As the underlying architecture of bitcoin and other cryptocurrencies, the blockchain distributed ledger’s value for securely recording transactions of any type has led to an explosion of projects and a staggering amount of investment over the last few years. Even just adding the word “blockchain” to a company name can have a significant impact on its valuation, such is the level of hype around blockchain’s capabilities.
But beyond the initial coin offerings (ICOs) — a fundraising process, similar to an IPO, in which blockchain companies sell crypto tokens instead of shares — and myriad science projects, is there anything substantive occurring with blockchain, or is this simply a digital gold rush where the money is being made not by prospectors, but those selling the mining tools?
If there is any one indicator of the allure of blockchain, it’s the increased size and velocity of ICOs over the past year. In October 2016, there were just three ICOs, which cumulatively raised $13.4 million. By September 2017, this had accelerated to 35 ICOs per month with a cumulative value of $537 million. The average value per ICO has also increased to $15.3 million, from an average of $4.5 million in October 2016.
However, like all investments, some are more likely to succeed that others. At the top end of the scale, Filecoin and Tezos raised over $200 million with their ICOs. At the bottom end, some raised little to nothing.
While it's easy to assume that blockchain projects are predominantly related to financial services, a breakdown of the top 10 ICO categories for 2017 shows that this is not the case.
Over a third of ICOs were based around infrastructure projects and while payments, trading/investing and finance all ranked highly, other categories included health care, gaming, gambling, advertising and identity/reputation management. If there is a purpose for blockchain-based coin offerings, it can’t be nailed down to one specific vertical.
While the broad range of ICOs and blockchain initiatives may be indicative of a scattershot approach to innovation, there is some substance to the view of blockchain as a disruptive force not just in the financial services world, but across all verticals.
In a 2016 Deloitte survey of over 300 senior executives at U.S. companies with $500 million in revenue or more, 60% stated they had some knowledge of blockchain and its capabilities. Of this group, 55% said that they needed to invest in blockchain initiatives to remain competitive and 42% predicted that it would disrupt their industry.
The responses given were not just hypothetical — 21% of these executives stated that their organization had brought blockchain projects into production, with a further 25% stating that they planned to launch blockchain initiatives within the next year.
It is also worth emphasizing that the development of blockchain projects was far broader than just financial services. Fifty-eight percent of blockchain projects were in consumer goods or manufacturing, 52% were in life sciences or health care, and 48% were in tech, media or telecommunications. Just 36% were in financial services.
The motivations behind investment and development of blockchain projects center primarily on operational efficiencies and data integrity.
In 2017 IBM surveyed nearly 3,000 C-suite executives from 80 countries and 20 industries. This survey placed executives in three categories depending on their level of interest and activity in blockchain — “Explorers,” those actively participating in blockchain projects; “Investigators,” those who are considering blockchain projects but haven’t committed yet; and “Passives,” those with no blockchain plans. “Explorers” and “Investigators” represented a third of executives polled.
“Explorers” and “Investigators” had numerous reasons for developing blockchain initiatives. At the top of the list were requirements for increased data quality and increased transactional trust, reliability, security and transparency. Other motivators were transaction cost reduction, increased transactional speed (particularly in settlement) and a simplification and/or automation of business processes, often by removing the requirement for a third party.
While there is a staggering amount of activity in blockchain project development, very few of these projects make it to fruition. A recent report by Deloitte performed analysis on Github (the world’s largest software collaboration platform) and blockchain projects to date. In a study of over 86,000 blockchain projects on the platform, research showed that just 8% of these were actively being maintained. Further, the average lifespan of these projects was just 1.2 years.
However, there was a notable difference in projects initiated by individuals compared to those developed by organizations. Some 9,300 projects were orchestrated by companies, research institutions and startups and these registered a 20% faster adoption rate than individual-led projects and had a higher survival rate.
While a sizable number of senior-level business executives have not only knowledge of blockchain, but involvement in real-world blockchain projects, awareness has not yet permeated into the general population.
In a recent survey by Turner Little and YouGov, nearly a third of Americans said they thought that cryptocurrencies were for purchasing illegal goods or services. Seventeen percent thought that they were for online purchases and 7% for savings.
The pandemic and subsequent economic crisis have raised the stakes, since the government’s role in recovery and how stimulus is delivered — and policies impacting the goals of card and technology companies — will be largely determined by the philosophy of leadership.
The Trump administration has barred the use of TikTok and WeChat inside the U.S., including a direct ban on WeChat Pay, setting up potential retaliation against U.S. companies that could interrupt international payment flows.