Crypto Sector Up-To-Date: Market Insider

Crypto Sector Up-To-Date: Market Insider

Market insider

Imagine 25 years ago, If someone came up to you and said “there’s this new technology called the internet and it’s going to revolutionize the way we live by opening up opportunities for radically new business models…” you’d be very skeptical, to say the least. But it’s easier to conceptualize it right now, as we’re experiencing a paradigm shift in our economy, powered by Blockchain technology leading upto the Web3.0. 

Today, experts believe the state of Blockchain (really all Distributed Ledger Technologies) is still in its nascent stages. Much like how the internet was more than two decades ago. In this article, we’ll explore where the value will be created and who’ll capture most of it, in the nascent Blockchain technology stack.

Startups working in the protocol layer of the Blockchain stack have attracted a whopping $7.6 billion to date. Higher than any other application layer startup sector. So what are these startups doing?

These are pure tech startups developing Blockchain protocols, infrastructure among other technical advancements. More than a decade ago, Satoshi Nakamoto developed the first Blockchain protocol for the Bitcoin Network. 

Although Bitcoin was created to become a global peer-to-peer payments protocol, in recent times, it’s increasingly being considered a good store of value. Especially since Bitcoin isn’t correlated with traditional capital markets. Some investors are even considering Bitcoin as a safe haven assets much like Gold, in times of economic wars and political unrest. That’s what is driving value for Bitcoin right now.

But the same can’t be said for other cryptocurrencies. For example, Ethereum, the driving force behind ETH is the usability of Ethereum’s platform for developing dApps. The success of Ethereum as a Blockchain protocol depends on the success of the applications built on top of it. 

The protocol layer in the Blockchain stack is critically different from its counterpart in the internet stack because for the first time building, maintaining and improving shared protocols create value not just for applications built on top of it but also for its creators. How? Cryptocurrencies!

Historically, creators of some of the most commonly used protocols had little financial gain from their genius inventions but with blockchain protocol, a for-profit company can create a protocol and issue and retain some cryptocurrencies for themselves. If their protocol becomes widely used as with the case of Ethereum, the value of their token will appreciate and hence monetize on their hard work.

Further, cryptocurrencies are also a major driving force behind the adoption of Blockchain protocols. Once the price of Crypto token increases, people start noticing it and invests in it. They become financial stakeholders in its success. The entrepreneurs among the initial stakeholders might build applications on top of this protocol layer and as it could further appreciate the value of their tokens.

Quite interestingly, the market capitalization of the Blockchain protocol will always grow faster than the combined value of the application built on top of it. Imagine a situation where an application built on top of a Blockchain protocol becomes widely used and is successful in terms of adoption. This is because the success of the application layers, builds further speculation about the protocol layers, driving up it’s value.

The world of startup financing took a major turn in 2017 as initial coin offerings (ICOs) burst onto the scene. In 2017 and 2018, more than $14 billion flowed into blockchain projects as investors looked to capitalize on crypto euphoria and the low barriers to entry made possible by the ICO funding model.

To date, very little has been produced from the ICO wave. To make matters worse, current market capitalizations suggest that over 80% of those funds have diminished.

As a result, regulatory bodies have increasingly entered the digital asset space.

The US Securities and Exchange Commission (SEC), for example, has enforced its regulations with exchangesICOs, and even digital asset custody solutions.

The Commodity Futures Trading Commission (CFTC) has also taken action in the space.

SEC Chairman Jay Clayton has publicly stated how virtually every ICO he has seen, constitutes a securities offering. As a consequence, digital assets must comply with existing securities laws.

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