We conducted a big interview with Eugene Gordeev, during which he shared his predictions for 2018. He told us about the further development of blockchain and related technologies, cryptocurrencies, and investments in the crypto market, as well as about his attitude toward ICO, government regulation, and national digital currencies.
About the blockchain prospects
Nowadays we have the Internet divided into three zones: Internet of Information, Internet of Things, and the emerging Internet of Values. The Internet of Information is that one we have been using over the past 25 years, our day-to-day Internet. The Internet of Things is that one we are just beginning to enjoy now when stand-alone devices communicate among themselves and produce some products, goods, and services. And over the past ten years, with the blockchain example, we had a unique case with the Internet of Values, where everything is based on the storage and transmission of values without duplication. Thus, we have an environment, in which there are unique exchange and storage units, and we may get some framework to make social communication more fruitful as a whole.
Blockchain and the Internet of Things will allow devices with advanced artificial intelligence to share not just information but also capital between each other. The devices we own will communicate with devices that are owned by other people or corporations, or even states. They will pay or compensate the actions of each other automatically. I cannot say that this will happen in 2018, but I am sure that it is blockchain that will serve as a system of mutual settlements between the future artificial intelligences.
Now we are on the threshold of a new paradigm, according to which it is not a person and not even a corporation that would produce anything. It is artificial intelligence in the form of machines or codes that would create goods while taking as much money for its services as it is needed. It will work 24/7, without any grants or aids, without a sick leave. Moreover, the states of the world will struggle to develop artificial intelligence that would be able to earn for those countries by using blockchain and cryptocurrencies technologies. Why artificial intelligence? Because now there are some industries, where artificial intelligence is superior to human labor by performance. I believe that in five years there will be autonomous decentralized systems providing services with the help of advanced artificial intelligence and receiving only cryptocurrency payments.
Next year the first adherents of new technology will be so-called Identity Management, systems that will allow to authenticate a person once within any blockchain project, and then with a 100% guarantee to authenticate this profile in any other similar system. With the current level of technology development, the implementation of such idea would have required a significant sum of money from a security perspective.
Talking about the trends in 2018, we will see a considerable number of little projects, not even small or medium, but little projects for one or two users who will use blockchain to solve some of their own needs. First of all, I mean mobile applications, while users will not even know that it is all based on blockchain technology. I think 2018 will be the year of blockchain-based mass services and digital goods.
About cryptocurrency: network, forks, and prospects
Today we have blockchains that are an alpha version of what we will get as a commercial version in 20 years. I am sure that when the new player understands precisely what the final consumer needs are, blockchain will have a few branches of further development. By the way, in 20 years bitcoin and ether are most unlikely to become the market leaders. As soon as market players realize what a mass user's needs are, they will at once make several versions of this product. An elementary example is Myspace widely used before Facebook. MySpace is quite the same as Ethereum nowadays. There were AltaVista before Google and Skype before WhatsApp as well. Whatsapp focused on even narrower people's need than Facebook, e.g., one-on-one communication in text form. So, it became more popular than Skype just because a new environment was formed and smartphones entered the market.
Let's come down to earth: now ether is very slow and very expensive to run any mass service. But ether is at that level of development when we realize that it is kind of alpha version of the future product, which will provide high-speed and safe transactions and many different types of smart contracts. We should not look for the end point of system development but for a set of tools that can be used to create a prototype and work with it. I am saying to everyone not to hold ICO or create projects that will promise to implement something with the help of their utility tokens in one or two years because maybe in two years there will be no ether, but ether 2.0 created by Vitalik Buterin.
Regarding cryptocurrency development, I, first of all, expect consensus algorithm to be changed in the upcoming year. Everybody wants to go to the PoS (Proof of Stake) because it is a more exciting mining technique, which is open to almost everyone, even to mobile devices. Secondly, we will see transactions accelerating, i.e., the capacity will be increasing due to the projects such as Lightning Network. Finally, of course, much work will be done to make blockchain more user-friendly. So, SDK (Software Development Kit) or API (Application Programming Interface) will be created, which will allow everyone to make their applications.
I do not, however, believe that cryptocurrencies will become a mass payment instrument. Nowadays we have not just a new form of money. First it was golden, then it became paper, and, finally, it became electronic. It is more than just money. We have an entirely new system of mutual settlements with no third party involved and millions of money forms. So, if we are speaking about cryptocurrency, private capital is the blockchain future. The driver of the progress will be the services that rely on cryptocurrency or blockchain technology, which will occupy people's minds. For the same reason, I do not think that cryptocurrency will supersede fiat money. Emoji did not replace people's smiles in photos. Fiat money will always remain fiat. It will be dying step by step like newspapers are dying compared to the Internet.
What refers to network forks, frankly speaking, I think it is for fun. I have not seen yet any fork that was interesting at least to some extent. Even bitcoin cash supports the initial idea of Satoshi Nakamoto about some democracy and decentralization just partially. Thus, we see that these forks in no way affect the network itself, and if so, then they do not create anything new. Their growth is due to a particular marketing strategy. Of course, there are low commission fees and high transaction speed. Although a couple of years ago bitcoin cost $1,000 and there were few users, low commission fees, and everyone was feeling great.
The direction of cryptocurrency development would be about the following. You would have a crypto wallet, with the help of which you could enjoy some crypto services provided in the blockchain. Moreover, this number of services will be increasing every year. Then capital centers of some companies or some individuals will be emerging, with this capital being distributed among its contractors or shareholders. Therefore, I think that a massive application of blockchain technology in various micro-experiments will become the main driving force for the growth of cryptocurrency and blockchain market.
About investments in crypto market
Everything will depend on who the investor is and what they invest in. If we are speaking just about the entrance of large institutional investors in blockchain projects, then it is one approach. Everyone can have different kinds of their mandates, on the basis of which they can invest. For example, Polychain Capital—one of the largest blockchain foundations in the world—invests in projects that, frankly speaking, do not represent something unique in the market. These projects do not imply any overarching ideas that really would make everyone crazy. In my opinion, a half of the portfolio is a well-known type of coins, such as Zcash, ether, and Litecoin. This is the first approach.
The second approach is the capital one. Many hedge funds are investing specific amounts of fiat money into projects they find interesting through the SAFT, or they invest in the specific emission of already existing projects.
Everyone is also caring about that very massive investor who would invest in questionable projects and then these questionable projects will not become successful and so on. Such investor always pumps into massive projects, since they do not possess sufficient knowledge to invest in any new projects. It is easier to go and invest their money where it already is. So, bitcoin is growing because massive investor just invests in it.
Concerning cryptocurrency derivatives, it is very difficult to predict something. Psychologically, most players always play long, i.e., they are waiting for the growth. A very few people can play short with bitcoin or any other cryptocurrency. For this purpose, they have to know the market thoroughly because market's fall or collapse happens several times faster than its growth. So, my prediction is that everyone will play long until people begin to understand what determines bitcoin growth and cryptocurrency in general. Once people understand on what it all depends, they will begin to play short. Only then we will reach some cost consensus because there will be several different movements with different strength.
Personally, I find very interesting all top-10 cryptocurrencies. If a cryptocurrency has become popular so that its capitalization is in the top-10, it means that this cryptocurrency is in demand, it is worth paying attention, and we should understand its core message.
About ICO prospects
Today ICO is just a beautiful story that helps collect many cryptocurrencies. They use the tokens either to secure an equity right of participants or to release a utility token that instantly becomes a competitor for any company, which provides a non-blockchain alternative. It does not matter for the final consumer what kind of service it is, blockchain-based or not. If there is no mass market, there is no significant income. Thus, as soon as the mass market but not the blockchain-based project appears, which is five times cheaper, people would never care whether it is blockchain-based or not. Moreover, blockchain projects have much more unknowns than conventional projects. That is why the blockchain-based project has fewer chances.
I believe that those ICOs, which belong to the category of the marketplace, will survive. For example, CryptoKitties is the typical ICO with the elements of the marketplace, where one sells a virtual cat to another, and any user can be both seller and buyer.
Also, I bet on projects related to the identification and personal user data. Now every state of the world has some monopoly over the personal data of their people. This is not appropriate because any person is entitled to dispose of their personal data, including the data that they create and produce. Even their credit score is their personal merit or, on the contrary, failure.
ICO itself will go toward creating private money to be used within certain communities. But those ICOs based on the principle of equity rights are quite another story. I am not saying that they are useless, perhaps very many of them will be successful, but this is not the market, for which blockchain was created. Moreover, today a significant part of the ICO projects have not realized the potential the blockchain gives.
I think that really large and genuinely efficient ICOs will appear next year. Most probably, it will be the projects of companies that have very wide experience in hi-tech industry, and which will apply the blockchain technology exactly where it should be applied. When these companies emerge, the quotes of current projects will just dump. To sum it up, the only piece of advice I can give to current companies that have already held the ICO is to release the product as soon as possible so that people see that something is already done.
About assets tokenization
Assets tokenization is an enormous process because most of the assets in the market now are very difficult to manage. If we are speaking about tokenization, we are speaking about making some markets more user-friendly and other markets more liquid. That is, if someone wants to buy one millionth part of some expensive painting, it will be possible due to blockchain technology.
The primary challenge here is not what assets will be tokenized, but what assets will be in high demand, as almost everything can be tokenized. I believe that gold will definitely become a very popular target for tokenization because it has been the permanent leader in the category of "money" over the past five thousand years. The rest is either a product or a service, or a currency, and so on, while gold is just money.
The second asset that could be tokenized is any comprehensive, understandable, and used by millions of people good or a unified worldwide service. It can be a cup of coffee because it is an all-known product.
About government regulation and national digital currencies
The state regulates what is subordinate to it, like citizens, businesses, and so on. Blockchain is impossible to regulate; it is possible to only adjust the blockchain interfaces. For example, the Bitcoin blockchain is fully decentralized (out of any state regulation), autonomous, supported by millions of users, and no sanctions against the blockchain are feasible. But the interface that allows a US citizen to buy bitcoin for dollars, of course, can be regulated.
Technically, there’s no thing such as bitcoin holder. There is only the address with a set of keys and the operator of these keys, who has the right to send bitcoin further. The operator of these keys can be 100 people or 100 companies or, what’s even more interesting, 100 artificial intelligences with specific algorithm launched by someone or perhaps even another artificial intelligence. In this case, the question is who the owner is? The answer is no one. The network owns all bitcoins. Who is the operator? The operator is they who have the keys. On what basis are they considered operators? On no basis, they just have the keys. Is it some credit or debit operation? Nobody knows. Therefore, it is not possible to regulate what was created to be unregulated. Some regulation attempts, however, would be taken by some parts of the old world and old systems that will try to connect to blockchain system.
With regard to creating national digital currencies, I find it an absolutely well-timed absolutely well timed idea. The state, namely the Central Bank, can issue a cryptocurrency fully backed by stocks in their vaults or in form of promissory notes, whatever. For example, the modern, transparent, and decentralized network of the cryptoruble exchange can be launched, and these cryptorubles can be used to charge taxes.
I believe that with the help of blockchain technology, states could reduce their costs substantially and add transparency to everything, which will benefit them. As far as we know, the Vnesheconombank chairman, Sergei Gorkov, organized a meeting for Vitalik Buterin with Vladimir Putin. This is one of the milestones of how state structures come to blockchain.
Now it is better to be an observer than a specific implementer, as everything will develop very quickly, and it is important not to make serious mistakes. Becoming a winner is not about making the right steps in 2018 first. The winner will not follow a particular vector of development, which requires several years of work and would lead in the completely wrong direction. For instance, we can point out absolutely wrong vector of ICO development, which is concentrated on a certain equity right and attracting people in the capital of the company. This is a dead-end branch for cryptocurrency development and even for tokenization of future services, when a company starts a system of token sale to make customers buy something in their system in one or two years. In these two years, the market could change so drastically that people will not want to use services offered, and the cost of these tokens will be zero.
At the end I would like to underline one very important thought: nobody knows anything.