Ten years ago, in 2008, shortly following the cataclysmic subprime mortgage crash, for some a beam of hope shone out: the promise of a completely decentralised monetary system, distinct from the irrationalities of the market and the destructive tendencies of government and banks 'too big to fail'. The insurgent idea, leaked quietly onto niche internet forums, was of course, bitcoin.
Cryptocurrency has not completely upended the established economic structures as some had hoped but it has certainly made an impact on the world.
Despite initially being pounced upon by cybercriminals as a means to facilitate illicit transactions, cryptocurrencies still hold potential as a vehicle for frictionless, anonymous payments across borders for the average citizen.
What is more interesting for many other segments of industry is the underlying technology, blockchain. The transparency blockchain systems afford, along with their ability to provide a shared view of every transaction that occurs within the system combined with the difficulty of hacking them make blockchain an attractive technology.
The level of decentralisation varies depending on how open the blockchain system is. While the initial champions of blockchain - and some decentralised apps today, as we'll see - advocate for completely public blockchains, private or semi-private blockchains have proved more palatable to big business.
Here's what we expect to see in blockchain and crypto in 2019.
Banks and cryptocurrency
One industry that took notice of blockchain from the beginning is banking.
For some years now banks have experimented with blockchain, particularly with applications in making transactions cheaper and more effortless. While one of the primary features of bitcoin was conceptualised to be decentralisation, centralised banks are examining ways in which they could absorb certain blockchain-like systems.
Take the cryptocurrency Ripple, which was founded in San Francisco in 2012 and has since had success working with major banks. One of its products, xCurrent, is used by a number of banks including Santander and vastly speeds up the process of checking the information required to make transactions.
Ripple also launched xRapid in 2018, which is aimed at businesses that have a presence in emerging markets where pre-loaded local currency accounts are generally required for payments - pushing up transaction costs and time.
Instead xRapid will quickly convert fiat money into a cryptocurrency, XRP, to move it through the system before converting back into whatever the required currency is at the end.
At the time of launch, the CEO of Ripple, Brad Garlinghouse, predicted that most major banks would adopt the service in 2019 as a liquidity tool.
However despite some companies including Western Union and Moneygram trialling xRapid, Garlinghouse has said the lack of uptake is due to uncertainty around the regulatory constraints on blockchain.
This could be set to change with the establishment of legitimate coin exchanges in Gibraltar and Malta.
Goldman Sachs has expressed interest in setting up a cryptocurrency trading desk, although nothing is set in stone and the company appeared to backtrack from the idea when Business Insider reported that the company had dropped the idea.
However, as the value of cryptocurrencies went into freefall, this was rebuked with a counter statement from the bank decrying the report as 'fake news'.
"A big question for cryptocurrencies in 2019 is whether we will see an Exchange Traded Fund approved by [American regulatory body] the SEC," Ruchir Dalmia, Blockchain Consultant at Deloitte commented to Computerworld UK. "Such an approval would likely be a catalyst to further investment from institutional investors, such as funds and trusts, into crypto markets and demand for cryptocurrency.
"There are several experienced applicants under consideration currently but, after several rejections and deferrals during 2018, it remains unclear whether the SEC will be prepared to permit such a venture in the near term."
Importantly, Christine Lagarde, Chairwoman of the International Monetary Fund (IMF), made comments recently that seemed to encourage banks to become more engaged in cryptocurrencies, even suggesting that banks should experiment with launching their own cryptocurrencies to prevent cryptocurrencies becoming havens for fraudsters.
It could also suggest that Lagarde believes that cryptocurrency could one day break out of its relatively niche userbase and enjoy widespread uptake.
This eventuality could prove worrying to central banking systems as it would pose a direct challenge to their hegemony. Given that this would only happen if cryptocurrencies became much easier for the average person to use, perhaps Lagarde wishes to negate this possibility by encouraging banks to become frontrunners in this charge - and offer a more user-friendly crypto product before others do.
Although much of this seems counter to the raison d'être of crypto, there are ways of creating coins that are less decentralised, and incorporate a central mechanism that controls the supply of 'coins'. This means it would be possible for the banks to launch their own form of crypto without embracing a truly decentralised system.
To this end, there is also an increasing market for 'stablecoins', which are tethered to price fluctuations of an established fiat currency, for example, the dollar.
Initially suggested as a means of negating the wild price fluctuations suffered by bitcoin and the like, clearly, this offers a mechanism whereby a digital currency could offer the benefits of crypto but without truly challenging the underlying economic systems at work - a prospect which may prove very enticing to central banks.
However, it should be noted that at present due to regulatory ambiguity, in theory companies could also launch their own forms of cryptocurrency.
Given that tech giants such as Google and Facebook can move much more swiftly than government in creating and adopting technologies there is also a possibility that these companies could become interested in launching their own cryptocurrencies - even taking over the economic reins from central banks if they wished.
Our bet is that 'crypto' of some form will catch on eventually, given the massive incentives in terms of frictionless and low-cost payments, but it is unlikely to be tied up in any true 'decentralised' forms of banking in the near-term.
Regulatory hurdles persist
Of course, for this to happen, there would need to be definite change to the current regulatory framework for crypto and blockchain, both in the UK and globally.
In the UK, there is currently no official legislation for the use of blockchain technologies from the Financial Conduct Authority (FCA), the UK's regulatory body on finance. While the FCA does not explicitly regulate cryptocurrency, applications built on top of blockchain in the fintech space are under the organisation's remit.
Early in 2018, a speech by Mary Starks, director of competition at the FCA, outlined the major applications of blockchain as "records, including records of contracts, transactions, asset holdings and proof of identity".
She noted that the "two purposes of regulation are to protect the consumer, and to help innovation flourish". She added the importance of ensuring global collaboration on this issue, pointing to Global Digital Finance as one such international body that is aiming to push forward the adoption of digital finance technologies.
Among other things, the FCA has created a sandbox initiative allowing companies to test out blockchain applications and experiment with the tech within an enclosed environment.
However, 2019 could be the year that regulation becomes more conducive to experimenting with the technology in the financial and commercial spheres.
At a recent Blockchain Live event, held in London, minister for digital and the creative industries Margot James signalled the British government's interest in developing blockchain capabilities in UK industry.
"As the prime minister said recently, the UK is 100 percent committed to supporting the development and adoption of new technologies," said James, drawing a parallel between the government's interest in blockchain and the push to roll out 5G.
However, James stressed the importance of looking at the applications of blockchain beyond the financial world. She highlighted a number of blockchain projects for particular praise, including the partnership between IBM, Nestle and Unilever to improve the traceability of contaminated food.
"Actions like this, which work behind the scenes for consumer protection, have the capability of making huge improvements to peoples' lives," she said, noting that in recent months she had met a number of companies developing blockchain applications to improve supply chains and increase trust in social funding.
James added that the British government had committed £10 million to fund blockchain projects in areas such as energy, voting and charity through Innovate UK and research councils.
However, the Britain and other governments across the world are still struggling to develop a regulatory framework for blockchain given that the decentralised elements pose important legal issues, let alone settling on a common framework.
ICOs and dApps
In 2018, the market for 'Initial Coin Offerings' (ICOs) - an alternative funding method whereby a blockchain startup raises capital in exchange for tokens - boomed compared to 2017, but this could be a trend we see declining in 2019.
As the market was ramping up alongside growing hysteria around blockchain, there was high demand for ICOs both from true blockchain believers supporting decentralised systems for ideological reasons, or for opportunistic investors looking for get-rich-quick schemes.
Given their notoriety for pump and dump schemes - allowing fraudsters to artificially inflate the price of tokens before cashing in - there is evidence that the lawless 'anything goes' days may be drawing to a close for ICOs.
Research suggests that it is becoming harder to gain sufficient funding this way. A high-profile failure was Civil, a blockchain-based news organisation that failed to meet its market cap despite wide ranging publicity, including from the Financial Times, the New York Times and our own sister publication Techworld.
Harder to say is once the first movers' excitement has fizzled away, what will be left? Will the whole market sag into obscurity? Or will only the truly committed evangelists remain? If it's the latter, can interest be sustained long enough to gain mainstream appeal?
“It would appear that beyond any initial interest in a dApp [decentralised application], they struggle to maintain any form of meaningful user base once all the excitement has died down," said a spokesperson from Everledger, a UK startup that has built a scalable commercial application for the diamond industry, coloured gemstones, art and wine on top of blockchain technology. "For most, it appears that dApps are a challenging concept to understand in comparison to popular, easy-to-use web-based apps like Facebook, Instagram and Twitter, which are all free to use too – if you set aside the rampant harvesting of personal data and the exploitation of users, that is."
But barring mainstream appeal, considerable hurdles remain such as the need to invest in a 'cold wallet' and sometimes going through a complex registration process in order to participate in this ecosystem.
Organisations such as Token Foundry are trying to bring legitimacy to the area by requiring a more rigorous approach to the registration of buyers.
Deloitte's Ruchir Dalmia told Computerworld UK that the services multinational has recorded declines of more than 80 percent across most crypto assets due to lack of returns and cancelled projects.
"As investors and regulators become savvier, token projects are being held to higher standards, and clearer regulatory guidance is pushing new crypto ventures to adopt better processes, as well stronger teams and technology," Dalmia said. "This, however, comes at considerable cost. Combined with the already high cost of blockchain product development, the effect of asset-rich teams selling off ICO incomes to fund ongoing product development has produced difficult market conditions, which is why we expect the market for ICOs to remain subdued in 2019."
In the UK, Digital Catapult, a quango that promotes digital technology and innovation, conducted research on more than 260 distributed ledger technology (DLT) companies.
Informed by this research, they divided the DLT companies into four major categories: distributed ledger developers (13 percent), decentralised app developers (35 percent), service providers (37 percent), and centralised systems (15 percent).
Despite the focus on finance and fintech, they found that these companies spanned a number of industry verticals, including the manufacturing and creative industries. In fact, 38 percent of the companies interviewed feel that their technology could be applied to all vertical markets, not just fintech.
Regulatory uncertainty was cited as the most pressing concern by 74 percent of these companies, with the irreconcilability of GDPR with public blockchain and a lack of clarity around ICO regulation being the top issues.
Forty-five percent of these companies had to consult specialist lawyers to help establish their organisations but were uncertain as to whether they'd received valid advice due to the novelty and complexity of the area.
To discuss tokenization, it's important to delineate different kinds of tokens, which are each tied to a different kind of blockchain ecosystem.
Altcoins are forms of cryptocurrency so named because they are an 'alternative' to bitcoin.
Utility tokens: originally dubbed 'appcoins', these are tokens that are primarily used within the ecosystems of blockchain-based platforms. They hold internal value on the platform but can also be swapped for different currencies on exchanges. They can also act as 'shares' in blockchain platforms.
Finally, security tokens embody the value of real-world assets, for example, real estate.
"We believe tokens are the catalyst for re-imagining completely new constructs and building completely new systems," Sanaya Mirpuri, head of product marketing at Token Foundry, told our sister publication Techworld in relation to utility tokens. "We believe in projects creating token-powered ecosystems. So, not just payment tokens or tokens that people can pump and dump, but creating an ecosystem, where people can actually use the tokens."
But decentralised companies supporting token economies adopt a radical new model of enterprise, where monetisation can be a dirty word.
"We don't like using the term 'monetisation' because we think that is essentially what the centralised platforms - Periscope, Instagram, YouTube - do," Kevin Yeung, CEO of FanX, an upcoming decentralised live streaming platform told Techworld. "They monetise their users and content generators."
Therefore, it's difficult to see how these types of businesses will fit under the accepted model of commerce. However, a token economy could also appeal to established traditional companies.
For example, CEO of YEAY, a decentralised social media platform, Melanie Mohr told Techworld: "Looking into other apps that could also use the WOM token, frankly, it could even be pursued by Snapchat or Bitmoji."
However, it's not certain that these decentralised ecosystems will ever become mainstream.
A more mainstream potential application of tokenization is in security tokens. Security tokens can render trading more seamless and inclusive due to lack of barriers between different currencies and countries.
As ICOs are increasingly clamped down upon, STOs (Security Token Offerings) are on the rise, due to their greater regulatory compliance. In fact, security tokens are already fully compliant with SEC regulations, unlike utility tokens. This is primarily because the value of security tokens is linked to value that already exists in the world. For example, real estate, stocks or items of value that are assigned a value in fungible tokens. Many of the STOs that have launched to date are types of investment funds.
Everledger commented on the fact that the UK government is pushing regulation forward: “Cryptoassets that are security tokens fall within the existing regulatory perimeter as specified investments.
"However, the Taskforce recognised that the novel nature, complexity and opacity of many cryptoassets means it is difficult to determine whether they qualify as security tokens. To provide further clarity in this area the FCA will consult on perimeter guidance on the application of regulation to these tokens by the end of this year."
Blockchain and big industry
Some high-profile blockchain startups focused on the financial sphere include the R3 consortium made up of over 200 companies including Barclays, Accenture and AWS. In 2016, they created the open source Corda platform which was designed for anyone to build on, as well as the Corda Enterprise platform, which can be adapted by different businesses for different use cases.
Another group is the Hyperledger Fabric from IBM, an open source blockchain framework that is designed to help you create a blockchain for your business network, with paid options also available.
Businesses outside of the financial industry have been particularly interested in leveraging the tracking capabilities afforded by blockchain technology. A partnership by IBM, Nestle and Unilever resulted in the development of blockchain to improve the traceability of contaminated food.
Blockchain may also have a growing application in health and pharmaceuticals. IBM and the US Food and Drug Administration (FDA) have partnered on building a scalable health data exchange using blockchain, with the aim of addressing a lack of transparency in health data and improving trust on patient privacy.
Logistics giant DHL meanwhile is currently working with Accenture to develop a blockchain-based track-and-trace serialisation system in six areas around the world.
This is still a fledgling area, but increasingly, tech giants are offering 'blockchain-as-a-service' options, making the tech more accessible than ever. Some of the companies offering products such as these include Oracle, IBM and Microsoft.
Read next: Best blockchain-as-a-service options
A Deloitte survey earlier this year found that 84 percent of respondents now view blockchain systems as more secure than systems built using conventional technologies.
Deloitte's Ruchir Dalmia told Computerworld UK that there is growing momentum for the use of blockchain platforms within business and we are beginning to see the launch of large-scale platforms.
“Business leaders are beginning to take ambitious steps to move from small-scale experimentation to real world execution, with organisations pooling resources and expertise towards building shared platforms," Dalmia said. "Investment in consortium-led projects has taken hold across most sectors, for instance in the launch of VAKT, an organisation backed by several major energy corporations, which launched its commodity post-trade management platform earlier this month.
"In 2019, we expect the launch of several new large scale enterprise solutions."
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