Blockchain is the most simultaneously hyped, maligned, and misunderstood of all the recent technology buzzwords.
The most well-known implementation, Bitcoin, rose out of obscurity in 2009 to become a household name during the 2017/2018 cryptocurrency mania. Many dismissed the technology as overhyped. However, a deeper focus on the underlying technology reveals ongoing developments on public sector prototypes and projects within the DeFi smart-contract ecosystem.
Blockchain: Fad or Digital Disrupter?
In January of this year, LinkedIn listed blockchain as its top in-demand hard skill for 2020, a discipline the platform had never listed before. In StackOverflow’s 2019 Developer Survey, over 60,000 engineers had mixed views on the technology with 67.7% stating that blockchain is useful, and the remaining 32.3% responding that the technology is a passing fad or irresponsible use of resources.
From a monetary perspective, speculators were slightly more bullish, sending the total cryptocurrency market cap to over USD $800B at its peak in January 2018, before a well-publicized bubble burst and drawdown to USD $100B not even 12 months later. Some savvy technology companies rushed to disassociate themselves from the insanity, financial scams, and ICO-driven market bubble of 2017/2018 with the updated nomenclature: distributed ledger technology (DLT). For some, this is summarized as “blockchain not Bitcoin”.
This naming reset is important because it focuses on the technology as the paramount innovation, rather than a specific implementation like Bitcoin (or any particular crypto asset). Blockchain’s mechanism of chaining data together with cryptographic hashes and maintaining group consensus will continue to stand on its own merits and be innovated upon.
This innovation continues despite frequent public denouncements, like Bank of America’s (BoA) chief operations and technology officer Cathy Bessant opining in 2019, “I haven’t seen one [use case] that scales beyond an individual or a small set of transactions,” while the BoA simultaneously holds or has applied for 82 blockchain-related patents. Then there’s the muted sentiment from the International Monetary Fund, who in the 2018 World Economic Outlook report, noted that the continued rapid growth of crypto assets could create new vulnerabilities in the international financial system.
Much of this ecosystem growth - and, importantly, developer mindshare - is within the Ethereum network, the second largest blockchain in terms of market cap. Ethereum (and many other more recently created protocols) focus on implementing more complex capabilities than simple public ledgers by adding programming language support, or “smart contracts”. The use of smart contracts allows businesses and individuals to automate and record more complex interactions and data within a blockchain network.
Blockchain Beyond Payments
Ethereum’s emergent ecosystem of decentralized finance (DeFi) leads the charge with one of the most engaging blockchain product-market fits to date. In February 2020, the total amount of capital deposited intoDeFi systems passed USD $1B for the first time, confirming the interest in decentralized, open financial instruments.
While some of these concepts and instruments are not new to the traditional finance world, the value of implementing them on a blockchain network lies in the democratization of access, trustless and borderless interactions, as well as interoperability between protocols.
However, in March 2020, recent world events such as the unprecedented novel Coronavirus are seriously straining all blockchain economies. Often touted as a hedge and safe haven, many crypto assets are losing dollar value in lockstep with traditional assets as indices close with record daily drops.
DeFi isn’t immune to the Coronavirus economic panic either, with MakerDAO’s decentralized stablecoin DAI (which underpins much of the composability of the ecosystem) being seriously battle-tested. The liquidity crunch, due to plummeting prices on March 12th and 13th, placed well-needed scrutiny on the DeFi space. This is a prime example of the events that strengthen the overall design and security of the technology as the ecosystem matures.
With that being said, technical maturity takes time. There’s no need, as was the case in 2017 during the peak mania, to shoehorn distributed ledger technology into every project. It’s simply one piece of any modern technology toolset.
The US Department of Commerce agrees, and in October 2018 the National Institute of Standards and Technology (NIST) released its Blockchain Technology Review, featuring an informative decision tree on implementing blockchain. This appeals to over-zealous system architects to rather consider managed or encrypted databases except where blockchain integration makes technical sense and generates added value.
Gradually, blockchain as a computer science is moving from the outer fringe into the toolset of major organizations seeking to reduce transaction costs and complexity. Many organizations with the greatest technological system-change inertia and lead times – governments and the public sector – are working on research and prototypes which will, over time, see active adoption and normalization.
The next few years are shaping up to be a crucial time for blockchain technology and digital asset ecosystems. Though the blockchain landscape can often be confusing and is constantly changing, the promise of blockchain is real.
At Next Big Thing (NBT), our prediction for the near future is that of a true Machine Economy, where blockchain is one of the enabling components. Devices will be more connected, more intelligent, and more autonomous. This autonomy requires the transfer of large data sets and resources between IoT machines. Distributed ledger technology remains a great opportunity to explore this exchange layer due to its core characteristics of open protocols, transparency, trustlessness, immutability, and security.
More recently, NBT has founded Pretoria Research Lab to explore distributed ledger technologies. Pretoria is focusing on active network participation in the burgeoning Proof of Stake (PoS) and DeFi landscape with the goal of informing wider venture development driven by market insights and data. Pretoria has participated in infrastructure provisioning and tooling for the Celo network, and is one of the founding validators on the upcoming mainnet.
As blockchain becomes more widely adopted and advancements are made, many changes are coming for business and our way of life.
At NBT, we're always searching for innovators looking to scale their business. If you'd like to discover how NBT is building Europe’s next IoT and blockchain ventures, reach out.