attention from financial regulators in 130 countries. And although cryptocurrencies were generally prohibited, they still ended up in the official realm of legal consideration. Might as well start with that. As with a lot of things — the prohibitions are initially weakened, and then finally removed. Time will tell, and the market will judge.
According to a report from the US Library of Congress, cryptocurrencies are allowed in 16 countries and are completely banned in 9. We believe that in the future this proportion will move in the direction of technological progress.
Blockchain Projects Have Begun Seeking the Patronage of Large Corporations
Blockchain as an industry is developing thanks to governments and large corporations. Where there is money, there is development. These “Fat cats” have a lot of money, and that's why projects close to them have remained afloat.
Nasdaq, IBM, Hitachi, other large corporations are exploring the capabilities of distributed registries for their own business purposes. The consensus opinion of corporate executives currently looking at blockchain can be summarized as follows: The only real mistake that can be made with regard to blockchain is to do nothing. Details can be found in a report from Deloitte.
The experts at America's Forbes believe that in the next decade, 10% of the world's gross income will be generated on blockchain platforms.
The WTO has a similar opinion: they associate the development of commerce with the use of blockchain technologies. We analyzed their report for 2018 and briefly outlined the main provisions of the report in the article “How the WTO Thinks the Blockchain Revolution will End.”
Venture Capital will Return to the Blockchain Industry
What goes around comes around. The wave of “light” ICOs has subsided, the time of STOs has passed, and organizing an IEO (financing via exchanges) is almost as difficult as an IPO. Good old venture capital — the optimal ratio of the cost of capital to the cost of attracting it – is back.
We Will See a Lot of M & A Deals
For example, Citi and Credit Agricole banks acquired a stake in the SETL blockchain startup, which provides support for calculations based on distributed technology. Major institutional investor Digital Currency Group is participating in capitalizing Revelator, a startup which manages digital copyrights. Shell bought the Applied Blockchain start-up for use in its own business.
«Fat Cats» will continue buying up small and efficient cryptographic projects.
Distributed Registry Technologies will be More Widely Used in Accounting for Financial Transactions
Banks, financial brokers and exchanges (especially crypto-exchanges) will increasingly use DLT for traditional business. They have nowhere to go: blockchain does not allow for the manipulation of statements or changing of documents retroactively. Self-respecting structures will use a distributed registry to ensure transaction immunity. Over time, the use of blockchain will become a “badge of quality” for financial companies.
Blockchain as a Service Model will be an Industry Growth Driver
Obviously, using “out-of-the-box” technology from the cloud is easier than creating your own blockchain. Many services are provided using cloud-based technology, and blockchain is no exception. This trend is confirmed by the fact that Intel, Microsoft and Amazon are all already offering blockchain-as-a-service. And big players only get involved in the big stories.