2. New business opportunities

Cryptocurrencies & blockchain technologies have the potential to enable a wide range of new business opportunities. Some of the most relevant examples include:

Supply Chain Management: Blockchain can be used to create transparent and tamper-proof records of transactions in supply chain management, allowing for increased trust and efficiency.

Digital Identity: Blockchain can be used to create secure and decentralized digital identities, allowing for greater privacy and control over personal information.

Gaming: Blockchain can be used to create decentralized and transparent in-game economies, allowing for true ownership of virtual assets.

Tokenization: Blockchain can be used to tokenize assets such as real estate, art, and other collectibles, making it possible to buy and sell fractions of these assets.

Payment: The use of cryptocurrency as a form of payment enables faster and cheaper transactions, especially cross-border transactions.

Crowdfunding: Blockchain can be used to create decentralized crowdfunding platforms, allowing for more transparent and efficient fundraising for projects.

Internet of Things: Blockchain technology can be used to create secure and decentralized networks for the Internet of Things (IoT), allowing for greater trust and control over the exchange of data.

Decentralized finance (DeFi): Blockchain technology can be used to create decentralized financial services, such as lending and borrowing platforms, that operate independently of traditional financial institutions.

3. Basic concepts & technologies

It is recommended to introduce the basic concepts and technologies behind cryptocurrencies and blockchain to the members of the board of directors. Decentralization, immutability, transparency, cryptography, smart contracts, distributed ledger, limited supply, anonymity, borderless and digital are the most central ones.

Decentralization: Blockchain technologies and respective cryptocurrencies are decentralized, meaning they are not controlled by any single entity or organization. Crypto currencies are not controlled by any central authority such as a government or central bank. This allows for increased autonomy and control for users over their own funds.

Immutability: Once a transaction is added to a block and the block is added to the blockchain, the information in that block cannot be altered. This ensures the integrity and immutability of the data and crypto currency transactions stored on the blockchain.

Transparency: Blockchain technology allows for increased transparency by providing a public, tamper-proof record of all crypto currency transactions.

Cryptography: Blockchain and crypto currencies use cryptography to secure and protect transactions, making it a secure technology for storing and sharing sensitive information. This also ensures the integrity and security of crypto currencies.

Smart Contracts: Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. These contracts can be stored and replicated on the blockchain network. 

Distributed Ledger: A distributed ledger is a database that is spread across a network of computers. Each copy of the database is identical and is updated simultaneously.

Limited supply: The total supply of most cryptocurrencies is limited, meaning that there is a maximum number of units that can be created. This can help to prevent inflation and ensure the value of the currency remains stable.

Anonymity: Cryptocurrencies can provide a high level of anonymity for users, as transactions are recorded using a public key rather than a name or personal information.

Borderless: Cryptocurrencies can be sent and received from anywhere in the world, and the transaction can be done almost instantaneously, regardless of geographical boundaries.

Digital: Blockchain & cryptocurrencies exist only in digital form and are stored and transferred electronically.

4. Relevant laws & regulations

Members of the board of directors should consider a number of laws and regulations related to cryptocurrencies and blockchain when developing their policies and procedures. It is important to note that the laws and regulations surrounding cryptocurrencies and blockchain technology vary by jurisdiction.

In June 2023, the European Union implemented one of the most advanced crypto regulations: 'MiCA' - The Markets in Crypto Assets Regulation. 

Some of the most relevant general laws are AML, KYC, taxation, securities, GDPR and smart contracts regulations:

Anti-money laundering (AML) laws: These laws aim to prevent the use of cryptocurrencies for illegal activities such as money laundering and terrorist financing.

Know-your-customer (KYC) regulations: These regulations require cryptocurrency exchanges and other companies to verify the identity of their customers.

Taxation laws: Different countries have different tax laws for cryptocurrencies, and it is important for individuals and businesses to comply with these laws to avoid penalties.

Securities laws: Some jurisdictions consider certain cryptocurrencies to be securities, and they are subject to securities laws and regulations.

Data privacy laws: As blockchain technology is used for storing data, it is important for companies to comply with data privacy laws such as the 

General Data Protection Regulation (GDPR) in the European Union.

Smart contracts regulations: Smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code, also fall under scrutiny and regulations.

Given that the crypto & blockchain industry is still at early stage the surrounding laws and regulations are constantly evolving and it is essential to stay informed of updates and changes in order to comply with them.

5. Potential risks

Cryptocurrencies and blockchain technology can bring several potential risks to a company.

Security risks: Cryptocurrencies and blockchain transactions are vulnerable to hacking, fraud, and other types of cyber attacks, which can lead to financial losses for the company.

Compliance risks: Cryptocurrencies and blockchain technology are still largely unregulated, and companies may not be fully aware of the legal and compliance requirements related to their use.

Volatility risks: The value of cryptocurrencies can be highly volatile, which can lead to significant financial losses for a company if they are holding a significant amount of cryptocurrency assets.

Source: CoinMarketCap.com

Operational risks: Implementing and using blockchain technology can be complex and may require significant resources and expertise, which can lead to operational challenges and disruptions for a company.

Reputational risks: Companies that are associated with cryptocurrencies and blockchain technology may be perceived as risky or untrustworthy by some customers, investors, and partners.

6. Dynamics of the early industry

The early cryptocurrency and blockchain industry sometimes feel like Wild West and has several key dynamics that members of the board of directors should be aware of.

High volatility in prices, as the market is still relatively new and uncertain. 

A high degree of speculation, as many investors buy cryptocurrencies in the hopes of making a quick profit.

A lack of regulation, which has led to a Wild West atmosphere and a lack of protection for investors.

Innovation and experimentation, as many companies and individuals are working to find new use cases for blockchain technology.

Heavy competition, as there are many different cryptocurrencies and blockchain projects vying for market share.

High growth potential, as the technology is still in its early stages and has the potential to disrupt a wide range of industries.

High speed of technological changes with new crypto currencies and different blockchain versions coming up every now and then.

Finally,  it's worth noting that while the crypto-currencies and blockchain industry is still in its early stages, regulations and institutional involvement have been increasing which may change the dynamics of the industry.

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• The six-month crypto spring May to Oct 2013 showed a stable market capitalization of USD 2.5 billion
• In the only two-month crypto summer Oct / Nov 2013, the market capitalization quadrupled from USD 2.5 billion to more than USD 10 billion
• In the two-month crypto fall Dec 2013 / Jan 2014, market capitalization peaked at USD 15 billion, which was six times the crypto spring.
• The market capitalization of USD 5 billion in the following almost two-year crypto winter 2014/2015 fell to a third of the high of USD 15 billion in the crypto autumn 2013/2014
• The market capitalization in the crypto winter 2014/2015 was at least USD 5 billion, roughly twice as high as the market capitalization in the crypto spring 2013.
• In December 2015, market capitalization was back to just under USD 7 billion.

Cycle 4 - 2.25 years from Jan 2017 to March 2019

• As part of the fourth cycle, a four-month spring can be observed. The 4th spring started with a market capitalization of more than USD 17 billion in Jan 2017 and in May 2017 it already had a fivefold increase in market capitalization with more than USD 90 billion.
• The six-month summer that followed drove market capitalization as high as USD 650 billion from June 2017 to Dec 2017
• And at the beginning of the crypto fall (Jan-May 2018) of the 4th cycle, the market capitalization reached more than USD 800 billion in Jan 2018.
• This was followed by another, now the fourth, crypto winter, which started in June 2018 and after about eight months in Jan 2019 saw market capitalization shrink to USD 100 billion, 1/8 of the high a year earlier.
• Despite this decline, even in the crypto winter of the fourth cycle, market capitalization remained constant above USD 100 billion and thus well above the market capitalization of spring

Cycle 5 - April 2020 to today

• We are now in the 5th cycle, which started around April 2020 with a market capitalization of USD 180 billion.
• In the nine-month spring (April to Dec 2020), a market capitalization of over USD 500 was already achieved in Dec 2020
• The summer of the fifth cycle can be estimated over a four-month period from Jan to April 2021. At the end of the summer, market capitalization topped USD 2,200 billion for the first time.
• And in May 2021, market capitalization hit its preliminary high of more than USD 2,500 billion.
• Since May 2021 we have been in the autumn of the fifth cycle from my point of view.
• A decline in market capitalization to USD 1,500 billion in May / June 2021 suggests that the fifth crypto winter is imminent

Outlook

Following the last two cycles, one would now expect a fifth crypto winter lasting many months with a minimum market capitalization of USD 200 billion.

But the upcoming crypto winter 2021 could be short-lived this time, because many framework conditions have developed significantly in the last few cycles and the next generation of private and commercial users is in the starting blocks. The maturity level of crypto projects, products, coins and tokens is also increasingly broader and deeper.

The global, financial framework conditions also show signs of change. Whether new FinTech attackers, large platforms or the unbelievably large amounts of new money from the central banks in recent months - traditional banks, financial service providers and FIAT currencies are in a state of upheaval, not least due to negative interest rates and expected inflation.

This opens up the opportunity for cryptocurrencies to establish themselves as digital currencies for a digitized world.

And the steadily increasing wallet and transaction numbers support this thinking.