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Blockchain: Investor's digest

Like the internet revolution, blockchain technology is capable of transforming all aspects of the economy. It’s time to benefit from it.

It was outrageous. Share prices skyrocketing, profits doubling, tripling, quadrupling in just a few weeks... The December 2017 enthusiasm for cryptocurrencies – and Bitcoin in particular – left quite an impact. But the subsequent fall was even more significant. Long weeks of agony, punctuated by a murderous month of August. As summer comes to a close, the market is more hesitant than ever. It has reached a point that even “day traders” no longer know which virtual currency to choose. Was this phenomenon just a flash in the pan?

Not quite. Bitcoin and altcoins have certainly generated lots of buzz recently due to their extreme volatility, but the underlying architecture – blockchain – is actually their most solid, promising characteristic. What is blockchain, you ask? In short, it is a technology that can store and transmit information in a transparent, secure and – last but not least – decentralised way.

“Imagine a very large notebook that anyone can read for free, whenever they want. Anyone can write in it, but it is impossible to erase what is already there and the notebook is indestructible,” said French mathematician Jean-Paul Delahaye, whose metaphor is often used when teaching about blockchain.

It’s understandable, since blockchain is often described in many articles and reports as a revolution by those who can master its inner workings. It is still difficult for the general public to understand all the subtleties of this technology, but its practical applications are much easier to understand. And there are many of them, as described in this issue’s dossier. Almost all industries can be affected by this technology, including public authorities in many countries that have begun to adopt blockchain. Switzerland is one of them.

THREE OBSTACLES TO OVERCOME

There is much to be excited about. But it’s better to keep your feet on the ground, according to Claire Balva, CEO of French consulting firm Blockchain Partner: “Listening to certain speeches, it may seem that blockchain will disrupt all industries in the next six months. But the reality is more nuanced. It’s an extremely promising technology but for the time being, we’re still in the experimentation phase.”

Indeed, the experts we contacted all believe that large-scale implementation will take time. William Mougayar, author of bestseller The Business Blockchain, agreed with this in an interview for this issue. Christine Hennebert, blockchain expert at the French Alternative Energies and Atomic Energy Commission (CEA) also agrees: “We won’t see large-scale blockchain adoption until 2025. It has immense potential but it’s still lacking maturity, and appropriate regulations must be implemented.”

Regulation is what everyone’s talking about. “The lack of clear legislation is currently the main obstacle, which is keeping away professional investors and pension funds,” said Demelza Hayes, fund manager at Incrementum, who also brings up a second issue – the platforms are not at all user-friendly: “The interfaces and user platforms, even just for investing in cryptocurrencies, are very complex and impede mass adoption. The technology needs to be accessible for all.” Finally, a third and serious challenge for blockchain: successfully moving to a large scale, i.e. demonstrating its ability to increase in volume and manage millions of transactions quickly. This is what specialists call scalability. Currently the volumes invested with blockchain are still low and projects are small in scope.

BETTING ON THE RIGHT HORSE

Once scalability is achieved, the discussion over the short-term value of cryptocurrencies will be less significant. And the constant debate over choosing whether newer or older cryptocurrencies such as Bitcoin will become less fervent. The question is no longer simply whether or not the forefather of cryptocurrencies is a store of value (time will tell rather quickly, as Bitcoin-based ETFs are on the table in the United States, waiting for approval from the SEC.

If the US regulator approves, money from institutional investors could flood in and settle the debate). No, the actual issue is anticipating which companies and cryptocurrencies will be the main players in this market over the next 10, 15 and 20 years.

Projects seeking to provide concrete solutions are naturally preferred. We have selected a few. But it is hard to tell whether these players will be swept aside by future newcomers... From this perspective, the blockchain market is similar to the internet 20 years ago, when Facebook and Google didn’t exist.

Currently, the first companies that are benefiting from the blockchain wave are often those that provide tools and infrastructure that are needed for development – like pick and shovel sellers during the Gold Rush. In this case, it is IT companies, online trading platforms and companies specialised in cryptocurrency mining. Some of these players, featured in our dossier, are publicly listed. It’s time to place your bets.

 
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