Shorting on blockchain predictions (2019)

Published in

Game of Life

10 min readNov 16, 2019

Intro

Predicting the future is a hot potato shaped like a pickle. It’s a slippery slope which either turns out gracefully (a good reason to add “trendwatcher” or “futurologist” to your LinkedIn profile) or embarrassing (in your defense, even Gartner sucks in predicting the future).

But hey — pumpkins are already replaced by Christmas decoration, indicating it’s almost the end of the year. If there is a time to look forward, the time is now. As I did a similar exercise in 2018, it seems worthwhile to give it a second shot. The year is 2020, what will blockchain bring? Bring in a palantír any other seeing stone. *Fingers crossed* this post will age better than I do.

Finance

Back in the old days of the blockchain, which is a mere 5 years ago, the financial sector was clearly in the lead. While it’s often shortened to “banks were the first victims of the blockchain hype”, it’s (1) the entire financial system and (2) not a hype. A rather strong statement? Well — changing the fabric of finance was the initial goal of R3, quite a few players in the field jumped aboard. Organisations like SWIFT and payment service providers / card companies have been experimenting with blockchain since the beginning.

Where the banks exaggerated a bit, or went completely out of whack, was in the focus and importance of blockchain technology. With neo-banks and GAFAA suspected to take over contact with the customer, banks were eager to put blockchain in the front and reclaim the customer. No sane customer decides based on technology alone.

Slowly, very slowly, the narrative shifted from “blockchain project” to “customer solution (oh — there is a blockchain underneath)” and even “we’ll support other ecosystems with a blockchain underneath”. Impressive. Costs are sunk, losses were made. Some client facing project survive… but reality kicks in.

Faster than slipping with rollerskates on a soaped steep slope towards the Trough of Disillusionement, blockchain’s perceived position came closer to the actual technical position: at the bottom of the stack. Being recognized as a mere part of a solution upon which data is exchanged and new data is created, blockchain becomes more and more a catalyst for backend simplifications across value chains or competitors. Banks used to worry about how to explain blockchain to clients. But the projects that are live, don’t explain it at all. It just works — with little to no impact on clients whatsoever.

I expect more consortia, more collaboration, more research and product launches from financial institutions in 2020. These projects will have a sound and measurable (but alas no longer comparable) impact on the profitability of their connected players, either through costs savings or customer interactions. Announcements of these projects however become a rarity as banks realised AI & IoT have way more tangible impact on customers. And we, the people, expect financial institutions to be efficient and “get their sh*t done”. And they will.

Tokenization

2018–2019 saw an increased focus on tokenization projects. In theory, everything can be tokenized. In practice, only some things are economically viable after tokenization. In theory, blockchain provides an excellent decentralized provenance system for tokenized assets. In practice, we have to look at how people think and what they pay for. I’m pretty positive on always finding someone to pay for something, after all a fool and his/her/its money are meant to be parted.

But… why tokenize cars or bikes? I’ve never been able to sell one for a higher value than I bought it. And what if a car is tokenized and I acquire 51% of the tokens… is it my car then? Who will store the car, who will bear the costs? In cities, private property of cars is mayhaps declining somewhat… but car sharing services aren’t tokenized. They simply turn a car into a service, for which you pay.

The legal notion “Ownership” remains a key element in our Western world. Tokenization dilutes ownership. My parents were able to build their house on the property of my grandfather. If they tokenize it and I have 25%, do I construct a quarter house? “But a ground yields profit” — true… but not forever without maintenance.

I expect some hard brick walls (& dito stops) for some tokenization efforts. If the asset being tokenized has a risk of being destroyed or losing value, I assume it’ll fare better in the hands of a sole private owner with a sound insurance. In other words: pool the risk of a severe value loss rather than pool the probability of profits with an unknown maintenance fee — the blockchain doesn’t run for free.

Supply chain

Supply chains go back to ancient times, when people specialized in a profession rather than attempt to be completely self-sufficient, OTG as we would call it today. Over time and due to legal efforts and risk management, these “chains” were turned into “hops”. Raw materials and data “hop” from silo to silo, usually shaking off whatever sticker they received in their originating silo. The view from companies is limited by the silo in front of them, where they’ll have to deliver, and the silo behind them, where the materials came from. *fingers crossed* everything went well in the previous step. And the one before that.

If everything goes well, there is of course no supply chain needed. In reality… well. It’s not always as it’s supposed to be. Fairtrade aims to increase the profit for the producers. Independent companies are screening the different steps. Government agencies follow up on the quality of goods. But what happens when something is considered “not fit for human consumption”? Mayhaps it’s still ok to feed animals? As soon as you step into supply chain and dig into processes, you’ll realise every party has some advantage in “keeping things as they are”, but overall and from a risk point of view, collaboration would be way more beneficient for all.

I’m happy to hear about blockchain supply chains for luxury goods but let’s face it, it’s not going to avoid fake luxury goods. You can only proof something is real, not that it’s fake. And just like hashing documents on a ledger, there is one major gap: history. Handbags, Rolex, invoices,… tend to live long. While you can start adding items on a ledger one day, how do you deal with the past? It’ll take years before older items, which are not on chain, diseappear from this planet. Again, you can proof something is original, but when it’s not… you don’t know. It could be fake, or not stored on chain. For documents, there is an easy way out: store/standardize the data, not the document.

Food/consumables are way more logical to focus on: it’s consumed/destroyed over time. After a relatively short period, you can be sure all eggs or meat should be on a ledger. Furthermore, one consumed, so all physical evidence of consumables is lost. Take a look at food: it’s supposed to keep us healthy so we’re risk averse when it’s diagnosed as contaminated. Financial losses are attributed to hops in the chain… but who do you blame when all historical data is shrugged off between the hops?

Provenance, traceability, transparency, liability. Important assets providing sufficient value to start building those large food supply chains, with involvement of the government. In 2020, I expect to see more of these large initiatives, or upscaling of smaller ones. Furthermore, I do hope some governments step in and require data to be stored on a ledger “ cradle/field to fork”, with access for food inspection services. A luxury goods business case might have money, but one with consumables has value.

And, while from a systemic view this would be a huge step forward, it’s not enough. Storytelling will be the key to mass-adoption. Bringing to live the entire supply chain so that parents can show their kids who’s herding the cows. Having the ability to tip the soy bean farmer. Just… a little bit extra with has nothing to do with blockchain.

Cryptocurrencies

I assume I also have to provide a part for those who care more about Lambo’s than about the technology underneath. Anyway — here goes my feeling for 2020 concerning cryptocurrencies (stop calling it crypto pls — that’s, at best, short for cryptography).

The amazing amount of utterly useless coins (except PTK — number always goes up) is still present, but pumping and dumping becomes a pickle. Huge events with media attention, a next halving,… it used to guarantee a boost in the value. With trading you probably make a fair profit, but HODL’ing becomes risky business. What if you missed the dip or the new AWH (all week high)? Just like the maffia tends to invest in regular business, our early lucky coinbros want to ensure their wealth for their children. Fukuyama covered our tendency to create dynasties in “ the origins of political order”.

But how to shuffle millions of internet money value around without being noticed? It’ll be harsh, especially on a blockchain and its issues with erasing data. It’ll be far more profitable in the long run to legalise the money… it’s already salonfähig anyway, let’s get it to the surface.

For 2020 and the following years, I assume old time investors, carrying huge bags of coins around, will grow tired of that. Yes, they’ll keep part of their investment in cryptocurrencies. But more and more they’ll be happy to learn how they could turn it into fiat. This requires rules, taxations, and a renewed list of million-, even billionaires. Yes, some are that rich.

Self-Sovereign Identity

First of all, as I learned on a “ Data Saves Lives” congress, it would make more sense to use “ self managed identity”. You’re seldom able to decide on your own identity, it’s always provided by a higher instance.

Despite my year long optimism about SSI, there are only few live applications. They tackle identity on moments and in places where identity is an issue. The UNHCR has a (long) worthwhile blog about identity, with an accurate description of the challenges (“Hence, facilitating a unique digital identity for every refugee, as envisioned by the High Commissioner, will require new services to certify identity in line with international standards within a regulatory framework which is still to be developed.”) and opportunities (“User-centric identity management appears as the solution to provide effective digital inclusion and overcome the glaring identity divide, thus making a difference in the lives of people who will otherwise remain invisible and excluded.”)

I already shared some practical concerns about SSI in an earlier article (2019). On technical side, huge steps are taken towards standardization with involvement of large tech players. We don’t have a lack of identity, in fact, we have so many unmanaged ones it’s painful to see (and to keep secure). I assume to see in 2020 the very first brave releases of “open” user owned identity profiles.

With the quoted open, I refer to systems which can be used outside the circle of control of the creator of the SSI project. If a bank creates it, you probably will be able to use it for shopping/paying in a large supermarket. That’s not enough: the EU ESSIF for example aims to realise a case for diploma’s. I should be able to proof my diploma anywhere — that’s open.

Nevertheless, SSI will struggle with inclusion as separate processes will stay active as long as not everyone tipped over towards SSI. Taking into account it’s self-managed rather than sovereign, the (legal) entities providing the authorative data should be connected too, as trust hubs. How to get everyone onboard, maybe over time, should be a question I hope to see tackled in 2020. Mayhaps through…

Government intervention

On the Brussels Singularity Summit (September 2019), Eva Kiali, member of the EU Parliament, stated with a poker face that “ Europe is a blockchain leader”. With some laughter from the ground in the background, she was asked if Europe really is a blockchain leader. She confirmed. Although she’s very positive about blockchain, I assume her bold statements are actually what the EU is striving for. With large programs like EBSI (European Blockchain Services Infrastructure) and ESSIF (European SSI Framework), the EU is putting money and people on blockchain technologies. In a DG Connect session, Peteris Zilgalvis spoke about a cross border project yielding considerable benefits.

I assume the EU will make haste. While stablecoins are being coined by China and private institutions, a more legal/finance/tax/… based framework could improve business within European borders. My hope/expectation for 2020 is that the EU will maintain its current focus and might increase its pace, moving to more concrete realisations on this infrastructure (to be). Most blockchain projects fundamentally require an “all aboard” approach, which can only be enforced by a government. A few regulations would help!