Lesswing, LLC

Concerning Digital Assets

Winter’s End is Near

Cryptocurrency has been depressed for over a year since Bitcoin peaked in November of 2021. The downturn has been called a crypto winter that was partially due to the reduced disposable income of investors due to inflation.

While cryptocurrency was depressed, we experienced a collapse of FTX, a major exchange. FTX was an easy-to-use exchange that allowed day trading across multiple cryptocurrencies. In order to participate in the exchange, you first need to convert your cash into tokens. Unfortunately, the operation was not properly backed by reserves and their problems further shook consumer confidence. Investing in cryptocurrency has always been a gamble.

The first crypto winter occurred between 2018 and 2020 when attempts to create markets for tokens did not materialize. It became difficult to secure startup capital. I attribute the first winter to an overestimation of the returns of token-based businesses. Investors counted on the value of each token and not on the services they could purchase.

As we begin 2023, we should examine how long the winter will last and what the next crypto spring will bring.

Winter’s End

Analysts differ about when the downturn in cryptocurrencies will end with estimates ranging from early 2023 to late 2025.  Government regulators will begin dealing with cryptocurrency exchanges as the next wave of blockchain applications appear in Q4 2023.  These will not be based on the tokenomics (creating company value by selling tokens) we saw before the first crypto winter. Instead, the next wave will feature pay-as-you-go service procurement.

A full recovery in the value of cryptocurrency should happen in mid-2024. Subscriptions will still be the basis for most business arrangements and the transition to pay-as-you-go will take many years. As subscriptions are up for renewal, alternative payment methods that match business cycles will be available. The movement towards pay-as-you-go should continue after the recovery.

Springtime for Blockchain
The years of creating a token out of thin air and making millions are over. The music has stopped. We’re back to our regular programming of having to create real value and solving real world problems.
David Martin

Blockchain has been called a solution looking for a problem for many years and I think we have learned a lot from the first two winters. Instead of a fast buck, companies will deliver meaningful services through blockchain applications. This approach avoids the cause of the second crypto winter; a lack of valuable services.

Companies will pay for services when they need them instead of predicting usage ahead of time to match the ups and downs of the real estate business. The infrastructure to deliver services already exists. Blockchain businesses need to improve the value proposition of their services.

Improvements to blockchain-based services require advancement in areas that include:

The Ethereum blockchain is reducing the electricity needed by over 99% and speeds increasing speed by a thousand times this year. Even with these improvements, Ethereum still lacks data privacy.

The lack of private data has been crippling for blockchains. They deliver information reliably, but all data is accessible to the public. This limits smart contracts because private information stored in enterprise systems is not easily accessible. Progress on this front is being made with new blockchains that allow data owners to control what is made public. When blockchains add data privacy, they can provide services that rival enterprise systems.

Future Seasons

One uncertainty in the blockchain future is how users will pay for services. Payments are made in cryptocurrency that is stored in digital wallets. I can see enterprise applications having wallets that are “filled up” by the operator. It is harder for me to imagine the majority of consumers using digital wallets on a daily basis. This means that business-to-business service providers might deploy products to the blockchain first.

Let’s see what developments come about over the year.

The Future–never spoke

The Future—never spoke—
Nor will He—like the Dumb—
Reveal by sign—a syllable
Of His Profound To Come—

But when the News be ripe—
Presents it—in the Act—
Forestalling Preparation—
Escape—or Substitute—

Indifference to Him—
The Dower—as the Doom—
His Office—but to execute
Fate’s—Telegram—to Him—

Emily Dickenson

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