Is the rise of cryptocurrencies with a market cap of US$172 billion...

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Is the rise of cryptocurrencies with a market cap of US$172 billion a bubble or a validation of the fundamental promise of blockchain technology for a paradigm shift in the society?

As of August 31 around 3:15 PM, as per CryptoCurrency Market Capitalizations, there are 866 Crytpocurrencies and 229 digital assets across 5406 Markets with a Market Cap of $172,438,815,404

Over $1 billion has been raised through Initial Coin Offerings ICO so far this year and it has overtaken seed and angel funding as the main source of tech funding in the last few months. This titanic shift in raising capital and leveraging the concept of digital assets and mirror assets will transform the traditional capital markets and we will see the emergence of new tech giants in the blockchain economy (aka Internet of Value / Internet of Agreements) on the heels of Amazon, Google, and Facebook that were the derivatives of the Internet economy.

Is this rise of cryptocurrencies with a market cap of US$172 billion a bubble or a validation of the fundamental promise of blockchain technology for a paradigm shift in the society impacting the future of money, transactions, and peer-to-peer exchange of good and services?

The distribution of the Market Cap of US$ 172 billion for the top five cryptocurrencies was as follows:

Bitcoin (BTC): $78,229,711,163
Ethereum (ETH): $36,151,471,219
Bitcoin Cash (BCH): $9,723,944,689
Ripple (XRP): $9,352,446,474

It is apparent that cryptocurrencies (aka digital currencies) are out of the woods, the basements and the garages of techies, the offices of the Venture Capitalists and investors on the Wall Street and the Bay Street, and the main street is poised to embrace the applications of Blockchain in both the public and private markets.

So, the question that comes to mind for starters in Blockchain ecosystem is what is a Blockchain?

As per Satoshi Nakamoro,

Blockchain is a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions -

According to Global Delaware,

A blockchain is a ledger of transactions between parties on a network. The difference between a blockchain and a traditional database is that the ledger is “distributed.” That is, each party on the network maintains a complete copy of the same ledger. The parties all participate collectively in the validation and recordation of transactions on the ledger via a computerized consensus protocol. There is no clearinghouse required to clear and settle those transactions.

Thus, a blockchain ledger can efficiently record transactions without costs and delays caused by intermediaries. Though Bitcoin was the first application of blockchain technology, blockchains can also be used to clear, settle, validate and record transactions in any asset that can be digitized, including securities, derivatives, title to real and personal property, health records and legal claims. Blockchain technology has the potential to affect some of the roles currently played by intermediaries in many industries, in the same way that the Internet has changed the roles of intermediaries in many types of transactions.

As per William Mougayer, the author of "The Business Blockchain",

Another way to understand the blockchain is in seeing it as a triad of combustion of the known fields of 1) game theory, 2) cryptography science, and 3)software engineering. Separately, these fields have existed for a long time, but for the first time, they have together intersected harmoniously and morphed inside blockchain technology.

How Blockchain Works [1]

Here are five basic principles underlying the technology.

Distributed Database- Each party on a blockchain has access to the entire database and its complete history. No single party controls the data or the information. Every party can verify the records of its transaction partners directly, without an intermediary.
Peer-to-Peer Transmission- Communication occurs directly between peers instead of through a central node. Each node stores and forwards information to all other nodes.
Transparency with Pseudonymity- Every transaction and its associated value are visible to anyone with access to the system. Each node, or user, on a blockchain has a unique 30-plus-character alphanumeric address that identifies it. Users can choose to remain anonymous or provide proof of their identity to others. Transactions occur between blockchain addresses.
Irreversibility of Records- Once a transaction is entered in the database and the accounts are updated, the records cannot be altered, because they’re linked to every transaction record that came before them (hence the term “chain”). Various computational algorithms and approaches are deployed to ensure that the recording on the database is permanent, chronologically ordered, and available to all others on the network.
Computational Logic- The digital nature of the ledger means that blockchain transactions can be tied to computational logic and in essence programmed. So users can set up algorithms and rules that automatically trigger transactions between nodes.

Impact of Blockchain on the Society

As a technologist, I have been fascinated with the cryptocurrencies (bitcoin, ether, and litecoin) and as such I have been following the blockchain ecosystem for a while.

For starters, #bitcoin, the world's first decentralized digital currency is based on the Bitcoin blockchain. Block O, the genesis block, of the Bitcoin Blockchain was established on Jan 3, 2009 at 18:15:05 GMT.

In 2016, I also began my research on the business applications of blockchain, in general, and #Ethereum, in particular, in the #FinTech&InsurTech and LegalTech and it piqued my curiosity. This articles is first in a series that will focus on the use cases for the conception and implementation of proof of concepts, and pilots for blockchains in different sectors of the economy.

Don Tapscott and Alex Tapscott, the authors of the book, "Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World" demystifies this world-changing, trust-building technology in a TED Talk which, he says, represents nothing less than the second generation of the internet and holds the potential to transform money, business, government and society.

Ripple is another blockchain (enterprise) for global payments and offers three solutions:

xCurrent- Banks use xCurrent to process global payments for their customers
xRapid- Payment providers use xRapid to source on-demand liquidity
xVia- Businesses use xVia to plug into RippleNet to send payments

Ethereum is another blockchain platform that branched out of the Bitcoin blockchain to address the gaps and deficiencies in the architecture and enable others to envision a virtual world computer. Ethereum inventor and Chief Scientist, Ethereum Foundation, Vitalik Buterin, defines it as follows:

A universal platform with internal programming language so that everyone could write an app -
Technical Note: As of 2017, Ethereum has 4 compilers and 8 runtimes that enable the creation and execution of smart contracts, a contract a term coined by Nick Szabo. The four languages are Solidity, Serpent, LLL, and Mutan inspired by Java Script, Python, Lisp, and Go respectively. Ethereum clients have been written in Python, C++, Go, Javascript, Java, Haskell, Ruby, and Rust.

Investment Risks for Initial Coin Offerings (ICOs) & Tokens

As per the Canadian Securities Administrator Note CSA Staff Notice 46-307 issued on August 24, Cryptocurrency offerings can provide new opportunities for businesses to raise capital and for investors to access a broader range of investments. However, they can also raise investor protection concerns, due to issues around volatility, transparency, valuation, custody and liquidity, as well as the use of unregulated cryptocurrency exchanges. Also, investors may be harmed by unethical practices or illegal schemes, and may not understand the properties of the investment products that they are purchasing. Many of these cryptocurrency offerings involve sales of securities. Securities laws in Canada will apply if the person or company selling the securities is conducting business from within Canada or if there are Canadian investors.

Apart from Canada, other regulators such as Securities and Exchange Commission (SEC) in United States, Hong Kong Monetary Authority (HKMA), The Monetary Authority of Singapore, and Dubai Financial Services Authority (DFSA) have also published directives and notices on the Blockchain and Distributed Ledger Technology.

Legal and Policy Frameworks

Apart from the financial regulators, industry forums such as COALA represent the Dynamic Coalition on Blockchain Technologies at the UN whose mission is to create a global dialogue involving multiple stakeholders (governments, academia, industry, civil society) in the blockchain ecosystem. As a coalition, we intend to collaboratively analyse and scrutinise the various technical and legal nuances of blockchain technologies so as to ultimately contribute to the formation and evolution of best practices, policies and regulations for these emerging classes of paradigmatic blockchain technnologies.

In United States, the Delaware Blockchain Initiative is an outreach effort led by the Governor’s office and Delaware’s Department of State that has appointed a state’s Blockchain Ombudsman to spearhead the effort. It seeks to address the challenge of "Legally-cognizable settlement finality" as well setting up a legal foundation for the entire lifecycle of a corporate share, from cradle to grave, within Delaware.

What's Next

According to the analyst Robert D. Boroujerdi at Goldman Sachs "There are currently over 800 cryptocurrencies out there, though just 9 have a market cap in excess of $1 billion. In addition, over $1 billion has been raised through Initial Coin Offerings ICO so far this year and it has overtaken seed and angel funding as the main source of tech funding in the last few months." This titanic shift in raising capital and leveraging the concept of digital assets and mirror assets will transform the traditional capital markets and we will see the emergence of new tech giants in the blockchain economy (aka Internet of Value / Internet of Agreements) on the heels of Amazon, Google, and Facebook that were the derivatives of the Internet economy.

Winklevoss Bitcoin, Bitcoin Inv Trust, Ether ETF, Vaneck Vectors, Rex Bitcoin and Rex Short Bitcoin in United States are in the race to market the first bitcoin ETF pending decision of U.S. Securities and Exchange Commission...This will bring regulatory oversight for the accredited investors and wall street / bay street will formally embrace it as an alternate investment vehicle.

In my opinion, Blockchains will provide gigantic opportunities to startups, developers, angel investors, private equity and venture capital firms to cash-in on the emerging uses cases of blockchain around the world and we will see an emergence of a whole new economic shift based on Internet of Agreements / Internet of Value / Internet 3.0 that will center around the implementation of Blockchains (Public, Private, Hybrid) and decentralization of services resulting in peer-to-peer transactions and exchange of goods and services bypassing the incumbent intermediaries. At the same time, Blockchains will threaten the market share of the financial, energy, social, and all other kinds of intermediaries.

Finally, I have two questions for you:

1). Is the rise of cryptocurrencies with a market cap of US$172 billion a bubble or a validation of the promise of blockchain technology?

2). What do you think will be the minimum and maximum market cap of cryptocurrencies by Dec 31, 2020?

About the Author

Fasih Sandhu, is a high-octane technology leader, trusted advisor, Certified Management Consultant, Prosci Certified Change Practitioner, and Project Management Professional who has delivered professional services to Fortune 500 global organizations such as Sun Life Financial (NYSE, TSX: SLF), Voya Financial (NYSE: VOYA), Prudential Financial (NYSE: PRU), Bank of Montreal Financial Group (NYSE, TSX: BMO) and Loblaw (TSX: L). He delivers on outcomes that matter and have a tangible and sustainable impact to the current and future performance of the business. He does this through driving transformation initiatives with a roadmap for success and pathway to the future by marshaling key elements toward a united vision and objective.

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Is the rise of cryptocurrencies with a market cap of US$172 billion a bubble or ......