CryptoTalk - What does the future hold for cryptocurrencies?

Hey Steemians! We are still stuck in the cryptocurrencies bear market and today we see another round of crash. As I am writing this post, the overall market cap was at $252 billion. This is a market cap which we have not seen since Nov 2017 and it is also about the point which I started investing in cryptocurrencies. If you ask for my thoughts right now, I will reply, "Why should I stop when I am back at the starting line?". Instead of focusing on the current price movement, I will like to instead talk about what I think is happening and the future of cryptocurrencies.

Crash due to overvaluation of ICOs

In Nov 2017, we saw an insane run up of crypto market cap from $200 billion to $​830 billion at its peak in Jan 2018. The crash started and we entered a bear market. The market had lost 70% of its value since then. One of the main reasons we are seeing this crash is due to the overvaluation of ICOs in 2017 and Jan 2018 period. Projects are asking for over $30 million of funding and due to FOMO at that time, most of them are filled up within hours, some even in minutes.

If you compare this with real life seed funding, start-ups typically get less than $1 million of actual funds during initial setup. For example, when Facebook first started, they only get $500,000 of investment for a 10% worth of shares. Due to the unrealistic valuation of most ICOs, artificial valuation is formed in the market cap and it created a bubble.

What is happening now?

A correction to bring the market to a realistic valuation is going on. What is a realistic valuation? It varies from projects to projects. Given that Facebook was able to get started with just $500,000, you might have to assess how much funds the team had allocated as development costs and what is the stage of development.

The sell-off is also likely due to the fact that teams have to convert their funds received in ETH or BTC to fiat in order to do real-life development of their projects. We are still at a stage where it is difficult to just live off cryptocurrencies. In order for projects to continue, cryptocurrencies have to be sold for fiat. This might result in more selling pressure since most of these projects have just started.

What does the future hold?

When you invest in cryptocurrencies, you are essentially investing in the future. If you are here to look for quick profits, then you are likely to be disappointed by what you see now. But as I have repeatedly emphasized, do not invest with money you cannot afford to lose. If you are doing that, then I recommend to carry on with your life as I am still bullish about the future of cryptocurrencies due to the few reasons I am about to provide.

Projects start to deliver

As I have mentioned, most of the projects that were funded in 2017 should have started development and made some progress. As more and more projects are completed and go live, more utility and true value will be produced. Since money is just a representation of value, it is only natural for the market capitalization of cryptocurrencies to rise. If you have invested in some of the projects, it is therefore essential for you track their progress.

Value of Blockchain is recognized

Right now most people do not understand the value of blockchains. Blockchains are essentially distributed infrastructures to serve specific purposes. Bitcoin is an infrastructure to transfer value from people to people. Ethereum is an infrastructure to execute contracts. Steem is an infrastructure for social media content creation and storage.

Over time, people will realize the efficiency and value of blockchain. For example, the cost of revenue for Twitter is $861,242,000 based on their 2017 annual report. The cost of revenue is defined as such,

Cost of revenue includes infrastructure costs, other direct costs including content costs, amortization of acquired intangible assets and amortization of capitalized labor costs for internally developed software, allocated facilities costs, as well as traffic acquisition costs, or TAC. Infrastructure costs consist primarily of data center costs related to our co-located facilities, which include lease and hosting costs, related support and maintenance costs and energy and bandwidth costs; as well as depreciation of servers and networking equipment; and personnel-related costs, including salaries, benefits and stock-based compensation, for our operations teams.

I looked up some statistics and found that Twitter handles 500 million tweets per day. Which is about 15 billion tweets per month. In order to support that let's just assume that 50% of the cost of revenue is used. That means ~$35 million is spent each month by Twitter to process tweets.

Steem processes approximately 1.7 million transactions per day at 0.15% of maximum capacity. Being just 0.15% utilized, the maximum capacity of Steem could be 1,700,000*30/0.0015 = 34,000,000,000 transactions per month. This means that even at the point where I am writing this post, with Steem being still in beta, it is able to handle double of the number of tweets.

The cost of achieving this processing capacity is the total cost incurred on the witnesses. Assuming all witnesses (100 of them) chose to host on Dreamhost, and they picked the "Enterprise" plan which costs $120/month, the total cost to run Steem blockchain will be $12,000 per month. With under 1% of Twitter's cost, Steem is theoretically able to handle double the number of tweets. Now this is efficiency. If you are starting up a new social networking site, would you get your own centralized infrastructure? Or will you build it on Steem? I guess the choice is obvious.

Decoupling of Bitcoin and the rest of the cryptocurrencies

Another trend I foresee is the decoupling of Bitcoin price and the prices of the other cryptocurrencies. As you might have noticed in the current crypto market, the prices of other cryptocurrencies are often closely related with the price of Bitcoin. This doesn't make sense as Bitcoin is an infrastructure for value transfer while the other cryptocurrencies are serving a different need. I think there will be a gradual decoupling of Bitcoin and rest of cryptocurrencies as more and more people understand the value of blockchain.

Conclusion

Like it or not, blockchain technology is here to stay and decentralized trustless infrastructure is definitely going to be more efficient than centralized infrastructures. And the shift towards decentralization is inevitable. To invest in cryptocurrencies now is to invest in the future. But if you plan to come in just for quick profits, then I recommend you to stay away. The ride into the future is going to be rough and not all can survive the journey.

Thanks for reading. Once again, let me know your thoughts and what do you feel about this bear market.