Capital Market Evolution 2010-2020
This series “Capital Market Evolution” is sponsored by Teamo “Where Teamwork Matters”, see on Open Collective and is part of the project Smart "Master" Contract for Equity Distribution, we truly believe that we should understand our past to build our economic future more wisely.
1998 – 2009 The pre-Bitcoin years
Although Bitcoin was the first established cryptocurrency, there had been previous attempts at creating online currencies with ledgers secured by encryption. Two examples of these were B-Money and Bit Gold, which were formulated but never fully developed.
ARC: I would add an honorable mention to DigiCash the electronic corporation founded by David Chaum in 1989. DigiCash transactions were unique in that they were anonymous due to a number of cryptographic protocols developed by its founder. One more honorable mention to Liberty Reserve to be the first to introduce stable coin into a payment system.
2008 – The Mysterious Mr Nakamoto
A paper called Bitcoin – A Peer to Peer Electronic Cash System was posted to a mailing list discussion on cryptography. It was posted by someone calling themselves Satoshi Nakamoto, whose real identity remains a mystery to this day.
2010 – Bitcoin is valued for the first time
As it had never been traded, only mined, it was impossible to assign a monetary value to the units of the emerging cryptocurrency. In 2010, someone decided to sell theirs for the first time – swapping 10,000 of them for two pizzas. If the buyer had hung onto those Bitcoins, at today’s prices they would be worth more than $100 million.
ARC:2010 was the year of the flash crash, that day I was into a interview, so I did not see the flash crash live, but sadly some of my trader's friend get caught off guard by it and the effect on them was terrific, they basically lose all confidence into their ability to trade the market.
Decentralized exchange “DEXs” should effectively remove market manipulation and flash crash risk if done properly on a distributed ledger that record all market orders and transactions with a network scheduler plus built-in circuit breaker.
2011 – Rival cryptocurrencies emerge
As Bitcoin increases in popularity and the idea of decentralized and encrypted currencies catch on, the first alternative cryptocurrencies appear. These are sometimes known as altcoin and generally try to improve on the original Bitcoin design by offering greater speed, anonymity or some other advantage. Among the first to emerge were Namecoin and Litecoin. Currently, there are over 1,000 cryptocurrencies in circulation with new ones frequently appearing.
ARC: Back then the European debt crisis is going full rage and giving the first real test to the Maastricht Treaty, long story short Greece cook their book to be included in the treaty, obviously they get caught next thing we have a PIIGS rolling full mud in the middle of the ECB salon.
2012 – Distributed Ledger Technology
Some early adapter realizes that you could decouple the distributed ledger function from the blockchain itself, this idea gives rise to the private blockchain like Ripple that uses their DLTs capability for the payment remittance market, honorable mention for Symbiont, Chain, DAH, and MultiChain.
2013 – Bitcoin price crashes.
Shortly after the price of one Bitcoin reaches $1,000 for the first time, the price quickly begins to decline. Many who invested money at this point will have suffered losses as the price plummeted to around $300 – it would be more than two years before it reached $1,000 again.
2014 – Scams and theft
Perhaps unsurprisingly for a currency designed with anonymity and lack of control in mind, Bitcoin has proven to be an attractive and lucrative target for criminals. In January 2014, the world’s largest Bitcoin exchange Mt.Gox went offline, and the owners of 850,000Bitcoins never saw them again. Investigations are still trying to get to the bottom of exactly what happened but whatever the story, someone dishonestly got their hands on a haul which at the time was valued at $450 million dollars. At today’s prices, those missing coins would be worth $4.4 billion.
ARC: Here an interesting article by Decrypt:7 most-damaging Bitcoin scams and hacks of all time, this video about Bitconnect is pure gold. I did search for a video collection of the biggest crypto scam and sadly I did not find any and god knows that we see a boat load of scam into cryptoland during the past 5 years
2015 – Ethereum
One cryptocurrency came close to stealing Bitcoin’s thunder this year, as enthusiasm grew around the Ethereum platform. This platform uses cryptocurrency known as Ether to facilitate blockchain-based smart contracts and apps. Ethereum’s arrival was marked by the emergence of Initial Coin Offerings (ICOs). These are fundraising platforms which offer investors the chance to trade what are often essentially stocks or shares in startup ventures, in the same manner that they can invest and trade cryptocurrencies. In the US the SEC warned investors that due to the lack of oversight ICOs could easily be scams or ponzi schemes disguised as legitimate investments. The Chinese government went one further, by banning them outright.
ARC: Private blockchain start been developed as a consortium based model for entreprise application, the most well know is Corda, Hyperledger, and EEA.
2016 – DAO hack and ERC20
The Decentralized Autonomous Organization (known as The DAO) was meant to operate like a venture capital fund for the crypto and decentralized space. The lack of a centralized authority reduced costs and in theory provides more control and access to the investors.
At the beginning of May 2016, a few members of the Ethereum community announced the inception of The DAO, which was also known as Genesis DAO. It was built as a smart contract on the Ethereum blockchain. The coding framework was developed open source by the Slock.It team but it was deployed under “The DAO” name by members of the Ethereum community. The DAO had a creation period during which anyone was allowed to send Ether to a unique wallet address in exchange for DAO tokens on a 1–100 scale. The creation period was an unexpected success as it managed to gather 12.7M Ether (worth around $150M at the time), making it the biggest crowdfund ever. At some point, when Ether was trading at $20, the total Ether from The DAO was worth over $250 million.
In essence, the platform would allow anyone with a project to pitch their idea to the community and potentially receive funding from The DAO. Anyone with DAO tokens could vote on plans, and would then receive rewards if the projects turned a profit. With the financing in place, things were looking up.
However, on June 17, 2016, a hacker found a loophole in the coding that allowed him to drain funds from The DAO. In the first few hours of the attack, 3.6 million ETH were stolen, the equivalent of $70 million at the time. Once the hacker had done the damage he intended, he withdrew the attack.
In this exploit, the attacker was able to “ask” the smart contract (DAO) to give the Ether back multiple times before the smart contract could update its balance. Two main issues made this possible: the fact that when the DAO smart contract was created the coders did not take into account the possibility of a recursive call and the fact that the smart contract first sent the ETH funds and then updated the internal token balance.
It’s important to understand that this bug did not come from Ethereum itself, but from this one application that was built on Ethereum. The code written for The DAO had multiple flaws, and the recursive call exploit was one of them. Another way to look at this situation is to compare.
One of the most significant tokens is known as ERC-20, which has emerged as the technical standard used for all smart contracts on the Ethereum blockchain for token implementation. As of April 16, 2019, more than 181,000 ERC-20 compatible tokens exist on Ethereum main network.
The ERC-20 commands vital importance, because it defines a common list of rules that all Ethereum tokens must adhere to. Consequently, this particular token empowers developers of all types to accurately predict how new tokens will function within the larger Ethereum system. This simplifies and eases developers' tasks, because they can proceed with their work, knowing that each and every new project won't need to be redone every time a new token is released, as long as the token follows the rules. Fortunately, so far the vast majority of token developers have fallen in line with ERC-20 rules, meaning that most of the tokens released through Ethereum initial coin offerings are ERC-20 compliant.
2017 –Bitcoin reaches $10,000 and continues to grow with the ICO boom.
A gradual increase in the places where Bitcoin could be spent contributed to its continued growth in popularity, during a period where it’s value remained below previous peaks. Gradually as more and more uses emerged, it became clear that more money was flowing into the Bitcoin and cryptocoin ecosystem. During this period the market cap of all cryptocoins rose from $11bn to its current height of over $300bn. Banks including Barclays, Citi Bank, Deutsche Bankand BNP Paribas have said they are investigating ways they might be able to work with Bitcoin. Meanwhile the technology behind Bitcoin – blockchain – has sparked a revolution in the fintech industry (and beyond) which is only just getting started.
ARC: Some estimation shows that 80% of the ICO was outrigh scam, one of my favorite scam was Eros.vision, those scammers copy a white paper from MIT student, create a slick website with the tag line “Eros.vision the Uber for escort”, rant an ICO with ERC20 token with a $10m USD target. If I remember correctly they raise ~$30m USD and close shop 3 weeks later.
2018 – Cryptocurrency crash
The Great Crypto Crash of 2018 looks more and more like one for the record books.
As virtual currencies plumbed new depths on Wednesday, the MVIS CryptoCompare Digital Assets 10 Index extended its collapse from a January high to 80 per cent. The tumble has now surpassed the Nasdaq Composite Index’s 78 per cent peak-to-trough decline after the dot-com bubble burst in 2000.
Like their predecessors during the Internet-stock boom almost two decades ago, cryptocurrency investors who bet big on a seemingly revolutionary technology are suffering a painful reality check, particularly those in many secondary tokens, so-called alt-coins.
2019-2020 – The roaring twenties 2.0 are coming
For sure if we look at the big picture, everything seems all gloom and doom, we have a trade war, a high level of consumer debt, another housing bubble in the making in many regions in the United States plus shadow banking trouble in Asia. On top of that populism is rising all over the world creating fraction like the Brexit and etc…etc...etc...
On the other side of the coin, we are on the verge of the fourth industrial revolution with AI and IoT, back then that was massive production of goods, the roaring twenties 2.0 will be characterize by a massive production of knowledge and collaboration that will create value bottom up.
Here my list of reason to be optimistic:
- Market regulator start more initiative to increase collaboration with all stakeholders, #finhubSEC
- Crowdfunding rule for equity crowdfunding is getting better for all stakeholders, the real progress is a slow process, I have to admit that the SEC as to work harder.
- STOs will unluck liquidity in many markets securities assets
- We now have the technological capability to build a faster, better, stronger financial system , thanks to the cloud, blockchain, AI, smart contract and the open source movement.
- Dissemination of knowledge with Q/A crowdsourced website, webinar, and MOOC.
- The cost of starting a web business is x10 less than 10 years ago.
- The cost per transaction is going down on all exchange market class.
- We have an amazing set of software tool for work collaboration like Github,Slack,Facebook, Google,AWS, etc…
- Capital market access for entrepreneurs is x10 easier than 10 years ago.
Thanks for reading, I truly apologize for not producing a better series, I’m lacking time, we are always looking to add more contributor to join Teamo mission “Where Teamwork Matters”. To be a Teamo contributor you need to ask yourself two questions, the first question are you ready to “create richness” for all stakeholders, the second question are you ready to “share the pursuit of happiness”, if the answer yes on both questions welcome on board.