Nish Kotecha, Chairman and cofounder, Finboot
When Scrooge (A Christmas Carol by Charles Dickens 1843) was visited by the ghost of Christmas Past, Present and Future, he was given a choice… change his character and usher in a period of survival and happiness or continue to certain destruction. For any crypto follower, this Christmas was a pivotal moment… one that could bring closure or celebration: awaiting the next chapter.
Looking back to 2021 (Christmas past), Crypto was flying high. Coinbase IPO’d on 14th April 2021 with a valuation that briefly touched US$100 billion and the leading tech evangelist, Catherine Wood of the ARK fund oiled in another US$246 million on the first day of trading. The aggregate market value of crypto topped US$ 3 trillion (November) and bitcoin passed US$68,000 and in the ultimate sign of opulence, FTX acquired the naming rights to the Miami Arena for US$135 million. The fuel was cheap money driven by zero interest rates, and central banks injected liquidity to rebuild struggling economies that were dealing with the shocks of the pandemic.
By 2022, (Christmas present) the bubble was bursting. Coinbase shares were down over 85% from their peak, closely mirroring bitcoin which is down over 60% (January 22). The total value of crypto is only some US$ 800 billion… 40% of the value of Apple. Importantly, crypto’s foundations were shaken to the core with the bankruptcy of FTX, the bankrupt cryptocurrency exchange. John J Ray III, the insolvency attorney appointed called the collapse of FTX one of the worst business failures he has seen. He remarked it was a “paperless bankruptcy,” fuelled by an “unprecedented lack of documentation.”
All this in a year when Ethereum switched its consensus algorithm, slashing its energy usage by some 99% as it prepared to open itself up for more applications.
What can the Crypto Christmas Ghost show us to drive the change needed for its future survival?
Crypto’s demise may actually help blockchain – the underlying technology – emerge from the clouds of crypto. Blockchain, at its heart is a straightforward database that can record the movement of money in a time stamped immutable ledger. So if you need proof of who said what to whom and when… Blockchain is the answer. It can therefore be applied to any use case which requires trust.
Blockchain technology could be transformative for the way we do business and trade throughout our ecosystem: supply chain visibility is the killer application. Blockchain is proving to be an effective carrier of information across fragmented supply chains with the potential to overtake EDI (Electronic Data Interchange) which was a format being used for the exchange of business documents in a standard electronic format which can be prohibitively expensive.
Supply chains that have struggled with accurate information exchange can now have full transparency on the data flow backed with an audit trail. Today, enterprises are opting for private permissioned blockchains which not only solve real pain points but can also ensure that data is kept within a framework, for example, all suppliers for a particular product.
Businesses are increasingly looking at blockchain as a database alternative particularly where they need to capture data around sustainability and circularity goals as governments introduce legislation to ensure compliance and pressure from consumers increases.
Imagine a connected supply chain where blockchain is used to collect and record data in different formats from the lowest tier cog in the wheel to the top. Moving substantiated data between different parties and different systems which cannot talk to each other is a fundamental requirement for businesses of the future.
Public blockchain enthusiasts often argue that anything short of full decentralization fails to use the technology to its full capability. Unfortunately, the recent crypto fallout will further push enterprises towards private permissioned blockchains as trust in the underlying actors of public blockchains fades.
But, public blockchains do have a future if they can find the right ‘real world’ use case. Decentralised finance remains an exciting proposition but is unlikely to fulfil its true potential until regulators step up and standardize. Another is philanthropy where donations can be tracked end to end and even made using crypto. NFTs remain an interesting proposition but as the market value has fallen back (linked to crypto), it is more likely to spend 2023 looking in the rear-view mirror and wondering what the ghost of Christmas future could have looked like!
Crypto remains very much alive although is likely to go through a period of contraction until regulators set the global operating standards. These frameworks cannot come quickly enough and should be welcomed by all stakeholders.
It’s disappointing that FTX had a unique opportunity to establish itself as the gold standard underpinning the crypto markets but instead choose the short cut of greed over long term value creation and stability. It is surprising that FTX did not just praise the virtues of blockchain technology but use it itself to build a transparent, trustworthy platform for all.
Remember Dickens… Christmas is “a good time: a kind, forgiving, charitable, pleasant time” so as we enter 2023 maybe we should all reset our opinions on Blockchain and crypto and the opportunity that it holds to bring a trusted future.