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The development of blockchain technology

​Internet-native money (2008–2013)

In the beginning, Bitcoin attracts technology hobbyists, cryptographers, and economic liberalists. Bitcoin and the transaction efficiency enabled by blockchain technology raises the interest of many leading technology investors. Both entrepreneurs and investors see the lack of secure token trading and custody solutions as an attractive opportunity to build companies that establish better bridges to a parallel financial system. Andreessen Horowitz and Union Square Ventures invest in the token trading and custody platform Coinbase in 2013.
Many service providers are hobbyists who lack the capabilities to operate secure token trading and custody platforms. Many token exchanges and wallets are operated carelessly, which leads to many consumers losing their assets held on these exchanges and wallets. The most famous example is the Japanese token exchange Mt. Gox, from which approximately $450 million bitcoin was stolen during the years 2011–2014. Even if there initially are many careless entrepreneurs in the space, the underlying blockchain technology still works without fault.
Bitcoin as the first blockchain protocol proves the functionality of the technology. For comparison, if the IT encryption of one company is breached due to flawed implementation, it does not automatically mean that IT encryption in general does not work. The security breaches experienced by some token exchanges do not correlate with the security of the underlying blockchain technology. Many of the security breaches experienced by token exchanges and wallets share common traits in that the companies are often operated without proper licenses, and/or in jurisdictions that lack proper financial surveillance authorities. In contrast, Coinbase, Bitstamp, Gemini, Bakkt, Fidelity Digital Assets and others, are examples of token trading and custody platforms that have embraced regulation and that have a solid track record of safely managing their customers’ token assets.

​Internet-native applications (2014–2019)

The Ethereum blockchain protocol expands the possible use cases for blockchain technology, attracting a lot of new developers into the space. The programmability of the Ethereum blockchain protocol is unlimited (in contrast with the intentionally very restricted programmability of Bitcoin). The Ethereum blockchain protocol enables the creation of blockchain-based services for all Internet applications. The diversity of the Ethereum blockchain protocol attracts many new developers to the space, and the resulting spike in developer activity entices more professional investors to enter the blockchain space.
Traditional technology, bank, and financial services companies make significant investments into blockchain technology. The entrance of more professional investors raises the bar for token trading and custody platforms. Institutional investors require secure and regulated ways to manage their token investments. Many financial services incumbents invest in companies that provide regulated token trading and custody services. The most notable example is Bakkt, a token exchange primarily aimed at institutional investors. Bakkt is owned by the Intercontinental Exchange (the parent company of the New York Stock Exchange) and launches in September 2019. Coinbase receives the status of a Qualified Custodian according to the Banking Laws of the state of New York (New York Banking Law § 100). Over 20 companies that provide token custody services have obtained the status of a Qualified Custodian. Many token trading platforms receive a similar status as well:
  • Anchorage. Anchorage is a token custody and trading platform registered with the financial supervisory authorities of South-Dakota. The company has raised over $40 million in funding from many leading institutional investors such as Visa, Khosla Ventures, and Andreessen Horowitz.
  • Bakkt. Bakkt is a trading platform registered in the state of New York. The company started its operations in September 2019. Bakkt is owned by Intercontinental Exchange (ICE), which is the parent company of the New York Stock Exchange (NYSE). Bakkt is also developing a payment service with which consumers may use tokens for everyday use cases.
  • BitGo. BitGo is a token custody and trading platform registered with the financial supervisory authority of South-Dakota. The company’s investors include Goldman Sachs and Galaxy Digital among others. BitGo’s insurance covers damage from data breaches, internal thefts, and loss of private keys up to $100 million. BitGo currently supports over 100 different tokens.
  • Bitstamp. Bitstamp is a token trading platform founded in 2011. Bitstamp supports trading of Bitcoin, Ethereum, Bitcoin Cash, Ripple and Litecoin tokens. Bitstamp is registered with the financial supervisory authorities of Luxembourg. The Belgian investment company NXMH acquired Bitstamp in late 2018.
  • Circle. Circle is a token trading platform founded in 2013. Circle has raised funding for over $135 million, with Goldman Sachs being a majority owner of the company. Circle has launched its own price stable token called USDC (the value of USDC is pegged to the dollar), the trading platform Poloniex, and an OTC trading desk for tokens. Circle was the first trading to platform to receive the NYDFS approved BitLicense in 2015.
  • Coinbase. Coinbase is a token custody and trading platform founded in 2012. Coinbase manages token assets, for both consumers and institutional investors, for over $20 billion. Coinbase has raised funding for over $500 million from investors such as Andreessen Horowitz, BBVA Ventures, Bank of Tokyo, NYSE, and USAA.
  • ErisX. ErisX is a token trading platform aimed at institutional investors. The company is funded by TD Ameritrade. ErisX supports Bitcoin, Ethereum, Bitcoin Cash, and Litecoin tokens. The Commodity Futures Trading Commission (CFTC) gave ErisX a license in the summer of 2019 that enables the company to support token futures. The service is currently available for a limited customer group.
  • Fidelity Digital Assets. Fidelity Digital Assets is Fidelity’s token custody and trading platform aimed at institutional investors. Fidelity Digital Assets launched in the beginning of 2019. The service currently supports Bitcoin and Ethereum tokens. Fidelity Digital Assets expanded to UK in December 2019.
  • Gemini. Gemini is a token custody and trading platform that launched in 2015. Gemini supports Bitcoin, Ethereum, Bitcoin Cash, Litecoin, and Zcash tokens. The company also provides its own price stable token GUSD (the value of GUSD is pegged to the dollar) and launched its custody service in September 2019. Gemini Custody is also a NYDFS licensed qualified custodian.
  • Tagomi Systems. Tagomi Systems is a token custody and trading platform aimed at institutional investors. The company launched their operations at the end of 2018. Tagomi provides its customers with services for token lending and short selling. Tagomi has raised funding for $27 million from leading venture capital funds such as Pantera Capital and Founders Fund. Tagomi received an NYDFS license for its token trading service in March 2019.
Public and worldwide token offerings (ICO) raise the interest of regulators. Initially, the programmability of blockchain protocols is used to conduct worldwide crowdfunding campaigns. In the US, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) take action against crowdfunding campaigns that are deemed as illegal securities offerings. In the EU, the European Securities and Markets Authority (ESMA) publishes its recommendation for the legal interpretation of ICOs. As anyone can build an end user application on top of the open services provided by blockchain protocols, it is likely that market forces will direct the majority of monetary traffic towards those applications that serve consumer interests in the best way possible. Even if the rules are now programmed straight into blockchain protocols, in the long-run the business logic of end user applications should follow globally adopted best practices.

​Internet-native economy (2020-)

New secure and easy-to-use fiat-token exchanges enable global participation in blockchain protocols. Already today, there exists quite a few service providers specialised in providing consumers the possibility to convert their fiat currency into tokens. The integration of price stable tokens removes the inherent volatility risk of tokens, a risk currently rolled over to end users. The entrance of more regulated service providers like Bakkt and Fidelity furthers the interest among institutional investors to participate in blockchain protocols. The next major leap is to have traditional insurance companies enter the blockchain space.
Scaling solutions for blockchain protocols prove their viability. Today, blockchain protocols are able to process approximately 10–20 transactions per second. The scaling of this processing capacity is and has for many years been one of the primary areas of research in the blockchain space. Some of the already proposed scaling solutions should improve the transaction processing capacity of blockchain protocols approximately a hundredfold in the near future. The scaling debate is similar to the debate around Internet scalability in the 90s. The economic incentives available for those who solved the scalability dilemma were so significant, that solving it turned out to be a non-issue. The economic incentives for solving blockchain protocol scalability are as great — if not greater — as they were during the early days of the Internet.
Developers build easy-to-use end user applications for consumers. A person using email does not have to know how the underlying Internet protocols work. The reason today’s blockchain-based end user applications receive some critique is because they have not yet been able to abstract away all the complexity from end users. In the first phase towards an Internet-native economy, the focus lies on building the core infrastructure for the new Internet. Over time, the economic incentives for developers will shift towards building easy-to-use applications that make the UX of blockchain-based applications resemble that of traditional fiat applications.