Blockchain people: relax. Things are happening exactly as they should.
The last week hasn’t been easy for anyone with money in crypto. Barriers were broken through and markets have arguably reached the capitulation phase. Many commentators have pointed out the similarities between the stock market during the dot-com bubble and what’s currently happening in crypto markets.
But rather than speculate how much further it will go down, or try to reassure ourselves that our portfolios and savings will emerge relatively unscathed, we’ve decided to share some thoughts on the state of blockchain.
In short, we anticipate that the technological and human capital accumulation from the ICO and crypto boom will fuel the next generation of blockchain-enabled innovations.
Our primary goal at Blockdata is to document the progress made by the blockchain ecosystem. So with this in mind, here are some of the more positive developments we have observed.
One of the most encouraging trends we’ve seen is that infrastructure projects are among those with the most traction. The tech companies that survived the dot-com bubble of 2000 tended to be those involved with tech infrastructure. Oracle (networking, cloud), Cisco (networking hardware), Qualcomm (telecommunications equipment), Sandisk (data storage), and Intuit (accounting software) all took a major hit when the bubble burst.
But they eventually persevered, perhaps mirroring the analogy of selling shovels during a gold rush. It’s also important to realize that the vast amounts of money spent on laying fiber optic cable and building mobile 3G networks enabled the mass adoption of high-speed internet applications in the late 2000s.
Fast forward 20 years, and tech giants like IBM, Intel, and SAP are supporting open source blockchain infrastructure projects like Hyperledger (led by the Linux Foundation). Furthermore, a growing number of other enterprise blockchain solutions providers are also making headway (not to mention the number of development platforms that are out there).
We have some classic business school case studies in failure if we think back to some high profile 90s tech busts: pets.com (pet supplies), Webvan (groceries), and Boo.com (fashion). Twenty years later, however, people are regularly using the internet to buy pet and human food (Tesco Direct, Ocado, Amazon, HelloFresh, etc.) and clothing (Asos, Net-a-Porter, et al). There are a number of reasons for the above failures — overvalued markets, lack of market validation, poor management, etc. Timing is very important, and sometimes ideas that we may scoff at in hindsight might have just been too early. In the same way, many blockchain startups may indeed fail or be ahead of their time. But in the long run, we feel that these ideas will catch on, and implementation will be done effectively.
There are already a number of interesting products being built with blockchain technology that do not use a token or cryptocurrency to function. Wyre, which has created an API for payments and KYC (Know Your Customer) verification, is making reputation the killer app of the blockchain world. Hyperledger’s Fabric is being used to build blockchain solutions and allow them to be tested across any industry vertical. Chain is building blockchain infrastructure that other financial services companies can build on top of. Their cryptographic ledgers aim to allow breakthrough financial products and services to be built without spending the time to develop the underlying infrastructure.
These are but a few examples of the many companies contributing to the ecosystem, particularly in terms of enterprise solutions — financial services, private blockchain solutions, smart contract implementations, etc.
Besides the massive amounts of cash being poured in ICOs in the last two years, it’s interesting to look at where VC money is being directed. According to research from Diar, VC funding for blockchain and crypto-related firms almost tripled in 2018 to almost $4 billion. Of the ten largest deals, only DFINITY has a utility token; the rest are traditional equity investments.
Finally, the increase in regulatory activity (particularly around security tokens/STOs) can also be viewed as a positive for the blockchain movement. Regulations protect consumers and investors, sustain orderly markets, and maintain the integrity of large systems. Our internal research indicates that all but 9 countries in Europe are either actively watching or have begun regulating the blockchain space. 22 EU member states have signed a declaration on the establishment of a European Blockchain Forum.
At the recent Singapore Fintech Festival, IMF Managing Director Christine Lagarde discussed the necessity to take a serious and careful look at the case for digital currencies. This may end up not aligning with the utopian vision of Satoshi Nakamoto and his acolytes, (akin to believers in the US Constitution’s original intent and meaning, let’s call them Bitcoin Originalists). However, for blockchain to be fully realized, it needs a wide coalition of developers, financiers, and regulators to work towards common goals.
Where do we go from here?
One can view these turbulent times as part of a broader history of economic cycles. The frenzy and mania of the last two years has allowed an enormous amount of capital to flow into (and out of) the development of blockchain technology. This has gone not just into building technical infrastructure, but also to developing human capital. There are now thousands of talented software developers that are building blockchain applications. Just a decade ago, it was a handful of cypherpunks working on this.
In her book Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages, Carlota Perez says that an installation period:
“could in a sense be understood as an exploratory time, when the engineers, the entrepreneurs, the consumers, and the financiers test the various directions of development of the technological revolution, both in production and in the market. It is a huge trial and error process eventually to affect the whole of society.”
In other words, things are happening exactly as they should. Investors may lose some money and disappointment may abound. But we are slowly edging our way towards a more promising future built on blockchain.
Blockdata has created a database of objective information on blockchain technology. You can get a free month of access to the service for every two friends that you refer on https://www.blockdata.tech/access/