Hundreds of new cryptocurrencies have been created and offered to investors through initial coin offerings (ICOs) over the past year. Millions of new users entered the crypto space in 2017 during this ICO boom. More are jumping on the bandwagon this year. Most people who've heard of cryptocurrencies – and many who have put money into it – only have a vague understanding of how these work as investment vehicles. Confusion among new investors has been high due to the abundance of coins and their fluctuating valuations.
A visual representation of digital cryptocurrency Bitcoin is displayed on February 16, 2018 in Paris, France. Well, there have been plenty of developments in artificial intelligence (AI) and machine learning (ML), but opinions about them have been quite varied. One can marvel at how AI was able to perform traditionally "human" activities such as winning at poker or writing music. And, Google's predictive search, which can sometimes make outlandish suggestions and be eerily spot on at times, might make one sceptical too. However, AI can also be scary, as imperfections in the technology could also lead to harm.
Barring a few events such as the EOS launch, there have been few reasons for hype and excitement in the market. However, regulatory bodies, enterprises and venture capital inflow to the ecosystem continues at a sustained rate. We aren't in public token sale winter, but we might be soon… Contrary to public reports, removing the outsized fundraises by EOS ($4 billion) and Telegram ($1.7 billion) would reveal that token markets have seen a dip in the total amounts raised through token generation events. The sustained bear market means a lower risk appetite from retail capital which has converted to lower raises. If Bitcoin or Ethereum see a sustained rally in Q3, the result will likely be smaller token sales as retail investors hold on to their existing tokens.
You know we are at the top of the hype cycle on blockchain and cryptocurrencies when examples of peak crypto include glistening fleets of Lamborghinis as a reflection of price spikes and talk of crypto-utopia with no central governments. Nonetheless, there are a number of key risks that plague this asset class and stand in the way of broader market adoption and stability. While there is no doubt cryptocurrencies, digital tokens and blockchain-based business models are here to stay, understanding how risk interplays with this emerging market and their underlying technologies will not only help protect investors, it will also give regulators a steady hand and, hopefully, guide how entrepreneurs are approaching risk management in their projects, which is not easily done after the fact. One unique facet that blockchain-based projects bring to the market is that unlike the analog economy, which hopes to code good conduct in people who have the care, custody and control of our savings and assets, is that "good conduct" can be coded at the technology layer and in an unalterable and transparent manner. In short, a machine is not naturally greedy or prone to moral hazard (risk taking without bearing the consequences).
In the past five years, the global financial industry has experienced major disruptions thanks to innovative technologies in AI, Machine Learning, and Blockchain. The rate at which supercomputers are taking over the financial sector is leaving no doubt that the future of finance will largely depend on computer scientists and big data experts rather than the traditional financial advisors and traders. It is no wonder that the world top financial institutions are now hiring more quantitative analysts and computer scientists than the traditional financial analysts and investment advisors. The CFA Institute, the provider of the world most prestigious professional designation for financial analysts, has realized that it is no longer business as usual in the industry and is now including AI, Big Data, and Machine Learning in its Curriculum. On the other hand, Blockchain, the technology behind cryptocurrencies, is also having its fair share in the industry with analysts predicting that it will do to the financial system what the internet did to the media.