What are the challenges for crypto, the blockchain and NFTs?

Technology constantly evolves. Sometimes it’s an almost imperceptible, iterative change that you only notice when you look back at a photo from five years ago and realise how big your phone was. Sometimes, it’s a great leap forward, the change from fax machine to internet, from DVDs to streaming services. The development of the interlinked worlds of crypto, the blockchain and non-fungible tokens (NFTs) mean that we could be in the middle of such a seismic change at the moment, but there are several challenges.

In my last article [ https://quacken.medium.com/where-next-for-crypto-the-blockchain-and-nfts-27b9c7fe9689 ], I discussed crypto, the blockchain and NFTs, explaining what they were, and some of their potential benefits. Like many technologies though, just because they seem like a good idea, doesn’t mean that they are definitely going to revolutionise the way that we live and work.

There are three main challenges:
• that the majority of the projects are genuinely little more than vapourware and the sector’s reputation could become so toxic that investors refuse to have anything more to do with it
• that the regulators take an active role that stifles innovation and puts a stop to the technologies before they really have the chance to make a difference
• that the environmental burden becomes too much and investors, regulators and the public turn their back on the whole thing
This article will attempt to explain the challenges and suggest some of the potential outcomes.

Charlatans brandishing snake oil
There has certainly been a lot of hype around crypto, the blockchain and NFTs. It was particularly prevalent during the first run on bitcoin in 2017 when suddenly everyone was talking about crypto and lots of people were suggesting that it was a route to getting very rich, very quickly.

There is an old investment adage that you have probably heard: if it sounds too good to be true then it probably is. And certainly at the time the crypto-hype reached unhealthy levels and attracted several bogus projects. The problem is that there were also several potentially really interesting projects that lost funding when the markets lost faith in crypto.

The point is that investing in crypto is the same as investing in pretty much anything. You have to be able to go in with your eyes open, ask questions and don’t give up until you have either a convincing answer or make the decision to walk away. The fact that we are still talking about crypto three years after the first bitcoin bubble deflated suggests that potentially the technology has value.

Enter the regulators
One of the biggest challenges for the emerging technologies is the interaction with different global regulatory structures. At the moment, part of the joy of the crypto space is that it can evolve how it wants, but as discussed above, this freedom has created several instances where sham projects have been set up, taken money from excited and possibly naïve investors and then disappeared like the morning mist.

It has also given some crypto projects the potential to take an unfair competitive advantage when they are going about their business of challenging the status quo. Given that several promising crypto projects have leadership teams that include financial service veterans, as I discussed in this article recently [LINK: https://quacken.medium.com/how-history-will-influence-the-future-of-the-financial-services-8209c9ee8c27], there is a fear that an uneven playing field could develop which favours the new players at the expense of the incumbents.

While this might not be a problem from a particular perspective, in many cases the incumbents are operating within the confines of a regulatory structure that has evolved over a couple of centuries often for good reason. It protects investors but constrains the incumbent’s activities while the new players have more freedom to do what they want, how they want.

All of which tends to suggest that the regulators will become more and more involved as the decade goes on and the technology develops. This should be welcomed by the majority of people involved in the sectors because it will protect investors, add credibility to projects, make it possible to attract support in the form of investment and hopefully enable solid projects to stand out from the sham alternatives.

The environmental problem
The final main challenge facing the crypto, the blockchain and NFTs is the widely discussed environmental issue. It feels like there is a new study each day that suggests that the blockchain’s energy requirement is the equivalent of Madagascar, the Netherlands or Sweden.

It is hard to argue that at this stage these technologies do have a significant appetite for power, but there a couple of points that need to be made.

Primarily, we are still at an early stage in the development of the blockchain and while we don’t have time to get into the detail of the technology and the difference between proof of stake and proof of work, improvements are being made. It may not be the best example given that we are discussing environmental impact, but a modern car engine is significantly more efficient than what was powering the Benz Patent-Motorwagen in 1886.

At the same time, the way that we power server farms, and society as a whole, seems likely to change dramatically over the next few years. We need to be careful that we do not miss out on the potential benefits of these technologies because of the short-term impact that they could have on the environment, because the longer-term benefits to the environment could be significantly greater than just carrying on with the present system.

Ultimately, these challenges could simply be the proverbial bumps on the road to the future, but they could also be more significant, changing the nature or even completely derailing developments. It’s one of those things: come back and re-read this article in five years and we’ll see…

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About Marco Quacken
Marco has a passion for business development that helps projects succeed and businesses flourish. With a global network of contacts, he brings teams together, matching expertise to requirements and implementing strategies that help good ideas grow into sustainable businesses. He has experience across a range of sectors including finance, real estate, technology, advertisement, automotive, consumer goods, energy, retail, sports and telecommunications.

This release was published on openPR.