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The price of bitcoin (BTC-USD) has been continuously falling since Sept. 1, when it was $7,203, to $3,590 as of today. The Ethereum (ETHB-USD) rate has decreased by 57% during the same period. In November, Giga Watt (WTT-USD), one of the five largest mining companies in the world, announced bankruptcy. These events all point to the sad reality of the entire cryptocurrency market.
The situation has been exacerbated by recent news, though not confirmed, that in China mining equipment is being thrown into "mining dumps." Apparently, many small scale bitcoin mining farms report startling losses and are now selling the hardware "by the pound." In December, a blogger nicknamed "BTCKING555" disclosed what was purported to be leaked financial data from Bitmain's Q3 fiscal report which showed the ASIC chip producer racking up a loss of $740 million.
Is the crypto industry facing a large scale crisis? To figure out what is going on, we will distinguish between the situation in the cryptocurrency market and the real state of affairs in the adoption of blockchain technology.
Latest news about blockchain adoption
New reports appear every week about the integration of the distributed ledger technology (DLT) in various niches of economy and various industries. In August, the largest sea freight carrier Maersk in partnership with IBM launched a blockchain-based project aimed at streamlining the transport of goods from Europe to the United States. American business giant Walmart (WMT) also began to cooperate with IBM (IBM) on a project for tracking pork supplies from China and the platform now extends to other types of goods. Walmart has also developed its own blockchain-based "smart packages" platform.
Large-scale transformations associated with the use of DLT are seen in the energy sector. Projects aimed at stimulating the use of smart contracts in the distribution of electricity are being developed in Russia, Germany, Chile, Great Britain, and Japan.
Blockchain technology in the world of finance
Blockchain has also attracted financial companies, as distributed registries guarantee the protection of users against fraud. Back in 2014, nine of the world's largest banks -- Barclays (BCS), Credit Suisse (CS), JPMorgan (JPM), UBS (UBS), Goldman Sachs (GS), and others -- agreed to create a financial and technological company R3CEV to develop blockchain technology applications in the financial system. To date, more than 70 banks and financial organizations from all over the world have joined R3.
Other organizations are also currently studying the use of DLT. For example, the largest stock exchange in Switzerland -- SIX Swiss Exchange -- announced the development of a blockchain-based platform for the tokenization of securities. At the state level, blockchain is also considered attractive. The Central Bank of Canada commended the use of blockchain in operations with securities, and SWIFT is testing the cross-border payments gateway by using DLT.
Why does blockchain attract interest in the world of big money?
The interest of the financial industry is drawn to DLT as it presents a whole range of new opportunities. First of all, it concerns the security of payments and banking information. Since the protection of all the records stored in blockchain is ensured by cryptography, it is nearly impossible to change the information about the payments made. DLT also eliminates errors and failures when making payments within banks. Incorrect write-offs that customers of financial companies often face today are avoided if the system is blockchain-powered.
Using blockchain, banks will be able to avoid reporting mistakes this will greatly simplify their communication with supervisory authorities. Additionally, the new technology can significantly increase the speed of processing payments, since it eliminates the need for long procedures, coordination and confirmation. According to the international consulting company Accenture (ACN), the introduction of blockchain will allow banks to reduce the cost of the main financial reporting by 70% as a result of optimization of data quality, transparency and internal control. It's also stated that 30%-50% potential cost savings on compliance can be achieved by increasing transparency and ease of cross-checking financial transactions. The costs of centralized activities, such as the customer servicing, can be halved by improving digital identity mechanisms and simplifying the sharing of customer data for all participants in the process.
According to Accenture analysts, using blockchain, banks can reduce overall costs by 27%-38%:
It's no surprise that spending on blockchain in the financial services sector is accelerating, especially at a time when the rising cost of capital is making it hard to increase profitability by traditional methods. Ultimately, it would enable decommissioning of large parts of today's back office infrastructure and externalization of key operational processes to industry utilities - profoundly impacting cost dynamics.
Cryptocurrency exchangers and exchanges
The modern cryptocurrency industry is based on digital currency trading supported by crypto exchanges and instant trading marketplaces (exchangers). Unfortunately, these tools may occur to be unreliable.
Today, the lion's share of buy, sell or exchange transactions related to digital money is carried out through exchangers and exchanges. At the same time, the business of the exchangers is built on the fact that it is cheaper to buy Bitcoin and other coins from one customer, and then sell to others as expensive as possible. In this case the purchase and sale price is determined by the exchanger itself.
Against this background, crypto exchanges look like a model of market justice because here transactions are made directly between the owners of crypto assets. However, the functional of the overwhelming majority of exchanges is no different from exchangers.
Their chronic problem is low bandwidth -- no crypto-exchange is yet able to process a large number of transactions characteristic of the traditional finance market. In addition, each exchange operates on the basis of its own technical solutions, the reliability of which may be questionable. $927 million stolen from cryptocurrency exchanges in 2018 only are the proof of this.
Notably, crypto exchanges and exchangers do not use blockchain technology. Most of them are centralized structures that are completely opaque to the participants. This results in security problems -- from the theft of personal data to stealing money from client wallets.
In fact, the participants of the crypto market are forced to deal with an unreliable infrastructure, use opaque and vulnerable technical solutions with very limited functionality, incomparable with the opportunities offered by traditional banks.
These problems are well known to specialists, therefore new projects aimed at providing the crypto market participants with all the services existing in traditional banks are developed and launched. Yet, banks, in their turn, also suffer from a number of chronic problems, such as low payment rates (international money transfers can take several days) and high fees, due to the fact that a large number of intermediaries are involved in such processes.
The opportunity to use blockchain technologies for solving these problems has led to the emergence of a number of large-scale, ambitious and interesting projects to create decentralized payment systems that allow sending money worldwide in seconds at almost zero cost, as well as more reliably.
New era of banks
The vast majority of attempts to use blockchain in the financial sector so far have focused only on one particular service. There comes a time for projects aimed at combining the best options that traditional banks and blockchain technologies provide.
In December 2017, a global digital cryptobank called Crypterium (CRPT-USD) was launched. The Estonia-based project, which raised $52 million during ICO, offers financial services to users that so far only banks and other financial institutions provide, by using cryptocurrency instead of fiat money.
The project creators offer clients the opportunity to buy and sell the most popular cryptocurrencies, international money transfers, cryptocurrency payments, loyalty programs and cashback, and so on. Led by former General Manager of Visa (V), Crypterium currently provides a mobile app which allows transacting cryptocurrency even without a need to have a special wallet -- recipients of payments need their phone number only.
In 2018, the TraDove (BBC-USD) project launched the world's first cryptocurrency payment system which allows for transactions between legal entities and the cryptocurrency exchanger. The company is currently developing an easy, fast and reliable blockchain payment system for processing international transactions.
A wider set of financial services based on blockchain is offered by the FOTON project, in which a decentralized virtual crypto bank will become the core of a decentralized business platform, convenient for both companies and individuals.
The bank promises its customers the opportunity to make transactions with fiat money and cryptocurrency, make deposits or take loans in cryptocurrency, or just exchange for fiat money. Claiming to be the bank of the future, FOTON strives to provide modern users with all range of services for buying and selling currency without intermediaries, which becomes possible with the built-in cryptocurrency exchange. Digital money can be transferred anywhere in the world with virtually no volume limits, instantly, with minimal fees and in a secure way.
The technologies used in such projects allow exchanging cryptocurrency for individuals using NFC technology, instantly processing transactions with both digital and fiat money, while ensuring their interchangeability.
In addition, users of such solutions are able to use cryptocurrency to pay for goods without any restrictions and with a low commission on any of the 42 million existing payment terminals in the world, as well as in many online stores and payment centers. At the same time, cryptocurrency payments will become more convenient, fast and secure, including the use of virtual debit and credit cards. The project's founders promise that their systems will allow buying a cup of coffee for cryptocurrency in just two or three seconds.
Blockchain opens up a new perspective in the world of financial companies, allowing them to abandon a large number of inefficient processes and infrastructure elements and defeat competitors by attracting customers with new opportunities -- from fast, safe and cheap payments to transparent and profitable lending. Such opportunities will continue to fuel interest in distributed ledger technology, the study and expansion of its capabilities.
The possibilities of blockchain technology are functionally limitless. If we allow it to achieve its true potential, we can use it to transform the global economy on almost every conceivable level, and our societies along with it, says Sasha Pitkevich, Senior Manager at Accenture Technology.
What is expected in 2019?
In 2019, many solutions that are currently under development will start to be used in the commercial processes of financial and IT companies. In March, for example, the launch of the TON network test network is expected from the world-known messenger Telegram, which raised $1.7 billion in private investment rounds.
Investors searching for the opportunity to join the blockchain and make money on its implementation can also consider the stocks of such large companies as Microsoft (MSFT), IBM, Bank of America (BAC), Overstock (OSTK), Walmart, which are actively experimenting in this direction and are already providing technical solutions to the world's largest companies based on DLT. In the long run, this will likely increase their competitiveness. Buying shares of such companies can be a good alternative for investors who want to capitalize on advanced technology without having to buy cryptocurrencies.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.