An analysis of the 2018 crypto market collapse and the following crypto winter

Anyone who has been dealing with blockchain and cryptocurrency technologies for a couple of years may still remember the market crash in 2018 and the one and a half year crypto winter that followed. The situation is well reflected in the bitcoin exchange rate shown in the figure below. Of course, the volume of the total kritpo and blockchain market is much larger than the current price of Bitcoin. However, since Bitcoin is used in most places as an interface crypto currency to enter and exit the crypto world, the chart below also shows the general cryptoconditions in 2018 quite well.

The Bitcoin price from 2014 to nowadays

First of all, it is important to note that we believe the blockchain is basically a transformative exponential technology. Exponential technologies have been evolving slowly for quite some time, and then, after a while, reaching their exponential stage, they are being used at an ever-accelerating rate (Figure 2). One of the best examples of this is artificial intelligence, and machine learning. If we consider only the backpropagation algorithm in the narrower sense as the birth of the area, the area has been in existence for more than 45 years. Nevertheless, we are not yet there for self-driving cars to travel on the roads on a daily basis, but it is conceivable that we will reach it within 5-10 years. This means 50-60 years until the technology reaches its true exponential stage, where it will actually result in radical innovations. Blockchain algorithms have been around for about 10 years. We believe that this technology will reach its exponential stage faster than artificial intelligence, but it may still take 10 to 20 years.

Life cycle of an exponential technology

On the other hand, general human thinking tends to underestimate the impact of a technology, especially if it is exponential: we tend to overestimate the effects in the short run, while we underestimate the effects in the long run. This is probably due to the structure of the human neocortex, which specializes in pattern recognition that is basically close to linear, so it also tries to approach an exponential change linearly. From another approach, the high level of media attention in the area caused a problem. With fundamental long-term technological change, the media tends to go to extremes: for example, to advertise something as a world-saving technology for half a year, and then, if it doesn’t change the world in six months, to declare it unusable.

Another feature of blockchain technology is that it is an infrastructure financial technology. In this respect, it is somewhat different from a simple fintech application that tries to save the world with a fancy mobile app and some business logic. It is more like classic infrastructure technologies such as the highway from which a few thousand kilometers have to be built in order for other applications to run on it, such as cars, trucks, motorcycles, and so on.

In 2015-16, a new application related to blockchain technology, called token sales, appeared, the earliest form of which is ICO (Initial Coin Offering, Figure 3). Token sales as a technology has fundamentally liberalized the investment market, both on the demand and supply side:

- On the demand side, it provided a new opportunity for any investor to acquire a stake in a startup starting up anywhere in the world on a basis of up to a few dollars.

- On the supply side, it provided an opportunity for a startup to raise funds from anywhere in the world, even in crowdfunding style in the form of individual investments of a few dollars.

In this sense, the problems arising from the short-term perception of the aforementioned exponential technologies have intensified even more than usual. Simply put, the blockchain is a technology that can implement its own financing as well.

Number of ICO-s around 2018

The biggest problem with ICO technology has been the complete lack of regulation in specific business implementations (and in some places this is not fully clarified today). This did not cause too much of a problem in the initial period of 2015-16, as it was mainly serious professional projects that carried out token sales, and since the technology was not very well known, mainly professional investors could be found in the market. By 2018, however, this has changed as a result of both the press publicity and the incredible exchange rate gains of the first successful projects:

- From the investor's point of view, investors who were not so much interested in technology or in the long-term success of a platform, but only in short-term exchange rate gains, began to dominate.

- As it was seen that there is quite a lot of “free money” in the market, startups have started to raise funds irresponsibly. Of course, there were also teams that did some serious project and teams that didn’t want to do anything just put away the funding they collected. However, most of the attempts were somewhere in between: since the funding was free, many tried to implement a project without worrying too much about whether there was or would be a specific market demand for it.

Overall, we believe that the factors mentioned above are:

- the beginning of the technological curve

- increased media attention and unrealistic expectations

- a liberalized investment market and "free money" without any regulation or control

they themselves have created an unsustainable market, inevitably creating an investment bubble.

The final push for a concrete market collapse was caused by a total regulatory fire that hit the ICO market in early 2018, but without it, the aforementioned scheme would probably not have been sustainable for a long time. The market crash was followed by a one and a half year crypto winter, causing significant difficulties for downsized and blockchain companies that incorrectly assessed market demand for their products, either because they paid enough attention to it or because the idea they came up with was too “early”. . During this period, it was very difficult to attract new funding from token sales, but classic funding was not always given to such ideas, so most of these startups failed.

The end of the crypto winter began roughly a year ago, when serious and at times conservative institutions began to enter the krito and blockchain market. Perhaps the first was Facebook, which, although it had banned posts and ads in this direction for years, still came up with its own blockchain and crypto platform. Facebook was followed by various institutionalized and controlled implementations by Swiss banks and, from 2020, by some German banks and the ICO, such as IEO (Initial Exchange Offering) or SAFT (Simple Agreement for Future Tokens), with moderate success for the time being. Last but not least, the European Union is testing its own blockchain platform, and J.P. Morgan, calling Bitcoin a scam for years, is launching its own Bitcoin-based investment services.

We might say a little biasedly that the future of technology is not in question, but individual business implementations and specific market developments already do. The emergence of enterprise-level institutions in the market does not preclude the emergence of similar bubbles at all, and in some cases they may even be much larger than in 2018, given that the capitalization of the entire crypto market is still far below the size of the dotcom bubble.

Dotcom bubble and the crypto hype

Introduction to decentralized finance

One of today’s re-used slogans is DeFi (Decentralized Finance). The term was originally developed in 2016/2017 for decentralized applications that attempted to implement financial services over a blockchain platform. The meaning of the word has now changed somewhat and we mean mainly decentralized financial (or at least similar to financial) services implemented in a smart contract over the Ethereum system. The strength of the system is that each decentralized service can be used not only in a separate way, but in combination with each other in almost any way. This creates a coherent and mutually reinforcing set of organic services.

The ecosystem is based on the following basic protocols and solutions:

Tokenization: Decentralized finance is de facto based on tokenization and various token standards. Tokens provide both technological and business integration between different DeFi platforms, and in most cases the internal logic of each service is also implemented with tokens. The two basic token types are the so-called fungible and non-fungible tokens. A classic example of a replaceable token is a coin, where, for example, one EUR 10 coin is fully equivalent and can be replaced by another EUR 10 coin. The best example of a non-replaceable token is a theater ticket, where one theater ticket is generally not equivalent, it cannot be replaced by another theater ticket for another piece and location. Standards have also been developed for various tokens, such as ERC20 or ERC223 for replaceable and ERC 721 for non-replaceable tokens.

DAO: The basic operating logic of most decentralized applications is a kind of DAO (Decentralized Autonomous Organization) decentralized autonomous application. The bottom line is that there are no centralized roles or administrators, but everything that needs to change dynamically is based on the votes or majority decisions of a community. A typical solution is to produce so-called “maintainer” maintainer tokens where token owners are maximally and financially interested in the good functioning of the system but can change certain parameters of the system with their votes. This does not mean, then, that everything works in a fully automated and immutable way, just that those who can change certain parameters of the system are interested in making the platform work well.

Decentralized Oracles: One of the critical points in applications implemented with distributed ledger technologies is the integration of external data into the system. Because external data is entered using a component outside the blockchain, the security or non-hacking of the system is particularly critical. A classic example is when the pay for a sports betting smart contract depends on the outcome of a sporting event that needs to be imported from an external data source. If the external data source gives the wrong value, the prize may not be paid to the right person. This problem is usually solved by reading the data from several different independent external sources so that each data provider is motivated by some token to give an authentic value. Such a prolotocyte is called decentralized oracles.

With the help of the building blocks mentioned above, several more complex services can be built, which can be used individually or in combination with each other.

Stable cryptocurrencies: The biggest problem with cryptocurrencies is the dynamically changing exchange rate. This is attempted to be eliminated by stable cryptocurrencies whose exchange rate is pegged to an external currency such as the USD. There are three main solutions for cryptocurrency exchange rate stability:

- The exchange rate is guaranteed in a centralized way by an external company or bank. Then, of course, the reliability of the system depends heavily on the company that guarantees a stable exchange rate. This is how Tether works, for example.

- Collateralized stable cryptocurrency. What typically happens here is that a person pledges a certain amount of cryptocurrency in a smart contract and a new cryptocurrency is issued for it. For example, in Maker DAO, $ 200 of ether must be tied up for $ 100 of stable cryptocurrency. This provides the system with stability against extreme exchange rate movements.

- The third solution is to change the supply and demand of money in a completely dynamic way: to increase the amount of cryptocurrency in case of a falling exchange rate, and to decrease the amount in case of an increasing exchange rate. It is important to note that this type of solution has not yet resulted in a long-term stable cryptocurrency.

Decentralized exchanges (DEX): The logical operation of decentralized cryptocurrency changes is similar to their centralized counterparts, the only difference being that they run entirely on the blockchain without any centralized mechanism or control. Their mechanism of operation can be divided into two parts: in the first phase, in order-book matching, the sell and buy options are paired. In most decentralized exchanges, order-book matching only partially runs on the blockchain, the main reason being the limited efficiency of ethereum. In the second phase, the crypto assets to be sold and bought are exchanged in a fully decentralized manner (settlement). Examples of decentralized exchangre are Compound, Kyber, 0x.

Prediction Markets: Prediction markets can be considered as a further development of decentralized markets: here you can place bets in cryptocurrency on the output of an event (such as tomorrow's average temperature) and make a profit if the output is hit correctly. The main use of prediction markets is not gambling, but the accurate prediction of certain events. The basis of the mechanism is the so-called wisdom of the crowd: if many independent actors predict the outcome of an event, moreover, with a financial interest in predicting the correct outcome, much more accurate predictions can be made than what some experts can achieve. Examples of such platforms are Augur or Gnosis. Prediction markets are often the building blocks of other decentralized online insurance services.

P2P lending: P2P lending platforms provide the possibility of crypto or token-based interpersonal lending in some form of interest-like construction. Lenders and borrowers are usually paired through a decentralized smart contract-based system and the specific business is done through it. Examples of such platforms are EthLend or CoinLoan.

Decentralized portfolio management: Decentralized portfolio solutions typically manage a portfolio of some kind of non-fungible token. Portfolios can be created and run with different rules, such as open-ended or closed-ended, automatically or trader-managed, and so on. The technology also provides the ability to create so-called tagged portfolios, such as a green portfolio of only sustainable tokens.

Certainly, decentralized finance platforms are by no means completely problem-free. Their biggest drawbacks are their scalability and performance, which stems mainly from the limited scalability of the ethereum platform: 15 transactions per second and a turnaround time of around 2 minutes for secure processing. Another major problem is the legal uncertainty in the area.

In the long run, however, we believe there will be a solution to both problems. For example, Ethereum 2.0 is likely to provide an adequate response to scalability. The future of legal regulation is a bit questionable in which direction it will develop due to the over-regulation of the financial sector. However, as a long-term economic trend, we believe that if a business function can be implemented with two hundred lines of code without multiple institutional backgrounds, then it will be implemented with two hundred lines of code.

Everything You Need to Know About Cryptocurrency Regulation (Right Now)

Guest blog from UpCounsel

Written by Gary Ross

(This article was originally published on UpCounsel.)

The meteoric rise of cryptocurrencies has taken the world by storm. Innovators, investors, users, and governments are scrambling to wrap their heads around cryptocurrencies and the blockchain technology that they rely upon. The emergence of a new market and business model has created great opportunities for participants, but it also carries significant risk.

Cryptocurrencies present an inherently unique challenge to governments because of their new technology, cross-jurisdictional nature, and frequent lack of transparency. Governments are struggling to develop new ways to regulate cryptocurrencies, adapt existing regulations, and identify fraudulent schemes. Cryptocurrencies and their regulations are evolving before our eyes, and this article will provide a brief background on cryptocurrencies and an overview of where cryptocurrency regulations currently stand.

What are cryptocurrencies?

Cryptocurrency is, by any other name, a currency—a medium of exchange used to purchase goods and services. Or, as some have suggested, cryptocurrency is a “peer-to-peer version of electronic cash.” However, this currency has two qualities that distinguish it from traditional bills and coins.

First, cryptocurrency is a virtual currency that is created through cryptography (i.e. coding) and developed by mathematical formulas through a process called hashing. Second, unlike traditional bills and coins that are printed and minted by governments around the world, cryptocurrency is not tied to any one government, and thus is not secured by any government entity. The fact that cryptocurrencies are not secured by a government authority has led to concerns from critics that this is the second coming of Tulipmania, because we are ascribing value to an otherwise valueless item. However, the potential for cryptocurrencies as a medium of exchange remains enormous.

What is blockchain?

Blockchain is the technology at the heart of most cryptocurrencies, and explaining the technology in detail would require a blog post of its own. What is important to know is that blockchain is a record of peer-to-peer transactions categorized into blocks on a distributed ledger. Despite the obtuse terminology, blockchain functions similarly to a local bank authorizing and recording a transaction, but instead of only one party holding the entire ledger book, the transactions are recorded communally by member nodes, with each node being a computer in a peer-to-peer distributed network.

The blockchain can confirm a transaction within minutes, removing errors that exist when trying to reconcile and audit separate ledgers and transactions. Whenever a transaction takes place, the miners on the blockchain develop a new hash and digital signature to update the ledger and create a new “block.” This block, or recorded transaction, is time-stamped and encrypted and will remain on the blockchain for life.

Regulation in the US – Utility Tokens v. Investment Tokens

In the United States, there has been no federal regulation of cryptocurrencies. Instead, cryptocurrencies are often grouped into two non-binding categories: (1) investment tokens that fall under the purview of already existing U.S. securities laws like the Securities Act of 1933 and the Securities Exchange Act of 1934, and (2) utility tokens, which remain largely unregulated (for now).

Security Tokens

Whether the tokens being offered in connection with a particular cryptocurrency are security tokens is decided on a case-by-case basis that even experienced securities lawyers can disagree upon. Tokens are usually analyzed under the four-part Howey Test below to see if the token is in fact a security. Securities must meet the following criteria:

1. An ​investment of money

2. in a ​common enterprise

3. with an ​expectation of profits

4. predominantly from the efforts of others

Each characteristic of the token is analyzed against this framework to see if the cryptocurrency is in reality functioning as a new-age security. If it is, then regulators treat it as such, and cryptocurrencies must then be registered and handled with all of the same disclosures and precautions as any other security sold in the United States or to U.S. investors.

Utility Tokens

Cryptocurrencies can also be categorized as non-security utility tokens. These tokens purport to offer intrinsic utility and value, and are typically instrumental in powering the blockchain technology. These tokens function more like commodities than securities, and while they may act like currency in a fully functional network, they also have other values.
However, having a utility token with a properly formed and functioning network does not preclude said token from being labeled a security by the SEC. In In the Matter of Munchee, Inc., a purported utility token with a non-functioning network was labeled a security by the SEC. While labeling a token without a functioning network as a security – as it has no present utility – is not unexpected, the SEC also concluded that: “even if [Munchee] tokens had a practical use at the time of the offering, it would not preclude the token from being a security.”
After analyzing the Munchee Tokens under the Howey test, the SEC concluded that they were investment contracts because purchasers of the tokens had an expectation of profits predominantly from the efforts of Munchee and its staff. The SEC further concluded that Munchee had primed such expectations through its marketing efforts.
While this new case does not eliminate the distinction between utility and security tokens, it does caution that, when deciding whether a given token is a security, the SEC will look beyond utility at the character of the instrument, and base their conclusion based on the terms of the offer, the plan of distribution, and the economic inducements held out by the token issuer.

State Regulation

So far only the state of New York has issued any kind of regulation specifically regarding cryptocurrencies: the BitLicense. The BitLicense is New York’s attempt to control cryptocurrencies within its borders by requiring cryptocurrency businesses to register and comply with several different disclosure and financial obligations. The regulation has been divisive, and many businesses have rallied against its high costs. While a few companies have applied for and received the license, most other companies have simply left the state or stopped offering services to its residents.

Regulation Abroad – The Ever-Shifting Jurisdictional Question

The United States is not the only country grappling with how best to regulate cryptocurrencies. Many cryptocurrency businesses face daunting questions regarding in which jurisdictions to form and to do business in. In the end, the question is quite difficult and fact-specific, requiring communication between legal counsel in different jurisdictions and taking into account nebulous and piecemeal country-by-country regulations. It is impossible to do a detailed analysis without knowing how a country’s existing securities laws, financial regulations, and banking regulations will operate (or will be adapted to operate) with cryptocurrencies. The fact that cryptocurrency-specific regulations are still developing does little to add clarity, and makes the analysis even more challenging. Yet a few global trends are noticeable:

Suspending Cryptocurrencies

Some notable countries, like China, and South Korea, have suspended cryptocurrencies. These countries have cited the risk of fraud and the lack of adequate oversight in suspending cryptocurrencies and their exchanges, forcing cryptocurrency companies and exchanges to relocate.

Regulating Cryptocurrencies

Other countries, like Japan and Australia, have adopted disclosure and regulatory measures, or have companies register with the applicable government authority. Several countries have also tried to implement disclosure or registration regulatory regimes when it comes to cryptocurrencies, but such regimes are cumbersome and expensive to fledgling companies.

Cryptocurrencies as Commodities

On the other hand, Switzerland and Singapore, two of the countries at the forefront of the cryptocurrency market, have simply stated that cryptocurrencies are assets, not currency and that they will treat them as such under existing regulations.

Conclusion

Ultimately, cryptocurrency regulation remains in its infancy. Piecemeal regulation has already begun around the world as governments enact new regulations to control and legitimize cryptocurrencies, fold cryptocurrencies into existing regulations, or ban them outright. These splintered attempts at controlling a global phenomenon will keep the cryptocurrency market volatile, and pose a challenge to innovators, investors, and users. They will continue to work in the cryptocurrency space while pushing for legislation and regulation that will remove ambiguity and legitimize cryptocurrencies. At the same time, they must grapple with the possibility that new regulations may be confusing, detrimental, or have negative inadvertent effects.

Memory of a blockchain and multi-hash Blockchain

Memory of a blockchain is simple the number of blocks, pieces of information, transactions or state variables that are hashed together and are represented in the final hash pointers. Regarding the final hash pointer of a standard blockchain solution, it has infinite memory, regarding that the information is hashed back to the genesis block. However this should not always be the case, certainly an infinite memory provides a better security, however after a certain point, it seems to be irrelevant if we keep the history only for a couple of years or to forever. In this sense, it makes sense imagine blockchain platforms that have less than infinite memory. 

Notes on stable cryptocurrency

Designing a stable cryptocurrency is a pretty difficult thing, even if it is possible at all. One thing that might work if the cryptocurrency is "backed" by a digital asset for that we can estimate both the supply and the demand side. Such a digital asset might be for example storage or computation. Both for storage and for computation we can estimate the supply side, which is like the Moore's rule and probably we can estimate the demand as well based on industry trends or historical data. The only thing that we have to do is to design a cryptocurrecny with a certain monetary policy in a way that the monetary policy mimics somehow the price of the backed asset. Certainly, there might be a possibility for unexpected changes in supply or demand, like for instance the appearance of a brand new technology, so the possibility should be given for manually monetary policy adjusting.   

Consortium blockchain solutions and ICO-s

There seem to be nowadays a couple a blockchain solutions that target consortium or private business blockchain solutions and despite planning or doing an ICO or other form of token sales. One of the best such example is Ripple, which offers bank to bank financial services despite that a lot of its XRP tokens can be freely traded in the major exchanges. 

Such a constellation seems to be a little bit paradox for the first sight. The problem is that institutional investors still do not really buy tokens, instead most of the tokens are sold for everyday people or to bitcoin whales. Considering a B2C decentralized service this can provide a functioning solution, as most of the tokens are probably bought by people who are actually willing to use the service as well as soon it will be ready. This makes the business adaptation faster and accelerates the network effect as well. However with a B2B service it is very difficult to design a usage token in a way that it can be bought by average people as investment but the system will be working in a consortium scenario possibly between enterprises. Certainly it would be an exception if the token could represent a pure investment possibility, however it would require a huge regulation overhead.  

Comparing cryptocurrencies with Hyperledger Fabric

Based on the framework of the previous blog and dimensions, we can compare different cryptocurrencies like Bitcoin with Hyperledger Fabric. The characteristics of cryptocurrencies can be seen on the following picture:

The properties of Hyperledger Fabric can be seen on the following picture:

As the comparison shows as well, there are some major differences between the two technologies. As cryptocurrencies are intended to be a public network, Hyperledger Fabric is for consortium use-cases. This fact is visible on the transaction scope, higher transaction privacy, and better performance. Hyperledger Fabric implements a modular consensus mechanism, with several different algorithms, ranging from simple fault tolerance to simple Byzantine fault tolerance (maximum one node error). Another major difference is that Hyperledger Fabric does not implement any kind of a tokens, neither internal, nor external. Of course, transaction semantics is different as well, Hyperledger Fabric has a general purpose smart contract language however cryptocurrencies usually concentrate on one digital asset.  

Comparing cryptocurrencies with ethereum

Based on the framework of the previous blog and dimensions, we can compare standard cryptocurrencies with Ethereum. The characteristics of bitcoin and cryptocurrencies can be seen on the following picture:

And similarly the characteristics of Ethereum can be seen on the following picture:

Comparing the two frameworks, we can see there are differences in two areas. On the one hand, Ethereum provides a much bigger transaction semantics, as it is possible to formulate general Turing complete smart contracts. On the other hand,  Ethereum provides a better performance on consensus mainly because of the modified GHOST / Casper conensus algorithms. As Bitcoin is capable to process 4-7 transactions per second and the average block confirmation is 10 minutes, Ethereum is capable to process around 15 transaction per second and the processing time for a block is around 12 second. 

On the fiscal and monetary policy of a cryptocurrency

Most cryptocurrency have at the moment something as a simple algoritmically specified token supply, which is pretty far from classical tools of a nations' currency. So let we examine if something similar to the classical monetary and fiscal policy can be realized with cooperation of a cryptocurrency. 

Classical monetary policy.

- Increasing monetary supply: increasing monetary supply simply means increasing the amount of tokens that are available in the circulations. That can happen in an algorithmic way, as it is usual in most of the cryptoruccencies, however it can occur as a result of a centralized or semi-sentralized explicit action.  

- Decreasing monetary supply: well this is not so easy. One option might be to somehow burn coins, however the major question is with this situation where should be the coins burned. If they are burned directly in the wallets of the customers, then probably the trust of the currency will not be huge. Another idea might be to have a standard inflation rate with a standard token issuance rate, so this issuance rate can be increased or decreased to zero as well.   

Direct counterparty involvements.

If the major focus is to influence or keep stable the changing rate on market, one possibility is to influence it directly with the help of a counterparty. The party will have an amount of funds to change the changing rate of the currency and can act consciously for a certain market situation at selling or buying. Certainly, this situation involves an explicit counterparty risk.   

Policy via token multiplication. 

If we consider not just the cryptocurrencies but the tokens financing projects or companies on top, we get a system that can be better fine-tuned. A token issuance can act something like a currency multiplication act, especially if we consider the tokens as part of the monetary basis. If we can motivate or demotivate the issuance of the new tokens, we get a system that influences indirectly both the monetary supply and the whole market readiness to create new projects or companies.   

Fiscal policy. 

Real fiscal policy is pretty difficult in a cryptocurrency context. It is probably because of two reasons: On the one hand crpytocurrencies provide just currencies and not necessarily a full or partial economy. Even if some economy exist behind, it is far from being a closed one. It is questionable if pure fiscal policies ever can be interpreted in the context of cryptocurrencies. 

Notes on decentralized and automatic monetary politics

Bitcoin and other cryptocurrencies function at the moment relative badly as a currency, simply because the price volatility is too high. It is certainly caused by some different phenomena that might be improved in the future, like the market is too small, most of the material things are denominated in cryptocurrencies but actually in dollar, there is a huge interest of the cryptocurrencies that causing fast price changes. The real open question is if there is possible to create a cryptocurrency that can behave stable in changing price comparing to another another currency. There are some experimental ideas in this direction, like SchellingDollar or Seignorage Shares. In all realization is however the major point is to automatically adjust the monetary basis in a decentralized way. As it is pretty easy to increase the monetary basis with mining new coins as an example via a mining process, it is much more difficult to make the monetary basis smaller.      

on ICO price and media news

Considering the whole ICO wild west, the appearance and spread of the news or false news are much more critical than in the traditional industry. The whole ICO and token concept based on the idea that the products are actually not ready, they only exist as a whitepaper at the beginning, and perhaps something will be realized perhaps nothing. For this reason the appearance of the different news can influence the price in a enormous way. Surprisingly, informative news, like a new milestone has been successfully reached are usually too technical to really make a huge influence. However such a news that a given company made a successful partnership with a big company or a potential customer make the prices sky-rocketing. The situation can be even worse if the news are actually fake and are created only to manipulate prices. As the whole area pretty much a wild-west, it is questionable what can be done against such a negative manipulation.    

The new de facto reserve crypto-currency is Bitcoin

Perhaps, it funny to put this thing in this way, but actually the new reserve currency of the crypto world is the Bitcoin. Certainly, it does not really work the same way as a classical reserve currency like the US Dollar, mostly because of the reason that the cryptowold has got a different logic, as an example independent from the nation state by default. However, if someone wants to exchange between fiat and crypto than the first interface money is actually Bitcoin. On the other hand Bitcoin has got actually the biggest mainstream adaptation on the world, implying the most liquidity and probably price stability (not necessarily in comparing with fiat currencies but comparing with other cryptocurrencies). 

Tokenization and gamification

Surprisingly, Blockchain or tokenization and gamification do not seem to be two totally different concepts. The major idea of gamification is on the other hand the "game" itself, on the other hand some economic reward that is usually manifested in community points, badges, new roles and so on. The next logical step is to realize this economic reward directly with trade-able tokens that can not only collected or gained for some community activities but actually traded or perhaps even sold for real or crypto money.   

The idea might work well in fields where the gamification is strong by design. As gamification tokens might mean a special area in the whole cryptoeconomic and probably they do not carry such a huge burden of legislation risk, it might be a good idea not just to try out gamification-tokenization areas one by one, but to create general token-as-a-service platforms.  

Notes on general coin services - token as a service

Considering the current gold rush for ICO-s and different tokens, there are a couple of services that do not necessarily provide services on their own, but rather concentrate on giving general services for other ICO-s. It is generally the question which are these services. The mostly needed service is not just general consulting but the token creation itself and something that is a "trusted" communication for the cryptocurrency economy to convince everybody that the project is "kosher". Let we call such services as token-as-a-service.

However exactly providing these functionalities has some negative effects. A successfully project is usually much more than simply a token sale. They focus instead on creating fully decentralized platforms on which programming the token itself is usually just the first and easiest step. So, if a company or team can not succeed in even the easiest step, than they will probably fail to deliver anything at all at the end of the development plan. It means indirectly, that such a general coin services will attract all the scammers from the market. 

On the other hand, providing token as a service can attract multiplicative legal risk, as the company providing different tokens can be made responsible for each tokens. As the general token sale is basically a wild west at the moment, meaning different legislation at each country that is changing day by day, providing a token-as-a-service can a legal nightmare.

It is a general further question if such a services should be provided in a centralized way, or there is a possibility to do it completely decentralized. 

On the money multiplication of a cryptocurrencies

Cryptocurrencies are usually heavily criticized that they are not heaving the same characteristic of the traditional monetary systems, namely the money supply multiplication of the bank system. However, that should not necessarily be always that way. 

Let we suppose the following idea: considering an ICO, some tokens will probably reach the necessary success, implying the necessary network effect, price stability and liquidity. That means that these tokens will be probably part of the monetary supply. In this sense a successfully executed  ICO might extend the total monetary crypto supply, as a consequence it works as a crypto multiplication. Actually, in some sense, the system works similarly as the traditional banking system, the money is not multiplicated just for fun, it is used to be given for financing new companies, or new projects. 

The real question if the multiplication can be controlled in centralized or decentralized way based on the token supply and ignoring the such concepts as interest rates for the first run. Let we imagine that the issuance of the new tokens are controlled by some incentives, like with taxes. In this way there is a possibility to control the whole economy, like:

1. In case the economy is overheated, the ICO-s can be made more difficult or highly taxed, decreasing the general demand for new ICO-s and making the increase of the monetary supply less intensive. 

2. In case of depression, the ICO-s can be made more easy to do, like with less taxed, meaning that the demand for new ICO-s will increase among with the general monetary supply. 

Certainly, there are some elements of the model that might be fine-tuned. 

- It is a little bit misleading that the general monetary supply is not only represented by one token but with a several ones. It is a general question if there is a model that assumes only one token. 

- As the general monetary supply can be easily increased, it is more difficult to actually decrease the supply. 

- The model still does not capture the time perspective of a payment, like giving a loan and paying back in a later timepoint. It is actually an open question if it is actually a general problem.    

CBDC (Central Bank Digital Currency) is on the rise

Surprisingly, CBDC (Central Bank Digital Currency) is being taken very seriously by Central Banks. Even if we are probably pretty far from the first working models and they will be probably pretty far from the original concept of decentralized cryptocurrencies, the model is pretty intensively studied. 

It is actually funny that in a conference overwhelmed by people from Central Banks, the usage of words and concepts are a little bit different: 

- Instead of Blockchain, Distributed Ledger Technologies

- Instead of Cryptocurrency, Digital Currency.

- The Satoshi Nakamoto is certainly forbidden. 

...

Notes on the definition of Fintech

Sometimes the concept called Fintech is a little bit misleading. Certainly, it is pretty difficult to define the concept precisely, it can be however pretty well described:

- Fintech is PSD2, fancy banking Apps, innovative Big Data banking applications, or Blockchain and cryptocurrency solutions. The concept means innovative and disruptive solutions that are related to the financial technology and not necessarily to the banking technology. 

- Fintech is definitely not anything that has anything to do with banks and IT. It is certainly not related to the fine-tuning of some old fashioned legacy backbone technologies, even if they are still used transferring money.  

What is the difference between a real estate and a cryptocurrency

This was actually a general question in of of the community blog, however it is interesting generally, so I try to answer it generally.

Both cryptocurrencies and real estates are assets. The only difference is that a cryptocurrency is digital asset meaning the ownership is guaranteed by network protocols and cryptography. On the other hand, a real estate is a physical asset, meaning that even if they are administrated by a Blockchain protocol, the value of the ownership of the asset is guaranteed by the government.   

It is important to note however, that in both cases only the ownership of the asset is guaranteed, the value itself is not guaranteed. In both cases the value of the asset is based on pure market mechanism, namely on supply and demand. It is certainly true that at the moment the price volatility of a real estate is much smaller than at a cryptocurrency, however this might change on a long run because of the network effect, as cryptocurrencies will be reaching mainstream adaptation.

Notes on Initial Coin Offering

Well, ICO (Initial Coin Offering) it a topic that is pretty much highly discussed at the moment. On the one hand the whole are is basically a wild west, apart from the good intention start-ups, there are a lot of Ponzi schemes, Pump and Dump schemes, or simply tokens that provide nothing in exchange to the value of the token. 

On the other hand, the whole ICO market shows that the idea is actually a pretty much working idea, summarizing the advantages in three major points:

1. The area is booming of innovations: there are a lot of experimental initiatives to try out in which fields is it possible to use the decentralized model, how they might work and how they do not. 

2. There is pretty huge demand on the market: If I am someone that wants to invest some money into a start-up, it is pretty difficult to do it otherwise. Certainly I can buy some stocks on the finance market, however on the one hand stocks are investments of big companies, not exactly start-ups, on the other hand there is a financial border for most people throughout the world of investing in stocks. ICO on the other hand is available for everyone on a self-service basis. 

3. There is a huge supply on the market: for every start-up, there is not necessarily an easy way to collect funds. To get venture capital, is usually not an easy process and the result is pretty much questionable as well. On the other hand, latest news have been demonstrated that raising money with the help of an ICO can be pretty fast and pretty successful.    

Does Cryptocurrency mean the end of Fiat money ?

Perhaps the question itself is a little bit provocative, however we might as well consider the appearance of the cryptocurrencies simply from an evolutionary perspective. As barter was replaces by primitive, following coinage, then paper money and fiat currencies, perhaps cryptocurrencies are simple the new stage of the financial technology evolution. Certainly for the first run Bitcoin and other technologies provide rather a simple money transferring technology. However, there not seem to be any reason why the technology could not extend to a broader area, providing general financial services besides money transfer. One example for that is the appearance of cryptograhicaly funding services, like ICO-s that have the chance to replace the whole venture capitaslim. In this sense, we might as well easily imagine that in a twenty years, fiat style currencies will hundred percent replaced by crypto style financial services.