Since the launch of Bitcoin 10 years ago, blockchain has been regarded as the internet infrastructure of the next-generation internet. Token economy and consensus mechanism, which are derived from blockchain technology, are transforming the existing “internet of information” to the “internet of value” and have given birth to a number of remarkable projects.

Crypto community-based projects, including Bitcoin, Litecoin, Ethereum, EOS, and TRON, have achieved great success and significance. The achievements these projects have made are largely based on blockchain technology and the consensus mechanism behind it. With the use of tokens, which are the heart of blockchain projects and medium of value, project teams are able to finance themselves through initial coin offerings (ICOs) to acquire market liquidity and support their sustainable development.

Over the last two years, the cryptocurrency system developed upon blockchain technology has become the spotlight of the industry. While it is exciting to see a rapid growth of the blockchain sector, at the same time, a lot of issues are also emerging, bringing lingering worries over the long-term development of the industry.

Token Issuance

The amount of crypto financing saw a fall during 2018–2019. A large influx of capital resulted in speculations and herd behaviors in the crypto space, as well as some fake projects and coins. With a lack of market transparency, the existence of low-quality projects inevitably leads to a higher risk for investors and an overconcentration of investment capital on high-profile projects. On one hand, this means that those projects are unlikely to bring reasonable returns to investors even in the long run. On the other hand, many projects can hardly acquire reasonable capital support from the market.

Figure 1: Financing scale and number of financed ICOs during 2017–2019

Despite the fact that in early 2019, the market focus shifted from ICO to initial exchange offering (IEO) and cryptocurrency exchanges took over the role of IEO issuers from project teams, the prospect of blockchain project financing is not very optimistic for two reasons. First, it is due to the scarcity of new high-quality assets and the sub-standard project screening capability of certain exchanges. Second, some project teams and smaller exchanges see IEO as a shortcut to increase their market liquidity, contributing to an overwhelming increase in IEO projects without solid market support. As a result, this hurts market confidence in IEOs in the long run.

Ecosystem Development

The development of public blockchain, which underpins blockchain projects, was overestimated over the last two years because the progress of most public blockchains still remains sluggish. Their expandability faces technology bottleneck without any further breakthrough. Furthermore, as the development of blockchain infrastructure fails to keep up, it leads to an absence of key DApps to drive the mass application of blockchain, holding back the commercialization of the technology.

Working public blockchain and DApps ecosystems are rarely available. The adoption of DApps fails to expand because of their limited functionalities, such as exchanges, gambling, and crypto lending. What’s more, as of Q3 2019, 40% of the top 200 ICO projects launched in 2017 still have not shared their codes or have stopped updating, and 42% of them have not launched their mainnets or DApps. Such data reflects a gloomy picture of blockchain development.

Figure 2: Left: Status of top 200 ICO projects’ codes // Right: Availability of mainnets or DApps of top 200 ICO projects

Global policy

In the past two years, the definitions of blockchain and cryptocurrency were clearly differentiated in global crypto bills. Following the codification of cryptocurrency regulations in the US and Europe, international communities have started to embrace the rise of this new industry. For example, the Chinese government has recently announced its initiative to accelerate blockchain development.

However, the crypto industry still remains exposed to regulatory risk. Examples such as the U.S. Securities and Exchange Commission (SEC)’s regulation on security tokens or the US and Europe’s attitude toward Facebook’s Libra project suggest that the future of crypto policy-making is highly uncertain.

Although there are still some pressing issues for the blockchain industry players to resolve, the market is facing fewer challenges than before as time goes by. With wider participation of project teams, investment institutions, fintech firms, and government authorities in blockchain development, it is expected to see a rapid growth of blockchain technology in the foreseeable future.