Bitcoin's second near-death experience, aftermath of the scaling debate, the SEC - Crypto year 2017 and what's to come in 2018

2017 has been one of the most turbulent year in crypto history to date. We have seen important changes in technology and the political climate, divides in the community, as well as wild jumps in prices of many cryptos. I would like to take a moment to talk about a few key takeaways from this year and what I think had the most impact on the future of crypto.

Bitcoin's second near-death experience

Bitcoin has been declared dead so many times it has basically become a meme. As of the time of writing, there have been 222 obituaries proclaiming the death of the currency. I'm not here to talk about those, but about a feeling you could get from old-timer Bitcoiners.

I've been in the community since 2011, and I have experienced two moments where Bitcoin's future was uncertain. I came in right around the first notable bubble, when the price soared to the unthinkable... $30/BTC (or about ~$40 in the polish markets). After that bubble has popped, the price began to decline. Slowly creeping down, taking with it confidence of many bitcoiners. At the time nobody could tell for certain what was going to happen - whether the coins will become worthless, or will we see something different happen entirely.

People nowadays despair when Bitcoin drops 30% from all-time-high peak, but back in 2011, we saw Bitcoin go down to about $2 per coin, or a decline of about 93%. The future of the project was uncertain, everyone was depressed, and for me, that was Bitcoin's first near-death experience.

Of course, we recovered. After that, when the next bubble came, you had more confidence that Bitcoin will bounce back. We've seen it before. "There is no bubble like the 2011 bubble" I tend to say.

In 2017, we had to deal with the scaling problem that has been anticipated since at least 2015. We had to figure out what solution might be the best - whether to go with big blocks, or go off the chain. At the same time, we had to anticipate that ever since The DAO and Ethereum's split, any major, contentious change to the Bitcoin protocol would create a similar split. Piled on top of that we had the covert ASICBOOST scandal and over a year of the community being forcibly divided in discussing the scaling solutions.

In other words, the pressure was rising from all sides and something had to give. At the same time, many sides have remained rigid, not willing to make a compromise. Instead we saw warring solutions - SegWit, 2x, UASF, etc. In the end we saw a group trying to reach a solution - "SegWit now, 2x in half a year", which allowed SegWit to activate but would backfire when that second part was to come due.

However, before SegWit could be activated, we had a different fork be proposed - Bitcoin Cash. Increasing the block size and changing a few other things. However, this one didn't wait to reach a majority, instead opting to declare a fork happening and going through with it.

The period following the announcement has been Bitcoin's second near-death experience. The future was once again uncertain - would this split in mining power mean some crazy oscillations in the difficulty? Would the currency retain its value after the split? Would one chain dominate the other and just take over? These were uncertain times in which the altcoins thrived.

The forks came and went, Bitcoin is still around, so is Bitcoin Cash. We now know how Bitcoin responds in this situation, so we will be ready in the future once more. "There is no split like the 2017 split" I suppose?

The aftermath of the scaling debate

Even though SegWit has been activated, we are still seeing a lot of transactions waiting to be confirmed in the mempool. With the lightning network being months away from being ready, it seems the transaction fees will keep on increasing. We can also see an interesting trend lately - people trying to bully companies into integrating the "optional" SegWit into their system to lower fees. It's somewhat disheartening to see. I hope that in 2018 we will see an empty mempool again...

Another important event that took place this year was the failed attempt to follow through with the SegWit2x agreement and the subsequent backlash against the "transgressors". We've seen old-school bitcoiners wanting to change Bitcoin's POW to spite the miners or force various businesses to "sign a very simple pledge that acknowledges that Bitcoin is not ruled by miners in order to be linked from bitcoin.org". Luckily neither of those have gotten any traction and could be written off as a pendulum effect to the SegWit2x continuing up to the 11th hour before being called off.

The last unfortunate aftermath of the scaling debate has been the decisive split of the Bitcoin community. Up until the SegWit / Bitcoin Cash split I had hopes there could be some reconciliation (1, 2). After the scaling debate would be over and the project could be back on track that we could come back together and bury the hatchet. However, once a split happens and both sides survive long enough, there is no going back - there are people financially tied to one end but not the other that understandably won't leave their side. We had some high-profile people supporting one side or the other, and what seems like layers of narrative being spun on both sides (proclaiming something is being implemented because of X, but in reality it's done because of more selfish reason Y, for example - invading Iraq because of WMDs, while in reality it might be because of oil or the like). It's unfortunate that we have failed to keep the community together in the first place and to bring it back together before the differences were irreconcilable...

Here's to hoping we can learn to at least respect and tolerate one another and remember what we were fighting for in the first place...

Crypto securities and the SEC report

The DAO has been an important project that has already shaped the industry despite or perhaps precisely because its failing. It has split the Ethereum blockchain in twine, and this year it has given us something rather unexpected - a SEC investigative report. It concluded that The DAO has been a security, which has had a significant impact on the ICO community. Now you have to seriously consider whether you're creating a security or a utility token when creating an ICO and follow with the appropriate requirements.

This has created a new wave of interest in the community. Some people are embracing being a security and taking a full advantage of that, while others are moving away from being a pseudo-security not to be found guilty of fraud or other regulations.

The crypto-securities have definitely been dominating my conversations over the last months and I have no doubt they will be the big news in 2018. I also heard some rumours from credible sources that at least one notable project has been declared to not be a security, but I can't disclose what it is until some official announcement unfortunately. So there is development happening on both sides of the spectrum, which is always good to hear.

Conclusions

The Bitcoin scaling forks and splits have been a major event in the Bitcoin's history. They have left a lasting effect on the community and technology. This year we have also seen some important report coming from the SEC that has already began to shape the ICO landscape. We are likely to see that become a major influence of what 2018 will look like.

Here's to 2018 and what's yet to come!

The next wave of ICOs

About half a year ago, SEC released an investigative report concluding that DAO Tokens were securities. Since then there have been a number of high profile cases reinforcing this classification world-wide - UIP, LLToken, CCC, and HMS had to issue refunds to the ICO purchasers in China, Protostarr closed up shop, REcoin and DRC World were charged with fraud and so on.

On one hand, the future of ICOs may be looking grim, with the law enforcement making it harder for various projects to raise money by issuing tokens. On the other hand, the new classification of (some) ICOs as securities might be one of the best things that has happened in the space lately. We might be on the bring of a new wave of ICOs, and here is why...

Historical waves

Long-term bitcoiners might start to see some pattern in history. Early on, we had the pioneering invention that was Bitcoin. After a few years, it became somewhat successful, earning its early adopters some hefty amount of money. We then saw a few other projects pop up saying "I too would like some money". We then saw first a trickle of new coins appearing, altering the Bitcoin codebase slightly, and then an entire wave of thousands of altcoins doing the same, tweaking the parameters and claiming they are better than Bitcoin, therefore they should get the money Bitcoin gets.

We then saw a new wave come in. Coins that were generally not mined, but created and pre-sold to raise the money the team needed to build their product. Mastercoin, Ethereum, etc. Soon after, once a few high-profile projects have made bank, we saw a repeat of what happened before - a large influx of projects also doing an ICO in a "me too" mentality.

It is rather likely that the next wave of altcoins / ICOs will follow the same trends - starting with a trickle of trail-blazers, following with a wave of followers.

ICO Securities and the next wave

For awhile now, you could see a number of ICOs skirting the line of being a security or a utility token. Perhaps giving a wink to their pre-purchasers - "of course you should not expect a profit, but you know we're just like that other ICO that made such great ROI. We're not promising ours will do the same, but you know...". Maybe they tacked on some functionality to have an excuse to call themselves a utility token - "this token will be used to pay for ads to display to our users. It only has a utility value of those ads. You should definitely not speculate on the token representing a share in the platform we're building" or something like that.

Now, with the SEC report, it seems that some ICO projects are taking things a bit more seriously. The grey area between a utility and a security token has become less of a safe harbour. We can expect ICOs to take a firmer stance on what they are. On one hand, we will have token ICOs staying far away from being a security to avoid the extra compliance burden associated with that, but on the other hand, we will see some new ICOs emerge - ICOs that fully embrace being a security and go all-out.

If you're already aiming to be a security and do all of the due diligence associated with it, you could drop the song and dance of utility from your token. We might see tokens that represent shares in a company, tokens that represent rights to dividends and so on, rather than trying to pretend they are tied to some specific functionality of a utility token.

More importantly, by embracing the due diligence of being a security, those tokens might attract the more traditional investors. Companies could do ICOs instead of IPOs, raise money through token presales rather than seed rounds and so on.

This might be the next big wave of ICOs - ICO securities. We will probably see first trailblazers like impak Coin soon, and we can expect the wave to come soon after. We might see a number of people trying to get rich quick, but hopefully we will also see some true innovators creating something new we haven't seen before in the crypto space. I have a few ideas of my own of what those might be, but one shouldn't give away the billion dollar ideas too quickly ;).

Conclusions

In the past, we have seen a wave of altcoins and a wave of ICOs sweep into the crypto world. Due to the recent SEC report, we might soon see a new wave of ICO securities repeat the same cycle, hopefully bringing in a wave of new kinds of investors into the space.

If you're interested in launching an ICO compliant with the securities regulation, perhaps you'd be interested in checking out the new company I work for - https://www.icomplyico.com/ . We're focused on helping new projects launch compliant ICOs.