Decrypt Guide: The future of cryptocurrency

The global cryptocurrency market cap remains at $143 billion, even in this bear market. At its peak, the global market was worth $834 billion. Even crypto naysayers and doommongerers have to accept that these are still pretty impressive numbers.

That’s not to say that it’s all been smooth sailing. Throughout the last ten years, there have been numerous hacks and scams. And in the past year alone, an army of Twitter bots raked in Ethereum from thousands of unsuspecting users, and another $1 billion was stolen from crypto exchanges worldwide. But the crypto industry is weathering the storm and major industry players have jumped on the bandwagon: IBM is now using Stellar for its World Wire—a global money transfer service set to rival SWIFT—and JP Morgan is developing its own cryptocurrency based on Ethereum.

The last ten years have been crazy for crypto, and the next ten years are expected to be even more so.

So, let’s predict the unpredictable and take a look at what changes we might see across the crypto industry. Macro trends are first on the agenda and then we’ll examine the most prominent cryptocurrencies and how they might evolve.

How will the crypto industry develop?

Stablecoins will become more widely used

If anything took us by surprise, it was the phenomenal popularity of stablecoins. Hundreds of them were created in 2018, most with the purpose of representing the US dollar as a digital token as accurately as possible. Some met with greater success than others.

Recently, mainstream businesses have entered the crypto industry. But, instead of using Bitcoin or other cryptocurrencies, they have veered toward stablecoins. As noted, JP Morgan created its own U.S. dollar-backed stablecoin, called JPM Coin. Facebook has also entered the fray and is reportedly creating its own stablecoin to use within Whatsapp and Facebook.

Nevin Freeman is cofounder of Reserve, which has built its own stablecoin. He thinks that, while these projects may introduce stablecoins to billions of people, they are likely to get pushback from regulators. He told Decrypt , “The two big questions for the next few years are (a) will stablecoins really be able to transcend usage in the tiny crypto ecosystem, and (b) will banks and governments just shut them all down if they do?”

Security tokens are poised to take off

Security tokens, which are offered to authenticated, identifiable investors, are much-hyped in the crypto industry. There are expectations that they will replace ICOs and have a similar, or even greater, impact. Progress, to date, has been unremarkable—there’s been no rush toward security tokens as yet. But if they do take off, the potential for success, in the long term, is greater than for ICOs, since institutional investors are more likely to get involved.

Graham Rodford, CEO at London-based security token exchange, Archax told Decrypt, “Already there are more than 150 firms who have used, or are looking to use, security tokens as a way to raise capital or unlock asset value, with $400 million raised so far.”

The largest security token offering, to date is Overstock’s tZero which brought in $134 million.

As might be expected, Rodford was optimistic about the direction of the nascent market. “For the rest of 2019, we expect to see the required supporting ecosystem to continue to emerge with the key players in primary issuance, custody and secondary market trading starting to appear,” he said. He added that clearer regulations will boost the numbers of security tokens.

Hacks and scams will continue to mar—and make—the industry

Like any other industry, the cryptosphere is full of hacks, exit scams, theft, fraud and just about anything you might imagine. Crypto is a relatively new, complicated form of money and consumers are still largely unfamiliar with how to use it. That nascent money, coupled with confusion, is irresistible to scammers.

Kyle Gibson, editor of Token Report, has compiled a list of more than 100 incidents of theft involving cryptocurrencies. They range from simple Twitter bot scams, that encourage someone to send Ethereum to the scammer’s account, to the infamous Mt. Gox hack. Just last week, $13 million worth of EOS was stolen from Korea’s largest crypto exchange, Bithumb, in its second  large loss of customer funds.

It’s likely that consistent trend of hacks and scams will continue unless exchanges get their heads around proper security. One good thing that’s come out of crypto winter, though is that ETH scammers have all but disappeared. Then again, they will likely return if the market picks up.

But scams, hacks and theft also present opportunities for custodial crypto services and security teams to provide better services to crypto exchanges—which have plenty of money and can afford them. Blockchain analytics companies have already started profiting, and have stepped up their tracking of bad actors across public blockchain data. While an influx of better security offerings may help with exchange hacks and similar thefts, better education is needed to prevent users from falling victim to scammers. Props to Coinbase for getting the drive to educate users started.

It will get difficult to buy crypto anonymously

When Libertarian Erik Voorhees announced that his crypto exchange ShapeShift was finally adding know-your-customer (KYC) protocols “under duress,” it was a clear sign that anonymity in crypto was coming to an end. While Bitcoin transactions do not reveal who sent them, KYC protocols require personal information about the user, including a copy of their driving license or passport.

KYC protocols are now involved in almost every fiat-to-crypto onramp. Even the final bastions of person-to-person exchanges, LocalBitcoins and Paxful, have implemented KYC in recent weeks. This will make it much harder for anyone to buy crypto without handing over their personal details, and may encourage black-market style networks in meatspace as people look to circumvent the controls.

Blockchains will become more transparent

With KYC protocols becoming more widespread and blockchain transactions being made publicly, blockchain analytics companies are finding it easier to to create a real-time picture of the ecosystem, watch money flows and track bad actors.

But this ability also sparks security concerns, as it makes it much easier for your financial transactions to be observed—without someone needing to access your bank account. In the future, it may be possible for data to be sold and used for purposes such as targeted advertising.

How will the top five cryptocurrencies evolve?

Bitcoin

Bitcoin remains unrivaled as number one cryptocurrency by market cap: there’s no flippening on the horizon yet. This puts a lot of pressure on the developers responsible for a blockchain supporting a coin valued at $73 billion, and so development will be slow and steady. It’s likely that new features will be introduced in other coins first before Bitcoin adopts them—and that very few features will be adopted if they require a hard fork, as these have been very controversial.

But there are plenty of technical developments in hand. The main ones focus on: increasing privacy, making it safer to run Bitcoin on your phone and keeping the blockchain at a reasonable size.

Another big development is the Lightning Network, which is being built to run on top of Bitcoin. It’s making swift progress and will showcase a brand new way to spend Bitcoin in everyday life. In fact, people are already playing around with it, and it’s being used for everything from Twitter tip bots to souped-up chess games.

Expect a lot of progress in this space. You can read more about the future of Bitcoin here.

Ethereum

Ethereum has had a slow 2018. It has an ambitious roadmap set to change the way new blocks are mined on the network to a new way of organizing transactions through a technology known as sharding. But—aside from governance worries —it appears to be making slow and steady headway.

Ethereum may find it challenging to fend off its competitors. Recently, a number of blockchain platforms have taken aim at it, offering faster transactions and using money to lure developers across. By and large, the Ethereum community has remained loyal but it can’t be complacent. Other cryptocurrencies have attractive offerings and, if Ethereum doesn’t make moves to scale within the next two years, developers and users will find an alternatives.

On the flip side, Ethereum established itself as the  place to launch tokens. Its competitors— EOS, Tron and OmiseGo—all started as Ethereum tokens. This had led to a huge community, dedicated to building on it and helping it grow. As innovative projects like Spankchain gain a wider base following, it’s possible even more volume will come to the network—if it’s ready to handle it.

XRP

XRP is a cryptocurrency designed for cross-border transactions. It runs on the XRP ledger, on software that was built and developed by a company called Ripple. Although it is open source, there are no improvement proposals, as such, that its community can vote on and very little public discussion about how it will develop.

Ripple itself is more transparent. It wants to provide cross-border transactions to money remittance providers and banks worldwide. To do this, it must continue to build up a network of trusted exchanges in the countries it wants to operate in, and get more companies on board. Some, like Santander, are using Ripple’s xCurrent service—a money transfer mechanism which doesn’t use XRP—but it’s likely to focus on getting more companies using xRapid, which does use the cryptocurrency.

So far, Ripple has managed to get 12 companies using xRapid. One of its key partners, Mercury FX, has opened two payments channels— into Mexico and the Philippines— and plans to open more. Once these companies start putting more and more payments through xRapid, it will be interesting to see how much the on-chain transaction volume increases.

EOS

EOS came to fame with a year-long ICO that raised $4 billion. Since then, it’s struggled to launch its mainnet and has been plagued by questions on its level of decentralization and on how many of its block producers provide full history nodes—something necessary for dapps to work.

The main change coming to EOS is to its constitution, which holds EOS users to a set of requirements. After much debate, it looks like it will scrap the constitution for a new user agreement which has different rules for how users can behave. However, this has exposed another key issue: low voter turnout.

There are plenty more proposals for changes to the network—designed to help EOS evolve—but none has come close to the minimum threshold of votes needed in order to be implemented.

Expect EOS to either lower the voting threshold or introduce an awareness campaign to get more people to vote. If it successfully introduces either of these measures, it can update itself much more efficiently and adapt to market conditions to ensure long-term survival. If EOS fails to solve this problem, it will either stagnate or more centralization will seep in to keep it evolving.

Litecoin

Originally positioned as the silver to Bitcoin’s gold, Litecoin has—until recently—largely remained out of the spotlight, yet has kept its position in the top five cryptocurrencies by market cap. Its biggest controversy was when Litecoin founder Charlie Lee sold his coins at its peak price, claiming conflict of interest issues. The community was unforgiving.

There are slim pickings for news and updates on Litecoin, but one of the main things we can expect is a push towards private transactions—where transaction information is hidden from public view. While cryptocurrencies like Monero exist solely for this purpose, Litecoin wants to introduce private transactions as an optional feature. Lee has also said it is exploring Mimblewimble technology—which we’ll come to.

In a new bid to boost awareness, the Litecoin Foundation has been splurging on marketing efforts. Recently it signed into a partnership with the UFC, and the Litecoin logo was stamped onto the canvas for recent mixed martial arts events. New UFC fighter Ben Askren has also taken to showing how much of a fan he is of the cryptocurrency on social media. Expect this kind of promotion to continue.

Which upcoming cryptocurrencies might take off?

Decentraland

Decentraland is a blockchain-based VR game where a decentralized virtual world is created that anyone can partake in. It’s come to attention because some of the land grabs have reached otherworldly sums. The largest amount paid for a single block of land was 2,000,000 MANA ($112,000). Speculative sales have pushed Decentraland up to rank 82 by market cap, despite the fact that its VR world hasn’t even launched yet.

This is about to change. Decentraland’s 3D world builder was released on March 18, targeting  less experienced developers, who can start building on their virtual plot of land. A beta version of the VR world is expected for Q2, 2019, and from then on its up to the imaginations of Decentraland owners. This is project that’s interesting to watch from the outside as well as explore from within.

Polymath

Polymath is one of the major security token exchanges and has its own token to match. While security tokens haven’t exploded like ICOs did, they might just be building up more slowly. If the security token hype does catch on, then the Polymath platform is in a good position to support any new security token offerings. Its progress will largely depend on that of the security token industry as a whole, but it will be interesting to see if it can match the major blockchain platforms out there that serve all kinds of cryptos.

Grin

Bitcoin maximalists are hard to sway. But the only coin apart from Litecoin and Monero to gain their approval has been Grin. It’s a new cryptocurrency focused on privacy and scalability and it solves the privacy problem in a novel way, using “mimblewimble” technology. Essentially, this  makes its blockchain inherently more private, rather than having privacy built in on top. A good explainer can be found here.

So far, Grin is in its infancy and it’s a community-led project so has no major company behind it. This means it has plenty of experimentation ahead of it. One of the key factors to watch will be how it manages its consensus algorithm. This decides whether large mining farms can mine it or not. But it looks like mining farms will be able to mine it, despite Grin’s original optimism that it could avoid them.

In the longer term, it will also be interesting to see whether other cryptocurrencies adopt the technology that Grin is using. If it’s successful, its designs could get ported across into major cryptocurrencies, and Litecoin is already considering using them.

The next ten years will either see cryptocurrencies fading from view—if nobody starts using them—or they will become widely accepted as currencies native to the internet. While skeptics like Nouriel Roubini and Decrypt’s  resident skeptic, David Gerard might argue that crypto is a path to nowhere, it looks like the crypto industry is too far ahead to hear them.