Is a Blockchain Winter Imminent?
I’d never claim to be a world-class trendspotter — my usual reaction to next-big-thing hype is one of skepticism. But I do seem to have a knack for spotting bubbles, dating back to early 2000, when a timely discovery of the book “Extraordinary Popular Delusions and the Madness of Crowds” helped me avoid going down with the NASDAQ ship following the dotcom crash. My “big short” moment with Bitcoin came in November 2017, when my Uber driver asked me if he should buy into Bitcoin, then valued at about $13,000 per BTC. I told him he should wait till the BTC price hits about $3,000 — which should happen any day now.
All of which brings me to Blockchain.
In simple terms, a Blockchain is a decentralized digital ledger that tracks peer-to-peer transactions. Each transaction, or block, added to the Blockchain carries a cryptographic reference to the previous block, making fraudulent transactions and tampering virtually impossible without the need for centralized authentication.
While I’m bullish on its long-term prospects, it seems to me that in the short term, we’re about to jump the shark. I personally believe a Blockchain winter is imminent, driven by a number of clear signals.
Incredible fragmentation. You hear a lot of analogies between the Internet and the Blockchain space these days, and for good reason. It often seems as though everyone who was late to the Internet party resolved never to be late again, and now every company out there has either developed or is in the process of developing its own flavor of Blockchain. Even mainstream blockchains like EOS are getting forked left and right, typically by companies with no apparent objective other than to raise capital through an initial coin offering (ICO) of their own.
The differences between Blockchain and the Internet can be just as illuminating — and concerning. While there were multiple technical approaches to network connectivity before Internet Protocol (IP) became the standard, the reality was that IBM in its heyday controlled over 50 percent of the networking market with its System Network Architecture (SNA). The level of fragmentation we’re seeing in the Blockchain space right now makes it incredibly difficult to believe that any sort of standardization is imminent. That’s a shame for developers who want to build real applications that leverage the virtues of Blockchain, and it’s only going to slow the evolution of a more sustainable, reality-based Blockchain sector.
Lack of customer focus. In all the mania about ICOs and Blockchain, we seem to have lost sight of how the use of Blockchain technology could possibly make life better for a grandmother in Milwaukee, Wisconsin. The vast majority of the time, proposed Blockchain use cases — crypto aside — address problems that can already be solved through the use of a shared database. Novelty for its own sake is neither interesting nor valuable to that midwestern grandmother, so why should the rest of us get swept up in it? The real benefits of Blockchain are subtle and will take time to realize. This brings me to my next point.
Building networked businesses is hard. The real value of a Blockchain-powered application (again, outside crypto) is when there is a critical mass of network participants that can collaborate to solve a problem that’s difficult to solve otherwise. And there are indeed many such problems, financial identity being one simple example. However, building networked businesses is hard, time-consuming, and often supremely risky, with no guarantee of success. Moreover, building a network often requires some level of trust among participants, which is quite at odds with the anti-establishment mindset of many Blockchain implementations. Ian Grigg, generally credited as the originator of triple-entry accounting, has a nice way to frame this: there is already plenty of trust in the real world. Blockchain systems will be much more effective if they find ways to leverage this trust and simplify value exchange, instead of aiming to completely upend the current world order.
Like many other new technologies — and most bubbles — we are likely to overestimate the near-term impact of Blockchain while underestimating its long-term impact. When that reality sinks in, the overheated Blockchain space will cool dramatically. But I’m personally enthusiastic about the prospect of a Blockchain winter to drive tourists away from the ecosystem and allow a more sober focus on innovation that creates real value for end users. After all, the years following the collapse of the dotcom bubble saw the creation of amazing companies with truly transformational products, services, and business models. The world we live in today shows how right people were about the potential of the Internet — even if they tended to get the timing wrong.
Blockchain’s day will come. With a little patience and perspective, it’ll be worth waiting for.
