Poor liquidity in markets following the collapse of the FTX Cryptocurrency exchange will likely result in an extended Crypto winter, until the end of 2023 at least. But what does this mean for businesses who are already exploring Web 3 and actively piloting blockchain-based projects?
In short, not a lot. The FTX Crypto crash has no impact for businesses and their Web 3 journey. Fundamentally, the social value and benefits of Blockchain technology, including transparency and ownership, has not been devalued.
We need to separate Crypto and Web 3
Blockchain and cryptocurrencies are not synonymous. Blockchain is the technology that enables the existence of cryptocurrency (among other things). A cryptocurrency is medium of exchange, created and stored electronically on the blockchain; Bitcoin is the best-known example. Cryptocurrencies are just one type of blockchain-based token. However, there are other types, such as non-fungible tokens (NFTs).
NFTs are a compelling example to show how we can, and should, separate blockchain technology from cryptocurrency. Even if the exchange rate of a cryptocurrency such as Bitcoin is down, NFT collectibles still retain inherent value to their holders. These digital tokens could provide access to events or exclusive merchandise, and the ability of this is not reliant on the success of cryptocurrencies, rather the underlying technological infrastructure. Irrespective of financial fluctuations in the crypto market, the NFT will be immutable on the blockchain forever. Even if cryptocurrencies go zero tomorrow, the capabilities of NFT technology remain.
Setting the record straight
The mainstream misconception is that the value and trust in cryptocurrencies has dramatically fallen following the FTX Crypto crash. Over $1 billion are missing in client funds, unleashing another bout of chaos and volatility, and creating a mainstream perception that blockchain is a fraudulent fad and a risky investment. This is creating a belief that all blockchain-based tokens are untrustworthy. Therefore, even if blockchain technology is fully operational, the uncertainty and uneasiness about blockchain-based projects could mean a slower, more challenging journey to mass adoption.
However, the context that needs to be understood is that FTX was a centralised exchange, meaning that people entrusted it to hold their cryptocurrencies, as opposed to using personal wallets, and not all transactions were public. If FTX had been a decentralised exchange versus a centralised exchange, fraudulent behaviour could have been seen immediately, because people can see all transactions happening in real-time.
The crash offers an opportunity to aid and accelerate Innovation progress
While the financial speculation of crypto is unpredictable and purely driven by economic forces, Web 3, the latest internet technology that leverages blockchain, is all about exploring a new space for representation, expression, and connection. It’s driven by emotional and social needs.
By focusing on the cultural benefits of blockchain-based technology and the potential of Web 3 as a community-building strategy, we can separate FTX from what Web 3 is about. We can cut through the hype and the speculation and direct our attention to the revolutionary technological capabilities that blockchain brings.
Public crashes, such as the FTX downfall, provide businesses with an opportunity to raise awareness and education on these principles, and more guardrails that aid progress.
As a result, innovation will continue to happen within the realms of security and risk management – particularly as we see more necessary infrastructure and regulation introduced in the wake of the crash.
So, what does this mean for Businesses?
Blockchain as a technology is sound and the industry will continue to shift as its application and utility is explored. Businesses should continue to experiment with blockchain-based technologies responsibly, as not to expose brands and consumers to risks.
Businesses should allocate resource towards community engagement and educational commitments which will help build confidence in the future of Web 3. We are already seeing giants such as Instagram and Nike lead the way with digital upskilling and education. Furthermore, companies need to ensure they work closely with internal information security, data, and legal teams, taking every possible step to make their Web 3 presence safe and ethical.
The Web 3 ecosystem and those currently in it are a niche community, for now. Brands will continue activating in this space to experiment and shape their Web 3 strategies. While the crowd might be smaller, they’ll be highly engaged, and you’ll maintain a competitive advantage by winning them over now. Once we inevitably reach mass adoption, you’ll be set up for success.