Forget Superman: If there's something more powerful than a speeding locomotive right now, and capable of leaping tall buildings in a single bound, it's the cryptocurrency market. Since the end of 2016, the aggregate market cap of all cryptocurrencies has exploded by as much as 4,500%. By comparison, it would take broad-based stock indexes multiple decades to deliver similar returns.
The rise of blockchain technology lifts cryptocurrency valuations
Though there is no single catalyst that can be pinpointed for the rapid rise in cryptocurrency valuations, a lot of credit has to go to blockchain technology. Think of blockchain as the infrastructure that underlies most digital currencies. It's the digital and decentralized ledger responsible for logging all transactions without the need for a financial intermediary, which is almost always a bank.
The rise of blockchain technology has come about to potentially correct a number of flaws seen with current payment networks. These include the aforementioned transaction fees that banks take while acting as a third party during a transaction, and lengthy transaction settlement times, which are especially prevalent in cross-border transactions.
Meanwhile, blockchain transactions are being processed and verified 24 hours a day, seven days a week, leading to transaction settlement times that are markedly faster. Also, without a middleman, transaction costs are expected to be significantly lower. And don't forget that added bit about blockchain being decentralized. Because this transaction data is stored on servers and hard drives around the globe, cybercriminals are unable to cripple a digital currency.
Ethereum is potentially the "blockchain king" among enterprises
Though bitcoin is probably best known for bringing blockchain into the mainstream, it's Ethereum (CCY: ETH-USD), the second-largest cryptocurrency by market cap, that's arguably received the most attention from enterprises. Formed in Feb. 2017, the Enterprise Ethereum Alliance now has 200 organizations from a variety of industries testing out a version of Ethereum's (CCY: ETH-USD) blockchain.
In particular, Ethereum's (CCY: ETH-USD) incorporation of smart contract protocols are what lure in businesses. Smart contracts aid in facilitating, verifying, and enforcing the negotiation of a contract. Since they're viewed as legally binding and without a true gray area like paper contracts, smart contracts may pave the way for enterprise acceptance of blockchain technology.
But, Ethereum is far from the only player in the blockchain space. A number of burgeoning cryptocurrencies with unique protocols are angling to become "the next Ethereum." One such cryptocurrency that's risen the ranks with a nearly 28,000% gain last year is NEM (CCY: XEM-USD). Let's have a quick look at the buzz behind NEM (CCY: XEM-USD), which is currently the world's sixth largest digital currency by market cap.
Introducing NEM, the "smart asset blockchain"
What you'll notice first about NEM (CCY: XEM-USD) is that its Smart Asset System allows enterprises to easily customize and differentiate its blockchain technology for their business needs.
One of the biggest issues with deploying blockchain technology is that it's often not compatible with existing payment networks. That could mean a tedious and expensive swap out of the old infrastructure for the new, and that's bound to turn some businesses off. However, NEM's architecture allows for a wide range of customization, including the ability to make a blockchain open and decentralized, or permissioned and private. In other words, NEM's blockchain is directly targeted at the objection that incorporating blockchain into an existing network would be too burdensome.
NEM is also looking to take its real-world blockchain applications well beyond the confines of the financial industry. For example, NEM is targeting the retail industry with its blockchain technology. Its Smart Asset System can be configured to allow loyalty points to be turned into a form of money that customers could then use. That would, presumably, reduce fraud and mistakes associated with a loyalty points program.
Similarly, NEM offers the ability to act as an authentication and notary-type service with cryptographic signatures. However, this has broader applications than you probably realize. These cryptographic signatures can be used to empower Internet of Things (IoT) devices to manage themselves. As an example, let's assume an IoT solar panel produces more energy than an owner needs. That IoT solar panel can then sell the excess energy to other IoT devices looking to bid for cheaper energy. Though this process can be approved by the user, it doesn't necessarily need to be if an automated off-chain smart contract with cryptographic signature approval was already in place.
Not surprisingly, NEM's most exciting partnership announced to date is with the Malaysia Digital Economy Corporation (MDEC), a government-owned instituted that's staked with managing the digital infrastructure and security, along with technology-related laws, in Malaysia. Considering how MDEC is tasked with fostering relationships among high-tech businesses in Malaysia, it offers hope that NEM's XEM coin and blockchain could become a hot commodity.
A word to the wise
Despite clear excitement regarding blockchain technology and what NEM can bring to the table for enterprises, cryptocurrency investors would be wise not to overlook some glaring issues and concerns with the space.
To begin with, the barrier to entry among cryptocurrencies is particularly low. Somewhere in the neighborhood of 50 to 100 new virtual currencies is being brought to market each month, many of which have their own proprietary versions of blockchain technology. All it really takes is some time, money, and a team of folks that understands how to write computer code, to develop a cryptocurrency and tethered blockchain. In short, a better version of NEM, or any cryptocurrency for that matter, could come along without notice.
Scalability is another concern. With few exceptions, most blockchains have been tested in only small-scale projects. If digital currencies like NEM find new partners, it's unclear if quick processing times can be maintained.
But perhaps the most glaring concern of all is that we've been here before. In numerous instances throughout history, including 3D printing, decoding the human genome, and even the advent of internet business-to-business commerce, investors have incorrectly assumed that new technology would be rapidly adopted. Despite offering plenty of intrigue, blockchain has been around for around a decade, yet it's still only being used in demos and small-scale projects. It doesn't seem reasonable to expect businesses to integrate this technology with any expediency -- and that could be a bubble-burster.