Thoughts on the future of Blockchain adoption

“Dapps have:

More Investors than Marketers,

More Marketers than Devs,

More Devs than Users”

- Kevin Pham

My views on business and innovation are extremely customer-centric. The basis of these views is my belief that people will not part with their hard-earned money unless you offer them something they either want or need. In the startup world, this is referred to as ‘product market fit’. If you don’t give people what they want or need in a way which makes economic sense, you will probably not have a sustainable business.

Premises

• The point of blockchain is not to store or distribute data. Instead it is to enable mutually distrusting parties to agree on some information.
• Writing information to and recovering information from a single place will be faster and cheaper than writing information to and recovering information from a thousand places. Although I have a limited knowledge of CS, I dont believe it is currently possible for distributed and decentralised systems to be cheaper or faster than centralised systems.
• While investors and speculators may invest in a project because it is ‘decentralised’ or on a ‘blockchain’, actual end users are not going to use a product unless it serves their wants and needs better than the alternatives. The decentralised nature of blockchain enables trustless transactions at the cost of being slower and more expensive than centralised systems. So in terms of value to the end user; if trustlessness is less important than speed and cost efficiency, blockchain is likely not going to be adopted for that application.

For adoption what is required is the following:

Perceived value of trustlessness > additional time and cost of using blockchain over a centralised system

Speed and cost:

I believe the additional cost and time expense of using blockchain over incumbents would have diminishing importance eg. when buying a coffee, having a transaction confirmed in 10 minutes instead of 2 seconds is a significant barrier. On the other hand, having a transaction confirmed in 2 seconds instead of 0.0001 seconds is not that big of a deal. Having that coffee payment cost 60 cents instead of 0.1 cents may be a barrier, but having a transaction cost 0.1 cents instead of 0.001 cents is probably not a major barrier. As blockchain and supporting technologies develop, I see the additional cost and time expense as become less and less important.

Currently there is a lot of innovation happening on both the protocol level and on layer 2 solutions to improve speed and cost of blockchains. For user adoption, I believe that blockchains dont have to be faster or cheaper than centralised systems, they just have to be fast and cheap enough so that their trustlessness is more important than the additional cost/time for a transaction to occur.

Trustlessness:

On the other side of the equation is the value of trustlessness for end users. I generally feel a sense of falling trust in institutions. For a more objective view on consumer trust in institutions I will use the following resources:

Edelman Research’s Trust Barometer report which can be found here, and;

A Gallup report on American confidence in institutions found here.

In the Edelman report, by measuring trust in institutions of government, business, media and NGOs in 28 major countries there are the following interesting observations:

• Out of the general population in these countries only 48% trusted institutions (up from 47% in 2017), with 20 out of 28 countries having more distrusters than trusters (up 1 country from 2017).
• The US had the steepest decline in trust ever measured by the report, dropping 17.3% between 2017–2018.
• Trust in financial institutions have been increasing between 2012–2017, but this increase in trust has stalled in 2018. Currently 54% of respondents trust financial institutions.

According to a longer term survey by research company Gallup, in 2016 Americans’ average confidence in 14 key US institutions was at 32%. This research looks at the percentage of Americans with “a great deal” or “quite a lot” of confidence in an institution. There are the following relevant observations:

• Confidence in big businesses stayed flat over the 10 year period with 18% of respondents being confident.
• Confidence in banks fell 44.8% from 49% in 2006 to 27% in 2016. Gallup attributes this to the Global Financial Crisis of 2008.

From the above observations it does seem trust in institutions, particularly financial institutions is relatively low. Interestingly trust in financial institutions increased globally between 2012–2017, which was contrary to what I expected. That being said, over the last decade we have seen a period of strong global economic growth. I could see trust diminishing once the tide goes out and it is clear which financial institutions were swimming naked. This would be similar to the fall in confidence in American banks seen in the Gallup report following the GFC. A fall in consumer trust in institutions will likely increase the perceived value of the trustless aspect of blockchain technology.

Another aspect to this side of the equation is public trust in and understanding of blockchain technology. Sure, people may distrust financial institutions, but do they trust blockchain startups more? I couldn’t find information on public trust in blockchain technology/companies, but it would be an interesting research area. My guess is that blockchain technology’s current public perception is likely marred by the cryptocurrency frenzy of 2017, exchange hacks, scams, darknet markets and the general complexity of the topic. Increasing the public’s understanding of why blockchain is important and reducing negative preconceptions may be important in adoption of blockchain technology.

Private blockchains

The preceding thoughts have been focused on public blockchains. As for private blockchains, I dont see the point of using blockchain internally in almost all organisations. If you don’t need decentralisation or trustlessness, you don’t need a blockchain.

For when organisations interact with each other where trust is involved, I could see blockchain being useful. Adoption will likely occur when the cost and time efficiency of blockchains exceeds the cost and time efficiency of trusting (audits, third party custodians, legal contracts etc.) to an extent that the innovation can overcome the inertia of organisations.

In conclusion:

• We will likely see an increase in the adoption of blockchain technology when/where trustlessness is more valuable to consumers than the additional cost and time of using decentralised blockchain technology.
• There is a lot of innovation focused on improving cost and time metrics for blockchain, which is a positive trend for adoption.
• Blockchains don’t have to be faster and cheaper than centralised systems, but just fast and cheap enough to be reasonably usable.
• Trust in institutions seems quite low although there doesn’t seem to be a downward trend globally. In the US on the other-hand, trust in institutions has taken a large hit over the last year.
• An economic downturn could reduce the trust in institutions and make the trustless aspect of blockchain more attractive.
• Improving trust in and understanding of blockchain technology may also be an important part of enabling consumer adoption.

As work is being done on improving the time and cost efficiency of blockchain and institutions are losing the trust of the people, I see adoption of blockchain rising. I have a very positive outlook on the adoption of blockchain for certain applications but blockchain is definitely not a cure-all. If you are an investor it may be helpful to try and discern whether trustlessness and decentralisation are more important to end users than the additional cost and time of using blockchain in the given project.

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Thanks for reading. These were some quick thoughts I wanted to share and as a result were not extensively researched. If you have any critiques or contrary ideas/information, dont hesitate to comment below or send me a private message, I’m always down for a discussion.