Don’t Throw the Blockchain Babies out with the Bathwater
Caught in the Crossfire of Crypto’s Peak and Plunge
When I give talks to business executives about blockchains, I often ask my audience if they have a good explanation for what a blockchain is. Typically a hand or two goes up. Then I ask who has heard about a scam in the space. Every hand goes up, and someone usually scoffs. This week, press coverage of the crypto market’s dramatic nosedive has added fuel, with more headlines forecasting a death knell.
This combination — poor understanding amid news of scams and market plunges — obscures steady progression towards meaningful and useful blockchain development.
This puts execs in danger of missing the true significance of this technology, and the waves of disruption they will set off. Staggeringly complex, disarmingly raw, and complicated by a seemingly distracting (yet crucial) tie to cryptoassets, blockchains can be intimidating to even seasoned technical executives. Yet they hold the seeds of deep transformation that could change our digital lives (and beyond).
The peak from which crypto markets have plunged has played a huge role in creating knee-jerk skepticism (and even fear) of blockchains among outside observers. These are strong emotions that make it very difficult to really see the real work being done in the space.
And there is a good reason for skepticism in our recent history: we just descended (and are perhaps even still descending) from one of the most frenzied peaks in history, and it attracted scammers, charlatans, and everything in between. The Initial Coin Offering (ICO) debuted in 2013 as a new funding mechanism for blockchain development when J.R. Willet, a software engineer living in Seattle, published a paper describing a new protocol layer he wanted to build on top of the Bitcoin blockchain. In exchange for a piece of that new protocol, he asked for funding via a Bitcoin address he published in the paper. He received $500,000 and the concept of the ICO was born.
Over the past few years, ICOs (often called token sales) became the preferred method to raise funds for blockchain-focused startups, eclipsing traditional venture funding. With it, came a shift in funding standards.
While venture funding arguably filters with bias, it also filters for some tell-tale markers of success: a capable team, a working product, traction with customers, and an attractive market. These same filters have not historically been applied consistently in ICOs. Products are often not yet built. Teams can be technology-centric with varying levels of knowledge about their actual market and the pain they are solving for prospective customers. Some projects feel more like science experiments than the beginnings of a viable company. And some are outright scams. Headlines of founders (and hackers targeting ICOs) disappearing with millions consumed editorial real estate — and the perception of the space as sketchy started to take hold in the public’s consciousness. As one insider recently told me, “ICO has become a four letter word.”
But there is a flip side. Leaders from top academic institutions, our most lauded corporations, and even government are making sharp turns in their careers and businesses to focus on the blockchain space because they see the potential value in this technology.
Wall Street Veterans like Blythe Masters and Caitlin Long have refocused their careers on the space. Long time CEOs like Abby Johnson of Fidelity Investments or Patrick Bryne of Overstock are making major moves in the technology. Sandy Pentland, who helped create the MIT Media Lab and is one of the most-cited scientists in the world, co-founded a blockchain company. Founders from Web 2.0 notables like LinkedIn and Wikipedia are building new blockchain-first companies. Even the creator of the World Wide Web, Sir Tim Berners-Lee, has left work at MIT and the World Wide Web Consortium to found a blockchain-first company that aims to “take the world to a new tipping point.” All the top consulting firms are building out blockchain groups as fast as they can hire. This is just a sampling of the reputable and experienced leaders that are doing real work to advance the technology’s potential to bring actual impact to our world.
Mid-2018 saw sharp declines in both cryptocurrency markets and ICO activity. From a high of 113 ICOs in December of 2017, activity fell to just 12 ICOs in October of this year. Investors are more skeptical, and teams are often turning to traditional venture funding first to build out their projects. This also creates a less attractive environment for bad actors. The last half of 2018 is proving to be an essential-growing up period for the space.
But we must be prepared for a new kind of headline. This stiff peak and swift descent mirrors a regular pattern among emerging technologies. Consultancy Gartner calls it “The Hype Cycle.” After inflated expectations (and for blockchains this peak was especially high), there is a “trough of disillusionment” as the technical and human challenges of adoption become more apparent. Entrepreneurs are working with a still-raw technology and particularly ambitious visions. As we’ve seen with every other disruptive tech, there will be many failed experiments before real traction takes hold.
The steep descent likely “cleaned house” on many scams — but we will see much editorial real estate devoted to the still huge and fundamental challenges of scalability and user experience (among others).
We’ve demonstrated time and time again that with enough human and financial capital and time, we can overcome great technical challenges. Gartner talks about how, over time and at the end of a hype cycle, a productive equilibrium is ultimately reached. Well-funded pioneers are hard at work to create something truly meaningful and useful with the technology. But it will take time. Wise leaders will change their perspective to look past the noise in the space to uncover the work of true consequence that is well underway today.
I’m the CEO and Founder of Unblocked Future, a technology strategist, and author of ‘Unblocked: How Blockchains will Change Your Business’. I’ve focused on the intersection of human behavior and technology with 20 years of consulting to over 100 technology-first startups and Fortune-500 companies. Unblocked Future is a blockchain consultancy helping businesses to thoughtfully adopt and communicate blockchain technology, and shape their role in the decentralized future. Follow me on Twitter @unblockedfuture.
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