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“Token Frenzy, the Fuel of Blockchain”: GP Bullhound’s Report

How Blockchain will transform life as we know it

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At this point, there is no denying that the Bitcoin revolution has gone beyond being a pet project among a few programmers, a group of technology evangelists and academics. In fact, the conversation has changed entirely and it’s no longer about Bitcoin but rather the technology that runs it. Blockchain technology has grown in popularity to become a fully fledged industry, capable of disrupting world famous companies and economies across the world. According to ‘Token Frenzy’, a research document developed and published by GP Bullhound, we are still at the very early stages of this new wave of technology and the ‘market is still immature’ with an ‘exciting future’ up ahead.

After all, the past year has seen a huge spike in interest over blockchain technology by mainstream media with cryptocurrencies taking center stage, especially in places like Japan, where public interest in the subject of ICOs and cryptocurrencies has skyrocketed. This is without a doubt a huge indicator of just how big blockchain technology could get. So far, blockchain’s utility has only been tested in the financial sector with cryptocurrencies. Although there is nothing particularly new about the technology, its application in the cryptocurrency space has raised more eyeballs than ever before, especially considering that last year alone, the total market capitalization for this budding industry reached massive highs of about $800 billion.

But even then, scepticism still exists around the idea of investing in this new industry, not to mention increasing concerns over regulation and a boom and bust market. In a detailed analysis and research reports, the “Token Frenzy” (as produced by GP Bullhound) is making it easy for incoming institutional investors and entrepreneurs to understand the industry and find workable strategies for this new technology. With the research released by GP Bullhound, a great deal of the information therein can be helpful to both retail and institutional traders and investors looking to jump on the bandwagon.

But first, let’s take a look at what GP Bullhound is all about.

Why Is GP Bullhound Qualified to Do This research?

Well, first of all GP Bullhound has been in the business of investing in and advising technology firms since its founding in 1999. As a result, it brings to the table close to two decades of experience in conducting in-depth research on emerging technologies, advising the majority of Europe’s finest tech entities on competitive international sale and acquisition processes, while providing investors with access to investment opportunists in media companies and privately held tech startups and patents.

In its research titled “Token Frenzy”, GP Bullhound managed to look at topics such as the state of funding in the crypto space, the future of smart contracts, smart money and Blockchain’s utility with a final overlook of the cryptocurrencies that will survive and the ones that investors should pay attention to. Needless to say the document is packaged with quality information to provide the best outlook of the cryptocurrency and Blockchain industry.

What the Report Says About the State of Blockchain Technology

According to the research, the advent of blockchain technology has sparked the imagination of many software programmers. Early adopters of blockchain technology have managed to contribute immensely to the industry with projects such as Ethereum establishing a position as one of the most expressive and accessible blockchain platforms so far.

The report further identifies Ethereum as one of the most “easy to use scripting language that is enabling fast development of Blockchain based application thanks to the fact  that the Ethereum platform is allowing developers to move much faster and build on Ethereum’s already established blockchain network”. Furthermore, Ethereum has enabled the development of a strong community with strong supporting enterprises such as the “Enterprise Ethereum Alliance” that further drive the Ethereum project as the leading Blockchain ecosystems.

But, even with advanced blockchain ecosystems such as with what Ethereum has achieved, there is still a set of challenges that have to be solved if the true potential of blockchain technology is to be realized. The challenges include:

  • Blockchain scalability
  • Effective governance of blockchain communities
  • Privacy regulation and security
  • Consensus and interoperability
  • Decentralized exchanges

Here is a breakdown of a few of these challenges in the Blockchain space.

Blockchain Scalability Issue

In an effort to build a lasting blockchain technology, Professor Emin Sirer said in the report that there is more progress being made in developing hybrid architectures “that combines a public and private blockchain infrastructure”. By this, Sirer indicated that a truly scalable blockchain can be achieved.

There have been ongoing plans to develop an off-chain lightning network on Bitcoin’s blockchain to enable scalability of the network. If Prof Sirer’s report is anything to go by “anybody who attempts to bypass “ on-chain scaling for a much simple off chain solution is seeking “nothing more than a pipe dream”.

According to him, there has never been “mathematical proof” for the vision of an off-chain lightning network that would enable scalability on the blockchain. Furthermore, he suggests that his research group is working on a solution that can take into account both on-chain and off-chain solutions for scalability. In his remark, he noted that it would not only take time for a scalable blockchain to come to fruition, but that it would also require a lot of operators.

Decentralization and Effective Governance

The issue of governance and decentralization of the cryptocurrency industry has mostly been attributed to the fact that blockchain technology lends itself easily to bad actors due to its decentralized nature. This has mostly been an issue when it comes to cryptocurrency exchanges, as a movement towards decentralized exchanges advances with more investors and traders seeking more control over their funds. According to Peter Czaban (the CEO at Web 3 Foundation and a contributor at Polkadot), “the problem of Blockchain’s scalability and maintenance of a decentralizes approach goes hand in hand with a tradeoff between transaction complexity and transaction security”.

The need for a secure community on each blockchain (e.g. the proof-of-work miners’ community protocol on Bitcoin’s and Ethereum’s blockchains) is bound to create a more centralized system of governance, even in a decentralized structure. To make major decisions in any ecosystem, a newcomer would have to galvanize the support of the community, which is not only hard to do but easily manipulated by those with more computing power, as is the case with Bitcoin.

Czaban suggests that a solution such as that which Polkadot provides (which is a combination of security thorugh tying up different Blockchain ecosystems into one) could enable true decentralization without compromising security, especially for blockchains with a small community of maintainers.

Another viable solution is that which Ethereum currently has, which is a robust team of founding leaders and a strong community that works to offer long-term security through multiple development teams and algorithmic governance. Also, Ethereum has the DAO protocol, which is used when addressing issues of scams, giving the leaders of the community a means to differentiate them from the legitimate projects.

Privacy, Regulation, and Security

When it comes to privacy, security, and regulation, the report indicated that there has been a growing need for privacy-centric coins. However, a conflict arises when creating a private network as it contradicts the founding principles of blockchain technology.

Maclane Wilkison, the founder of NuCypher, explains that privacy in the blockchain space presents a problem, yet adoption of the technology hinges on the establishment of a reliable private platform as seen with the rising demand for more privacy-centric coins.

Although privacy-centric coins such as Monero have gained popularity while being used as a means of protecting personal information on thebBlockchain, concerns over the fact that such coins are capable of being used for criminal activities have not subsided. These concerns have led to regulatory bodies calling for the development of backdoors that will allow for monitoring and regulation of such cryptocurrencies. In his report, Maclane Wilkison easy that there has to “some regulation of privacy coins” that would have to be “non-technical” since the idea of a backdoor to privacy-centric coins will conflict with the core technology that such cryptocurrencies are made of.

Wilkison further mentioned that NuCypher is currently working on “providing users with a way to store private data on public blockchain protocols”. In his view, most of the tokens that are appearing have only been developed to raise money quickly and rarely focus on building sustainable networks. He finishes by saying that the future of blockchain technology will be built on trusted solutions, regardless of whether they are private or public.

ICOs and VC funding

When it comes to funding Blockchain related projects, the research paper suggested that more and more projects have been going down the ICO route since 2015 for the simple reason that ICOs provide a much quicker exit time for investors, not to mention a faster, less bureaucratic means of getting funding or investing. With a $4 billion boom in ICO funding in 2017 alone, it is no surprise that ICOs have enjoyed so much attention in the recent past.

However, even though much younger companies and startups are going with ICOs, completely ignoring venture capital funding, there is currently a cool down in the ICO investment space that GP Bullhound expects to result in venture capital funding picking up once again as the most popular way of funding tech startups.

Going forward, the report indicated that the performance of ICOs will mostly be driven by the reputation of investors as well as the level of engagement a company establishes with its investors. This will also translate to long-term success for ICO projects as opposed to the hype-driven ICO projects that are a dime a dozen in the current industry.

Conclusion

In conclusion, blockchain technology is here to stay and stands to be the foundation upon which the next phase of the Internet will be built i.e. the Internet of Value. After all, decentralized ledger technologies are capable of solving the need for decentralization, transparency, and immutability. With projects such as Ethereum (currently the leading Blockchain ecosystem for developers) adding smart contracts to the mix, more consensus and interoperability can be achieved. In fact, the research paper by GP Bullhound includes a statement by John Lubin (an Ethereum Co-Founder and a founder at ConsenSys) that shows how the growth that Ethereum has enjoyed has come with some major setbacks, one being scalability. Lubin indicated that Ethereum’s “key objectives over the coming months will, therefore be building scalability” and with solutions such as Sharing already being tested, the possibilities for blockchain technology to take substantial strides in 2018 are hopeful.

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