Virtualization Technology News and Information
Bitcoin, Blockchain, ICO

Article Written by Serguei Beloussov is the co-founder of Acronis

Digital Gold

Bitcoin breaking the $10,000 barrier seems to finally put it into a household lexicon as "digital gold" - expensive, desirable, and even charming.

The use of metallic gold as money began thousands of years ago - as gold was the most resistant to aging and elements. During the early and high Middle Ages, Byzantine gold Solidus was the de facto standard throughout  Europe and the Mediterranean. As the Byzantine Empire declined, its importance diminished together with the supply of gold, and European territories adopted silver, to expand money supply and extend their economies.

Only in 1717 Sir Isaac Newton (the Master of Royal Mint) established a new mint ratio between gold and silver, which led to the replacement of silver in circulation (the British Empire had found new sources of gold in West Indies by that time). 

Growing economies require larger and larger amounts of money. Moving physical gold was just too inconvenient, so the first merchants and then the banks started to issue paper notes as a means of payment. This newfound convenience led to a significant increase in money supply.

Of course, paper currency has its own problems. Electronic bank ledgers and transfers are way more convenient than paper money, that's why the cash economy in US ($1.5T) is just 4% of all liquid money on demand deposits in banks ($36.8T). In a way, this 25x ratio could be called the margin of convenience. If Bitcoin is half as successful as current electronic money, with a margin of convenience of "only" 12x, it might increase money supply to over $400T. Since Bitcoin supply is limited at 21M, if all that supply is denominated in Bitcoin, one Bitcoin will be worth $20M or so.

If we just replace all gold in the world, worth about $8T with Bitcoin today, one Bitcoin will be worth about $500K - that's still a long way to go from the current $10K or so.

Are we in a bubble?

While people remember Tulip futures trading in the winter of 1636-37 as an example of a bubble. The term "bubble" was actually coined when the British Parliament passed  the "Bubble Act" in 1720. England had recently granted the South Sea Company the right to take over its war debt in exchange for exclusive trading rights in the gold and silver rich South American colonies. Investors quickly inflated the share prices of the South Sea, similar trading companies, and other "bubble" companies that the act sought to curb.

Stanford GSB's Peter Koudijs says a bubble is "where investors buy an asset, not for its fundamental value, but because they plan to resell, at a higher price, to the next investor." By this definition, we are definitely in a bubble. Looking at the graph of Bitcoin Transaction Volume, we can even pinpoint the moment when Bitcoin owners started to hold their stash of "digital gold" instead of using it for regular payments:


However, it does not mean that the end of the bubble is in sight or that it will be coming fast - an example of the first $1T company, PetroChina, which had its bubble burst almost 10 years ago, lost over $800B of market capital, yet it is still considered overvalued and continues to decline, defying even the underlying stock market bubble in China in 2015 (

There are over 1000 alternative cryptocurrencies now, though Bitcoin capitalization is bigger than all of them combined. Having been created as alternatives to Bitcoin, they are commonly referred to as "altcoins". Many of these coins were created to fix some of the real or perceived problems with Bitcoin - lack of privacy, lack of speed, waste of enormous amounts of electricity, problems with scalability, potential vulnerability of quantum computers and high transaction fees. Forked currencies were "left over" when the majority decided to change something in the way cryptocurrencies function, and the minority resisted and kept the old way or went into another direction.

We could loosely classify altcoins into the following categories:

1)      New Platform: Ethereum, Counterparty, NEO

2)      New Technology: IOTA, Litecoin, NEM, Zcash

3)      New Application: Storj, Filecoin, Smart Media Token

4)      Forked: Bitcoin Cash, Bitcoin Gold, Ethereum Classic

5)      Minor change of parameters: many "me too" currencies using Bitcoin or altcoin as an example and changing some parameters only

Perhaps Bitcoin, keeping its first-mover advantage, will just remain an expensive asset to own, and alternative digital currencies will be used for common transactions and specific use cases, when they bring something new to the table.

Big financial institutions are starting to embrace Bitcoin as well - NASDAQ and CME Group are launching Bitcoin futures, this will definitely provide better future price guidance and could help combat Bitcoin volatility. The banking industry likes the transparency of bitcoin transactions, but is nervous about any association with extreme volatility and bubbles. They might view Bitcoin as а kind of "toxic asset" because some of its characteristics resemble complicated derivatives from the times of the 2008-2009 financial crisis. With the launch of futures on major exchanges, we could expect an injection of respectability, but banks will definitely need some time to warm up to Bitcoin. 

 Yes, it is going to be a bumpy ride, but there is a potential for revolutionary changes in the way we think about money.


Blockchain is the underlying technology of Bitcoin - getting its name from mathematical representations of blocks of transaction data, chained together to guarantee immutability of stored info. In 2016, people thought that 2017 would be the year of Blockchain - technology would get decoupled from Bitcoin and would be used everywhere. The rapid rise of Bitcoin sidelined Blockchain a bit.

The best analogy for the current state of Blockchain is the early days of the internet, when the Internet was just one of the networks you could use to access information: X.25, Compuserve, AOL. Eventually Internet won, because of its openness and inclusiveness, but every other company was claiming that they were open and inclusive too, while trying to lock users into their proprietary standards and interfaces. The same is happening today with the consortia and public blockchain - companies are trying to get traction in the market to lock their users in, while claiming openness and inclusiveness.

Open Internet has won, and perhaps systems that use truly open, public blockchains to provide their benefits (data immutability, verifiability, security, privacy etc) to the users will win too. Perhaps a new open standard will eventually emerge - but the current consortium-driven blockchain development is not yet targeting such standards.

In line with this belief, Acronis has built Acronis Notary, which provides high throughput solutions to store and exchange significant volumes of data in a secure and verifiable manner, where anti-tampering and verification is ensured by the public or private blockchains, depending on the requirements. This is a solution our partners and customers can easily use in practice, it might be limited in scope - but we intend to develop it into a better solution for ensuring the immutability of existing digital objects, and we are solving scalability and efficiency problems outside of blockchain implementation.

Smart Contracts

Many Blockchain implementations now include Smart Contracts as part of the platform. It allows storing computer code in the blockchain that could act on any digital assets recorded on the platform, verify that specified contractual conditions are met, and automatically perform or rollback transactions with these digital assets.

In tomorrow's digital world, these assets do not have to be of purely monetary nature - it could be education records and certificates, company structure and governance, or simply your portable digital identity that could be portable between banks and corporations, while remaining private and secure.

A great example of Smart Contracts and Blockchain usage is Otonomos ( It allows entrepreneurs to incorporate their businesses into a digital distributed ledger, removing intermediaries in traditional processes and reducing clutter.


Its online service enables users to form, fund and govern their companies on the blockchain using Smart Contracts, bringing company incorporation and governance to the digital era. Otonomos, like many other Blockchain startups, is located in Singapore - benefiting from their progressive laws intended to assist in building the next-generation digital economy.


These new startups have often had problems raising enough money - building something for a new digital world looks very risky for traditional investors. Instead, these companies have resorted to crowdfunding with digital money.

The first crypto-token sale (also known as Initial Coin Offering, ICO) was held by Mastercoin in July 2013. Ethereum raised money with a token sale in 2014, raising 3,700 BTC in its first 12 hours, equal to approximately $2.3 million dollars. Another ICO was held by Karmacoin in April 2014 for its Karmashares project. As of the start of October 2017, ICO coin sales worth $2.3 billion had been conducted  -- more than ten times as much as in all of 2016.

While right now ICO are a simple crowdfunding instrument, it has a huge potential as a sophisticated investment instrument due to the power of Smart Contracts. When used properly, ICO allows investing in shares, products, and other kinds of business, not just in equity, like traditional instruments. Revenue sharing is one good example, and you can set and enforce complicated earning rules. Smart Contracts could provide guarantees of payments even if the business is dead, but its products are still being sold.

Yes, there are problems with ICO, for example

  • Unregulated market - what rights does the owner of token really have?
  • No track record of post-ICO investments - no idea of traditional valuation
  • Dumb money coming from investors too easily
  • Outright scamming
  • Lack of transparency

Yes, there should be regulations, investment protection and mechanisms of enforcement. Early stock markets were also unregulated and dangerous, the SEC itself was only created in 1934, in the wake of the Great Depression, which was one of the classic bubble examples, caused in large by the lack of enforcement of existing government laws and regulations (e.g. Blue Sky Laws, a term said to have originated in the early 1900s when a Supreme Court justice declared his desire to protect investors from speculative ventures that had "as much value as a patch of blue sky.") To put things in perspective, NYSE was founded in 1817 - so the market was unregulated over 100 years, and it took the Great Depression to change the situation.

So, of course, regulating this new investment instrument is not going to be simple, but the potential benefits of such an instrument are too great to dismiss. Just like IPO is a better instrument than traditional private equity investment, because it is a standard and safe way to exchange money for equity rights, ICO could become a standard and safe way to exchange money for all value associated with the company - be it production stock, future cash flow, or other derivatives.

Bitcoin, Blockchain, ICO - the world is becoming digital, whether we want it or not. If history is any indication, convenience always wins - and pure digital instruments of value storing, transfer, exchange and investments would be the most convenient in the digital world.


About the Author

Serguei Beloussov is the co-founder of Acronis, its Chairman of the Board since 2003, and its CEO since 2013.

Until 2011, he held the position of CEO at Parallels, a global leader in virtualization and automation software, where he still provides leadership as Executive Chairman. He is the co-founder and Executive Chairman of Acumatica and a Senior Partner at Runa Capital, the global technology-focused venture capital firm he co-founded with university colleagues in 2010.

He holds a B.S. in Physics, an M.S. (Hons) in Physics and Electrical Engineering, and a Ph.D. in Computer Science from the Moscow Institute of Physics and Technology.
Published Monday, December 18, 2017 8:44 AM by David Marshall
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