Posted on 01/14/2016 6:56:31 AM PST by Another Post-American
Over the holiday season, CoinDesk published a wide range of feature articles from experts and stakeholders in and outside of the bitcoin and blockchain industry.
Billed as our 2015 Review, the series encouraged guest writers – including experts on law and finance, academics, entrepreneurs and even readers – to discuss the year past and the year ahead.
Our contributors didn't always agree, but they did come up with a number of intriguing predictions, each influenced by their unique positions and experiences in the field.
In this article, we've pared down that information to define seven key trends that could shape the story of the bitcoin and blockchain industry in the coming months:
1. Blockchain apps will be released
2016 is likely to see blockchain technology move beyond discussion and into the financial market, professional services firms say.
In exclusive pieces by PwC and Deloitte, both of the firms, which are actively working with financial partners to develop proofs-of-concept (POCs), believe their work will see a wider audience this year.
In a piece entitled Blockchain Will Become a Reality in 2016, Deloitte's Eric Piscini, Simon Lapscher and Andrew Garfrerick, wrote:
"We expect to see existing use cases for blockchain technology come to life, completely new use cases emerge, and an increased number of joint product launches mostly from financial institutions and blockchain startups."
Many of the standard financial services use cases (such as international payments, trade settlement, compliance, etc) will slowly be turned into fully fledged products in the next 12 months, they predicted.
"Whether it is through internal blockchain labs, direct partnership with blockchain tech companies or through collaborations with platforms such as Deloitte’s own Rubix, many of the main financial institutions are now past the thinking and ‘testing-the-waters’ stage, and into the product development stage," wrote Piscini, Lapscher and Garfrerick.
However, some still believe there’s a lot of work still to do before blockchains come into common usage.
Preston Byrne, co-founder and COO of Eris Industries, wrote in his piece that we’re two budget cycles away from the first production systems in finance, and that we’re probably 10 years away from mainstream use.
2. Regulatory scrutiny of applications will increase
This past year has seen an enthusiastic spike in activity as major financial institutions have moved to experiment with bitcoin and develop blockchain applications.
However, it remains to be seen how these use cases will be impacted by regulation, which to date has largely focused bitcoin and other cryptocurrencies.
In CoinDesk's 4 Trends That Will Shape Bitcoin Regulation in 2016, Jason Weinstein and Alan Cohn, both US attorneys and counsels to the Blockchain Alliance, wrote:
"[As] more 'traditional' service providers move to blockchain-based applications, look for regulatory agencies in particular to stake out their territory, first through surveys and informational meetings, but then through targeted investigations and perhaps even enforcement actions."
Indeed, the US Commodity Futures Trading Commission (CFTC) is to discuss the application of blockchain technology in derivatives markets during a meeting of its Technology Advisory Committee later this month.
Weinstein and Cohn predicted that maintaining positive engagement will help government agencies develop a better understanding of the benefits of bitcoin and the blockchain.
This will "help foster an approach to enforcement and regulation that supports innovation and growth, so this transformative technology can reach new heights in 2016 – and beyond", they wrote.
3. Bitcoin the currency will continue to grow
Michael Jackson, former COO of Skype and board member at bitcoin wallet provider Blockchain, expressed confidence in bitcoin and its potential to grow to mass adoption in his article Bitcoin's Big Challenge in 2016: Reaching 100 Million Users.
Bitcoin can grow to rival the usage figures boasted by globally popular apps such as Snapchat, Facebook and Twitter, he suggested.
"Despite our lack of progress, we have something precious. Anecdotally, I can’t think of a single other back-end system that has been online for seven years without a glitch, running 24 hours a day, seven days a week, 365 days a year. The bitcoin blockchain has proven its resilience," he wrote.
However, he identified a significant challenge facing the digital currency and warned that bitcoin firms must "successfully obfuscate the complexity of bitcoin and bring frictionless value transfer to the next 100 million daily users".
4. Interest in use cases outside payments will pick up
2015 was the year that many banks and financial institutions report they began to see the potential of blockchains and distributed ledgers, and these groups flocked to set up their own research projects or joined consortia to investigate how their businesses might be impacted.
However, the ability of blockchains to cryptographically verify and record transactions, is starting to find appeal across a number of other industries.
Most notably, perhaps, insurance firms are starting to investigate blockchain technology, with Accenture, Lloyd's and Allianz France all recently stating an interest.
Michael Mainelli, executive chairman of Z/Yen Group and principal advisor to Long Finance, tackled this subject in a piece entitled Why Insurers Caught the Blockchain Bug in 2015.
Noting that these groups have interests that may lead them to consider decentralized technologies, Mainelli said:
"The hundreds of firms in the London markets are rightly concerned about a central third party who might hold their information to ransom. They want to avoid natural monopolies, particularly as agreed information is crucial over multi-year contracts."
He added that Z/Yen, a commercial think-tank, has already built insurance application prototypes for clients in areas such as motor and small business.
The piece was later echoed by Abizer Rangwala, a managing director for Accenture, who would write that he believes the insurance industry will move to embrace the technology within the "next few years".
Provenance – or the tracking of ownership – was also cited as a use case that would see further growth this year.
The digital tokens that a blockchain could, proponents say, can also be used as digitized representations of the documents that accompany financial transactions or goods on a supply line.
There are numerous use cases within finance, where many processes involve the processing of shared documents between various parties. Beyond finance, a blockchain can provide a full audit trail of a piece of data's origin in both time and place. In this way, a blockchain can act as a provenance protocol for data across disparate semi-trusting organizations.
In a recent real-world example, there is even a startup calling itself Provenance that is aiming to use blockchains to build more transparency into supply chains.
5. Bitcoin's price will continue its recent rally through 2016
"Assuming that bitcoin remains the most popular token to run the blockchain and transaction volumes continue to rise, the next few years should be spectacular for the price of bitcoin," said Richelle Ross, an independent cryptocurrency consultant.
In her piece for CoinDesk, Why I'm Predicting a $650 Bitcoin in 2016, Ross suggested that 2016 will be more "action-packed" than last year, anticipating positive price moves associated with the digital currency's maturing infrastructure and the block halving due this summer, where the amount of bitcoins awarded to miners roughly every 10 minutes will be cut in half.
Warning that there are "too many unknown factors when predicting price to know with any certainty", she concluded that the price will finish the year around the $650 mark.
The topic of the coming rewards halving was also brought up in "2016 Could Be Bitcoin's Best Year Yet" by Adamant Research's Tuur Demester.
There, Demester said he expects the event to have a "positive" impact on bitcoin, though he stopped short of any direct price predictions.
6. Consortia will prove to be important
With such a recent and innovative technology to come to grips with, many established institutions, startups and regulatory agencies have found partnering to be the most promising way forward.
Deloitte's experts suggested this trend will likely increase this year, as companies try to leverage the capabilities of partners to help drive critical research and development of new blockchain use cases.
Additionally, they wrote: "Certain firms also look to provide 'network leadership' within the space – that is, to help connect the dots between different players within the ecosystem who may benefit from large forums in which to market themselves and share knowledge."
New York-based R3 already leads a group of more than 40 financial institutions, aiming to drive innovation and standards in financial services. Other working organizations, including one focused on post-trade settlement, have also emerged in recent months.
Still, not everyone agrees.
Nomura Research Institute, for example, has suggested the slow advancement of such efforts could make private POCs more attractive.
7. VC money will flow to blockchain startups
Venture funds are increasingly noticing enterprise interest in blockchain, and despite big early bets that bitcoin may prove to be a disruptive in the space, seem more and more keen to back startups aiding banks in their research.
As evidenced by the trends above, VCs see opportunities for startups in partnering with institutions or providing incidental services around the periphery of this new tech, including blockchain APIs and ID verification services.
This is likely to draw in investors who see the potential for blockchains and want to get in early.
Virtual Capital Ventures' William Mougayar forecast that VC investments in blockchain-related startups will exceed $2.5bn all-time in 2016 – dwarfing even the most optimistic of estimates for bitcoin startups in 2015. This doesn't include what the banks will spend from their operating budgets, either.
Already this year we've seen signs existing bitcoin startups are changing gears as well.
Gem, which pivoted focus from bitcoin APIs to more general blockchain versions of this product, has closed a $7.1m Series A funding round led by Pelion Venture Partners.
There is a caveat, however, startups shouldn't assume a windfall is likely just because they deal with the blockchain.
Digital Asset Holdings, the startup led by respected ex-JPMorgan exec Blythe Masters, is apparently having issues closing its inaugural investment round.
*ping*
It will all work when they power their computers with free electricity from cold fusion.
I was going to do my “in before the EMP” folks posted, but I was not fast enough.
It is funny. People who do not understand the current way that “digital” money is used fail to understand the concept behind Bitcoin.
If we lose power...no matter if it is a result of a power outage, sabotage, a coronal mass ejection, or an EMP everyone will lose access to their money.
But, in the meantime if you are a retailer paying 2-4% of each transaction in fees to your credit card processor...imagine the long term savings if those transactions could be performed for 1% or less. And you convert the bitcoin immediately into your currency of choice. So the fluctuation of the “bitcoin” does not matter because you are converting it instantly. That doesnt even happen with a foreign transaction.
So, the naysayers will climb on board. If this process were compared to the automobile creation process, we are the the point horses are still being scared by the buggys driving down the road. The Model T is still years away.
Putting .5% of your money into bitcoin will probably make you a millionaire before the stock market does. Especially this year.
Actually, if the electricity was free the bitcoins would be practically worthless. Electricity cost keeps bitcoins scarce enough to have value.
Bitcoin valuation has nothing to do with the cost of electricity. If the cost per kilowatt skyrocketed, for example, then bitcoin mining would rapidly become unprofitable and miners would drop out in droves. But the few who held on would maintain the network (even at 0.01% of the current hashrate we’d be fine).
The price of bitcoin would NOT be altered by the changing cost of electricity. What would change would be the amount of mining done to produce a block reward.
Or to put it another way, the skyrocketing increase in bitcoin value the past seven years has absolutely nothing to do with the changing cost of electricity over that timeframe.
“Bitcoin valuation has nothing to do with the cost of electricity. If the cost per kilowatt skyrocketed, for example, then bitcoin mining would rapidly become unprofitable and miners would drop out in droves. But the few who held on would maintain the network (even at 0.01% of the current hashrate we’d be fine).”
I think you’re forgetting the most basic principle of economics: supply and demand. If the supply of bitcoins dropped (as you acknowledged it would), then the value of bitcoins would necessarily rise, unless there was commensurate drop in demand.
I’ve been following the “Bitcoin” story for a few years, all be it from a distance.
My observations.
First, I have to admit that it’s hard to wrap your head around what exactly Bitcoin is, and why would anyone use them?
It’s an alternative currency and the Bitcoin concept seems sound since the production of more coins becomes exponentially more difficult as opposed to the Central Bankers around the world creating money out of thin air. As a result, its value or “purchasing power” should be substantially more stable.
From my perspective, Bitcoin is like physical Gold with a huge difference that makes it viable. It’s digital. You can’t buy a new PC from Dell with your gold, but you can with Bitcoin. The number of Merchants that are accepting Bitcoins is growing, and fast.
http://www.coindesk.com/information/what-can-you-buy-with-bitcoins/
There are a number of companies that operate like traditional “Point of Sale” credit card processors that will facilitate these transactions at a fraction of the cost vs traditional cashless transactions. This was a huge step. These processors will convert the Merchants bitcoins into their currency of choice in “near real-time”.
There are Bitcoin ATM’s popping up everywhere.
http://www.coindesk.com/bitcoin-atm-map/
As with all currency, including gold, everything is relative.
One Bitcoin is currently worth $432 US Dollars.
Why would anybody convert their US dollars to a Bitcoin to buy a new Dell PC? (other than that Dell is/was offering a 10% discount)
I’ll go full circle and suggest again that Bitcoins are much like Gold or what Gold was supposed to be with a huge practical advantage. If people accumulate Bitcoins as a “Store of Value” much like they do with Gold, with the expectation of appreciation as traditional currencies are devalued by their respective Central Bankers than that is fine and it may pay off.
There’s a boat load of really big and smart players in this space. These players don’t really care about whether or not Bitcoins go up or down in price. All they want is the ability to facilitate the trading between bitcoins and hard currencies. The ability to create any number of derivatives that will provide both speculation and hedging opportunities for their clients.
Bitcoin Futures, Bitcoin Options, Bitcoin options on futures etc etc.
Personally, I love what Bitcoin represents but I’m very skeptical when I consider the huge piles of cash that stands ready to arbitrage any and all price discrepancies.
Parity.
No, no, no. When you buy a bitcoin you are not buying a unit of electricity. The amount of electricity involved in production of a bitcoin is fundamentally arbitrary, and chases the price of the bitcoin, not the other way around.
If bitcoins become more expensive then miners invest in more hardware to mine it. Since the production of bitcoins is invariant (25 BTC/10 minute block until the next halvening this summer), the hardware investment increase will roughly track the bitcoin price increase. The same would hold true on a serious decrease in bitcoin price.
There is no relationship between electrical cost and bitcoin price, because the fluctuating mining investment in between the two mediates any changes in pricing on either end.
Hardware to mine the bitcoins is a one-time investment in capital, though. Electricity is the recurring expense you must pay to use that capital to produce your inventory. Sure, if the value of the inventory goes up, people will invest in more capital, but I’m still failing to see how that negates the basic fact that if your recurring expenses increase, your net income decreases.
What it comes down to is that bitcoins are produced by mining, not by electricity directly. And the mining investment chases the price of bitcoin which is driven by supply/demand (where supply is invariant over the short term, so it’s really driven by changes in demand).
BTC price has just dropped 10% on the demise of Cryptsy overnight - something that has nothing to do with a sudden change in electricity pricing, for example.
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