To separate hype from hope, and to separate both from reality…
To quote a line from the Watergate scandal movie, “All the President’s Men:”
Follow the money.
And for blockchain, a few warning signs have been flashing that all may not be as rosy as some observers may have hoped, had wanted. And so, for a jumping-off point to examine whether the peak has been seen: Follow the money.
The headlines in recent weeks may have trumpeted China’s push toward becoming a world leader in the blockchain space, with government (and thus likely unlimited financial) backing stirring excitement, and where crypto prices (cryptos, of course, run on blockchain) rose, and then proved, to put it mildly, as volatile as ever.
But in business, money is oxygen, and when the flow of money, from venture capital and private equity firms, or investment from companies willing to commit research and development dollars to a sector starts to dwindle, then several projects do not make it beyond concept to the land of reality.
Thus, a peak.
What Goes Up….
This is not to say that blockchain is doomed. It’s merely to say that sharp excitement of years gone by, when simply attaching “blockchain” to, well, anything, was enough to attract dollars from private firms or from Wall Street.
Exhibit A, of course, would be Long Island Iced Tea, which back in 2017 said it would change its name to Long Blockchain Corp., a move that sent its shares soaring by more than 400 percent to more than $400. (Incidentally, the firm said earlier this year that it would sell its drinks business to focus solely on blockchain). Similarly, Net Element which also said in December 2017 that a new business unit would focus on blockchain (for merchants and consumers), saw its stock leap by 300 percent to a bit more than $18.
Shares in those respective companies are trading at about 14 cents and $3.50 headed into the end of December.
To be fair, at least some of the initial excitement over blockchain, and the frenzy that marked 2017 and name changes, and a toe testing the blockchain waters for seemingly every firm, came amid the crypto mania that saw bitcoin surge to about $20,000 a piece.
The fact was, then, blockchain was synonymous with crypto, and now, increasingly, blockchain has become divorced from digital coins, and championed for its ability to securely record transactions (where, at least conceivably, anything can change hands, from art to legal contracts) far beyond the confines of digital money.
But more recently, the research from CB Insights shows that blockchain funds (which includes crypto-focused blockchain, corporate projects and all manner of other initiatives) come to $1.6 billion for the year in venture capital investments, down from $4.1 billion. The number of corporate projects for blockchain, measured in deals, comes in at 96 for the year, down 32 percent year over year.
Want another data point? It’s anecdotal, but seems to be a tell, too, on whether enthusiasm for blockchain has waned. The same research firm has estimated that mentions of blockchain on earnings calls have declined markedly during the year.
Taken together, these tidbits of information may show at least some caution moving ahead as to what blockchain might be able to do in the real world.
It seems that at least a few firms are hedging their bets — where once they had embraced, wholesale, the notion of moving whole-heartedly to the blockchain, now other options are on the table, too.
Consider the case of Digital Asset, which had not long ago been looking to move trade settlement to the blockchain. Its programming language, as reported in the Financial Times, had been cited in connection with smart contracts and the blockchain — and now has been cited as being able to work with other databases too. Not just blockchain, in other words. We note this may short circuit the revolutionary shift toward DLT replacing all manner of tech infrastructure.
Perhaps there is a place for blockchain to exist as a parallel means of data/asset tracking, but not, in all cases a primary one.
Perhaps broad brushstrokes of a tech revolution must give way to penciled lines, easily erased and retraced when needed.
Libra, of course, may remain a prime casualty of blockchain excitement that runs into regulatory scrutiny. And in a few cases, regulation has helped put the brakes on at least some deals. Colu, a blockchain platform that announced it would shut down its blockchain network, cited regulatory and technical concerns this past August.
Blockchain as a service — used in tracking items through supply chains, for example, or with the aim of bringing far-flung companies together in agreement, such as through trade finance — sometimes has to navigate the sticking points of tech limitations. This may be another data point that the peak may be here, or even in the rearview mirror.
Gartner said earlier this year that by 2023, 90 percent of blockchain-based supply chain initiatives will suffer “blockchain fatigue” based on a lack of strong use cases. Gartner said that pilot programs are likely to remain pilot programs due to blockchain’s technological immaturity, and the fact that current solutions are “complicated hybrids” of conventional blockchain technologies.
Interestingly, against this backdrop, PYMNTS’ own research counts no fewer than 64 separate announcements of supply chain efficiency-focused blockchain initiatives. Carrefour, for example, is tracking milk, and Chevron, Total and Reliance Industries are backing a blockchain-based platform to track crude oil trading. A number of Canadian banks said in May that blockchain could help digitally verify identities.
In another nod toward fatigue, in an interview with PYMNTS, discussing how blockchain might transform lending, Mike Cagney, CEO and co-founder of Figure Technologies said that from a high-level view, blockchain has been slow to find real use cases.
“There’s a lot of fatigue around blockchain,” he told PYMNTS, “because people have been talking about it for years — and that it is going to transform everything. There have been some ridiculous use cases, like ‘strawberries from Mexico on blockchain,’ or ‘art on blockchain.’ And the financial use cases have been around ‘can we do this on blockchain?’ versus ‘should we do this on blockchain?’ ” And, he added, recent trials and proofs of concept, such as those in trade finance, have found an actual denigration in terms of performance or cost.
The jury is still out as to whether press releases get followups later on beyond 2019 – meaning, of course, deployments at scale, and perhaps even revenue opportunities.
The companies such as Walmart, with blockchain tracking in food supply chains, or for healthcare providers looking to boost the efficiencies of medical record keeping. It’s tougher to see what is being funneled into such initiatives (in terms of dollars) since they are done in-house.
Perhaps the promise of the blockchain revolution will move toward evolution, where 2019 gave way to progress, yes, but caution, too.
Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The Key To Optimizing Merchant Services Study, a PYMNTS collaboration with Endava, examines merchants services providers’ (MSPs) current and future strategies for innovating value-added services. It is based on a survey of executives at more than 200 MSPs, including acquirers, independent sales organizations, payment gateways and payment facilitators.