Why the 2020s is the decade of Blockchain technology
Imagine your everyday life before the mass adoption of the Internet. Think about your habits : buying gifts, ordering food, calling a cab, learning about new things, communicating with others, working, learning… Think about how much everything has changed and how the Internet has transformed our lives. I argue that the same will be true about blockchain technology in the decade to come. We will be using (d)apps, services and products running on blockchain in our everyday lives thus resulting in a variety of social and economic changes.
What is blockchain ?
There are plenty of resources out there that explain what blockchain technology is so I will keep it short here. What is important to understand for the purpose of this essay is that blockchain technology enables the distributed and decentralized use, storage and transmission of information. In this way, information can be used without a centralized entity controlling, tampering or even censoring it. This in turn, enables the adoption of networks that are transparent and trustworthy.
For example, electronic (and traditional ballot) voting systems are not entirely transparent, one cannot verify the way in which every single vote is counted so we have to trust institutions and groups of people who assure us that the system is working. Voting via blockchain technology would be radically different in the sense that every single vote could be accounted for (although anonymized) on a decentralized and open ledger. Everyone could verify the accuracy of the information since it would be distributed and available for anyone.
The real world applications for this technology are endless. One consequence of such technology has been the creation of cryptocurrencies that operate on blockchains, with Bitcoin(with a market cap over 800Bn USD at the time of writing) leading the way. Bitcoin shows all the fundamental capabilities of blockchain: it is decentralized (no single entity can alter the number of bitcoins like central banks can do with their currencies), it is transparent (anyone can access the ledger and see all the transactions that took place on the network — although it is anonymized). Compared to the transfer for traditional fiat currencies, you can send Bitcoin in a couple of moments to anyone, anywhere, without going through an institution and tacitly asking for their approval which makes it fast, inexpensive and reliable. Bitcoin is not a project but simply a digital asset (think of digital gold), other cryptocurrencies are embedded in utility projects. Initially, cryptocurrency tokens can be a way to raise funds for a certain project and then serve as a payment method for services (or goods) within the network.
Beyond Bitcoin, thousands of projects make use of blockchain technology today. Major networks like Ethereum (200bn USD) or Cardano (30bn USD) have a variety of uses and enable multiples ecosystems or projects to flourish and build on the network. Ethereum for example, is the main home to a multitudes of projects that aim to revolutionize the financial industry by making it decentralized (DeFi). Anyone can start a network based on Ethereum. There is no way to summarize all the fascinating projects that operate on blockchain technology right now but here are a few just to give you some perspective. Vechain offers supply chain management solutions for businesses; Aave and Uniswap are among the decentralized exchange platforms that enable a variety of financial services including trading, borrowing and lending cryptocurrencies. Enjin is a cryptocurrency designed to buy and sell virtual goods in online gaming communities. And the list goes on: health, art, humanitarianism, education, academia, pretty much any field you can think of has a blockchain project currently under development.
So what makes the 2020s the decade of blockchain?
Beyond the obvious coming-to-age of the technology itself, there are several social, economic and political factors to my argument.
The social aspect is related to the development of society, social norms and practices. As I pointed out in the beginning, the global use of Internet has not only led to the acceleration of our lives but also the accumulation of enormous amount of data. Everything is ruled by information, elections can be won by the use of data collected from the Internet, products designed, scientific studies conducted, social movements catalyzed… And most of this happens faster than before because of the speed at which information is disseminated. What lacks in the use, distribution and control of such information is transparency. That is where the decentralized and trustworthy aspects of blockchain technology come in. Blockchain technology enables the free flow of information which makes it even more accessible and trustworthy. Moreover, anonymity has also become a growing demand by people who are increasingly spending time on the internet.
The political factor is related to the social one in the sense that transparency has become increasingly valued. Transparency is crucial for the trust in the democratic process but this is not all. Indeed the decentralization of information has also the effect of leveling the playing field since all actors can access and use available data. In the future, we might not need to pay Facebook or Google to obtain information but go through decentralized networks built on blockchain technologies. This would not only enable people to control the information that is collected on them but also let others access such information easier and for a lower cost. Finally, decentralized networks will enable the free flow of information and lower the power of censorship.
The economic factor has been in the spotlight with the growth of cryptocurrencies such as Bitcoin since 2017. In 2021, the total market cap of cryptocurrencies has reached more than 1 trillions US dollars. One reason that often explains the rise in popularitiy of cryptocurrencies is the lack of inflation (there is a finite number of Bitcoins that will ever be available) that makes Bitcoin an attractive way to store value compared to fiat currencies. For retail investors, Bitcoin offers a much more attractive potential growth than their regular savings account, while institutional investors such as Tesla may use it as a form of payment but also as a way to hedge the risk of having their treasury holdings massively exposed to the US Dollar.
Moreover, the social and economic factors become intertwined when we think about the fact that a lot of retail investors want better, easier and cheaper access to financial markets. Whether it is to lend, borrow, trade, save or transfer assets, cryptocurrency markets provide a massively attractive alternative to traditional markets.
Is this just another bubble?
The dot-com bubble or tech-bubble was caused by the hype and speculation that resulted from the emergence of Internet-related companies in the late 1990’s. What is to say that cryptocurrencies will not suffer the same fate?
Well, in my opinion they already have. In 2018, after massive growth and hype surrounding cryptocurrencies there was an equally massive market crash with the price of Bitcoin falling by 65% in a single month while some cryptocurrencies got simply erased just like some companies went bankrupt during the dot-com bubble. And the similarities are striking: the rapid growth of a new technology, the multiplication of companies (or projects) and the hype surrounding them. While the dot-com bubble was fueled by IPOs(Initial Public Offerings) the crypto-bubble was equally fueled by ICOs (Initial Coin Offerings). Again fortunes were made and others were lost. Even Mark Cuban, an investor who is famous for having profited from the ‘dot-com bubble’ is now advocating for cryptocurrencies.
Although it is impossible to predict for certain, I believe that the crypto bubble has passed and that the 2020s are the crypto-equivalent of the 2000s of the Internet development. One reason for this is the massive rise in cryptocurrency users which suggests that more people are turning towards cryptos. According to research published by Binance — a leading yet centralized cryptocurrency trading platform — cryptocurrency users grew from 5.8 million in 2017 to more than 100 million in 2020. The same article details the following reasons for such adoption: retail investors seeking to make long-term investments, distrust in regular financial institutions and short-term trading opportunities.
The main difference between 2018 and 2021 is the fact that cryptocurrencies might be in hype but their utility has grown tremendously. Plus this time around there are not only millions of retail investors rushing into crypto-markets but also institutions, banks and companies like Tesla, Visa, Mastercard etc.
While some cryptos will inevitably turn out to be failed projects or even scams, I believe that others will become the Googles, Apples and Amazons of tomorrow. I mean, 1000$ invested in Apple during the peak of the dot-com bubble would be worth more than 100'000$ today — not so bad for a bubble. The same is true with Bitcoin, Ethereum or Cardano if you bought them at their maximum price in 2017 compared to today.
Where to next?
Looking at some of the transformations occurring right now, it seems to me that blockchain technology will have a profound impact on the structures that govern our lives. These transformations will impact businesses, the financial sector, the arts, the gaming industry and many more.
I think we are just in the early days of mass blockchain and cryptocurrency adoption and the 2020s will be the decade of blockchain. It is impossible to predict exactly what types of transformations are going to occur but two things seem certain: they will be massive and they will happen fast.
Blockchain technology has the potential to transform our lives in the same way as the Internet once did. I actually view it as an evolution of Internet, an evolution which reflects the changes of society itself. As with most technologies, the outcome will depend on the way it is developed and used. Right now, the promise of more decentralization and transparency, as well as more privacy and individual ownership of personal data, might just be what a highly globalized, interconnected and unequal world needs.
Disclaimer: I do invest in cryptocurrencies but I have no investments in any of the cryptos mentioned in this article.
