The comparisons already started.
Tell me if you heard this before.
Ethereum gas prices are through the roof. Bitcoin is running. Bubbles are forming everywhere. Stupid money is pouring into crypto schemes that will ultimately go bust.
Is this 2020 or 2017?
On the surface, much looks the same. Outsiders, or those who just look at things from a shallow perspective, might be apt to believe we are seeing history repeat itself. Of course, when taken in this context, it is possible to draw that conclusion.
However, things are a lot different than they were 3 years ago. It is true that things did not end well that time. Nevertheless, we see many reasons to be optimistic about things going forward.
To start, the industry came a long way in the past few years. Infrastructure construction went full steam ahead after the market crashed. This is attracting some larger players.
Speaking of said players, Wall Street and other institutions are starting to jump in. Microstrategy's announcement that they were purchasing Bitcoin to the tune of $250 million shows how far things have come. This firm is using the largest cryptocurrency to de-risk. This means that it feels, with all that is taking place, Bitcoin is less risky than traditional assets at the moment.
We could not make this statement in 2017.
In 2020, cryptocurrency was validated. No longer is it possible to shame this industry. Wall Street and banking institutions are getting involved. Central banks are looking at setting up their own digital currencies. Many governments see an opportunity to enhance their economies through the embracing of cryptocurrency and the associated technologies.
Again, this was not present a few years ago.
Also, much of the latest craze is attributed to Decentralized Finance (DeFi). This contrasts with the last run which was the ICO craze. So what is the difference?
From my perspective, there is no doubt as to the legitimacy of DeFi. Certainly, it is a fair point to state that what we see now has a ponzi feel to it. Without a doubt, there are schemes out there which are frauds and will collapse. At the same time, a case could be made that this is hype beyond what is sensible behavior. Too many are caught up in the emotion (greed/fomo) of yield farming. Inevitably, this has to end and not in a good way.
That said, the underlying value of DeFi cannot be overlooked. This is starting a wave which will likely see a lot of the centralized aspect of finance attacked. The power that is presently wielded will be wrestled away as more money finds its way into the system. Of course, before that can happen to the degree that puts it on the big stage, a lot of development needs to take place creating those platforms that are not ponzi or simply get rich quick hits.
More decentralized infrastructure needs constructing with applications that seek to provide a sensible alternative to the present offerings that come from Wall Street. Replacing one system wrought with fraud with another of similar ilk does not really get us anywhere.
Nevertheless, there is no doubt that DeFi has an amazing future, especially when we consider the fact that the world of cryptocurrency just keeps growing each day. As projects issue more tokens while gaining in value, the amount of wealth held in this asset class keeps expanding. Over time, people are going to need to place to put that to work. Hence, DeFi is the solution even if it presently is covered in warts.
Finally, we see a larger industry than what was present in 2017. By every metric, things have grown (other than the total market cap). There are more wallets on both Ethereum and Bitcoin, two of the most active blockchains. We also saw the emergence of EOS and, now, Cardano. These were not even operational a few years ago. Applications keep turning up that offer people incentives to participate. Overall, we saw a lot of development that is paying dividends.
We also are sitting at the edge of another explosion. NFTs are about to grab all the headlines. For the past year, the discussion was lurking just below the surface. In 2020, the development that is taking place is being overshadowed by the attention that DeFi is receiving. Nevertheless, we should not mistake the lack of publicity as a sign that development is falling off.
NFTs are a logical progression as we move deeper into a digital world. Tokenizing assets is really the only thing that makes sense going forward. The idea of operating using paper and centralized entities such as government departments will not hold up under the transition to Web 3.0. We know governments fail. At the same time, efficiency is something that is discussed with regularity. Here we see an alternative that is imply better than what is presently in place.
Closed systems are starting to get a bad rap. Even Microsoft realized that the future is not in proprietary software. Gamers, for example, are not going to be happy, down the road, at playing a game which does not yield them anything of monetary value. It simply will not make any sense to play a game that does not offer assets that are backed by NFTs.
For these reasons, NFTs are going to be in the spotlight over the next couple years. Trillions in assets will be tokenized in this manner. This will be a combination of new assets created while existing assets, such as real estate, start to move in that direction. Expect the former to dominate early on but the later will come on strong as the infrastructure is put in place.
In conclusion, on the surface it is easy to conclude that we are now seeing a mirror of 2017. However, if we look a little deeper, we notice the world of blockchain and cryptocurrency is completely different than it was a few years ago. Thus, I believe the outcome, this time, will be much different than what took place then.
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