This post is part of CoinDesk's 2019 Year in Review, a collection of 100 op-eds, interviews and takes on the state of blockchain and the world. Gary Gensler is a professor at the MIT Sloan School of Management, Co-Director of MIT’s Fintech@CSAIL and Senior Advisor to the MIT Media Lab Digital Currency Initiative. He was formerly Chairman of the U.S. Commodity Futures Trading Commission, Under Secretary of the Treasury, and a partner at Goldman Sachs.
Gartner, an IT research and consulting firm, came up with a framework to look at the stages of adoption and market enthusiasm of emerging technologies. Though criticized by some for being unscientific, the Gartner ‘Hype Cycle’ has caught on in popular culture. Where might cryptocurrencies and blockchain technology be now in that cycle compared with emerging technologies of the past?
Measured by market valuations, cryptocurrencies have experienced several booms and busts. The Mt. Gox-led boom and bust of 2012 to 2014. The ICO boom and bust of 2017 to 2018. And more recently the tokenization and Facebook Libra led boom and, dare I say, bust of 2019.
Market values are but one measure and don’t necessarily equate with underlying viability of an emerging technology. While expectations have waned, might cryptocurrencies and blockchain technology still be at inflated expectations? Many minimalists would contend so. NYU economist Nouriel Roubini isn’t alone with his oft-noted doubts about cryptocurrencies.
Might the field be bouncing along the trough of disillusionment, awaiting signs of viable use cases?
Joe Lubin, founder of Ethereum and ConsenSys, thinks so, finalizing the terms of his bet with Jimmy Song on the future viability of DApps. Song remains optimistic about the utility of bitcoin as a digitally scarce store-of-value, but remains decidedly a minimalist with regard to the viability of blockchain technology for other uses.
Through the mist of 2019’s hype of bold announcements, the crypto market’s ups and downs, and departures of hundreds of projects from the field, though, some ground-truths are evident.
- Satoshi Nakamoto – whomever she, he or they are – solved the payments riddle, how to securely move value peer-2-peer on the internet while avoiding double-spending.
- Money is but a social and economic construct.
- Regardless of cryptocurrency viability, we already live in an age of digital money.
- Append-only ledgers and multi-party consensus (a.k.a. blockchain technology) provide an alternative which can address verification and networking costs.
- Adoption rests on addressing comparative viability and value proposition of use-cases.
- Bitcoin and other cryptocurrencies have evolved into a speculative asset class.
- A new form of crowdfunding, built upon smart contracts and ICOs, raised nearly $30 billion.
- Crypto exchanges – not yet appropriately brought within public policy frameworks – have provided retail investors a direct way to trade crypto assets.
- Crypto markets have been rife with scams, fraud, hacks and manipulation.
- The potential this technology to be a catalyst for change is real.
This last point – crypto and blockchain technology acting as a catalyst for change - may not fulfill the heightened expectations of maximalists, but may be Nakamoto’s most enduring early contribution. This new form of private money and its underlying shared ledger technology already have been catalysts for central banks, big finance and big tech. Along with fintech innovations, crypto initiatives have spurred incumbents to update payment solutions and explore new approaches to finance and multiparty database management.
The People’ Bank of China’s Digital Currency/Electronic Payments project and the US Federal Reserve’s FedNow℠ Service real time payments projects both emerged in the wake of Facebook’s Libra announcement. Facebook’s ambitious initiative to create “a new global currency, which could meet the daily financial needs of billions of people” is spurring change even in the face of the many policy challenges it raises.
To many observers, the question remains what uses will cryptocurrencies and blockchain have beyond acting as a catalyst for change? Beyond bitcoin providing a scarce digital speculative store of value, and niche applications in digital exchanges, gaming, and gambling, what applications will be sustainable for cryptocurrencies as a new form of private money? What will actually benefit from the shared multiparty ledger systems facilitated by blockchain technology?
Actual adoption of crypto or blockchain technology projects rests on addressing comparative viability and value creation propositions. Foremost:
- How will the technology’s decentralization actually benefit the use case’s economics?
- How will governance and collective action amongst multiple parties be resolved?
- What specific gaps or pain points would a native token fill compared with fiat payment system?
- What are the benefits of any P2P transfers not facilitated by traditional systems?
- What are competitors (both traditional and blockchain) doing to address purported pain points?
- What are the tradeoffs of performance, privacy, security, governance & regulation?
- How can broad adoption and user interface be realized?
Though literally thousands of projects have yet to land on broadly adopted use cases, I remain intrigued by Satoshi’s innovation’s potential to spur change – either directly or indirectly as a catalyst. The potential to lower verification and networking costs is worth pursuing, particularly to lower economic rents and data privacy costs, and promote economic inclusion. Further, shared blockchain applications might help jumpstart multiparty network solutions in fields that historically have been fragmented or resilient to change. Even as a catalyst for change – acting as an innovative irritant to incumbents and traditional technologies – cryptocurrencies and blockchain technology have already prompted real change and can continue to do so.
As an informed reader of CoinDesk, what do you think? Where might you place yourself on the scale from minimalist to maximalist? Where might the Gartner team put cryptocurrencies and blockchain technology as we close out the 2020s?