Just as the hype bubble around VR and chatbots has burst over the past few years, will the hype surrounding blockchain and cryptocurrencies be filled with eternal promise and growth, or are these technology solutions approaching their own trough of disillusionment?
Before we dig into whether blockchain and crypto are living up to the hype being heaped upon them by pundits and luminaries, let’s do a quick review of where these things came from, and why.
What Is Blockchain?
Blockchain is the technology that enables the creation of cryptocurrency.
A blockchain is a decentralized and distributed digital ledger of records across a network, sometimes public and sometimes private. These digital records are called blocks, and they record transactions across different computers. Blockchain works by ensuring no block can be altered retroactively without the alteration of all subsequent blocks. Using blockchain technology, users can confirm transactions without needing a central authority, like a bank.
The top use cases for blockchain for organizations worldwide are digital currency (33%), data access and sharing (32%) and data reconciliation (31%). Other popular use cases include identity protection (31%), payments (30%) and tracking and tracing (27%), according to Deloitte.
Think of blockchain as a technology that reduces the trust cost between companies and individuals, making business easier to do, less expensive and not as risky.
Blockchain ensures that a digital asset cannot be replicated infinitely, which is what made the possibility of non-fungible tokens (NFTs) possible. While there is some debate about the value of certain NFTs, their value is the fact they cannot be duplicated and sold again. While the initial use has been for art and novel assets, look for more potential applications in real estate purchases and other similar transactions.
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How Did Blockchain Start?
Blockchain is not new technology.
In his 1982 dissertation called "Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups," cryptographer David Chaum was the first to propose a blockchain-like protocol. During the 1990s this concept was expanded upon as researchers established protocols to secure chains of blocks by stopping the ability to tamper with timestamps.
The first decentralized blockchain was created by Satoshi Nakamoto (not known if this is a pseudonym for a real person or a group) in 2008. This protocol was implemented the following year by Nakamoto as the core component of the cryptocurrency bitcoin, where it still exists as the public ledger for all Bitcoin transactions.
Today, blockchain has found its way into a variety of applications and uses and looks poised to continue to grow at a significant rate. The size of the global blockchain market is expected to grow from $3 billion in 2020 to $39.7 billion by 2025, according to PR Newswire.
The worldwide spend on blockchain solutions is forecast to reach $17.9 billion by 2024 and will grow at a compound annual growth rate (CAGR) of 46.4%, said IDC.
And 40% of organizations said they planned to invest $5 million or more in blockchain in the coming year. (Deloitte)
What Is Cryptocurrency and Bitcoin?
A cryptocurrency is a monetary medium, like a Euro, but it’s digital-only and relies on encryption technology like blockchain to moderate the creation of crypto monetary units, as well as to verify the transfer of funds.
Bitcoin is the name of the best-known cryptocurrency, based on blockchain technology.
On Jan 3, 2009, the bitcoin network was created when Satoshi Nakamoto (pseudonym) mined the starting block of the blockchain, known as the genesis block. Whether this reference is directly related to “Star Trek II: The Wrath of Khan” can only be speculated.
Bitcoin (?) is a decentralized digital currency, and since it is based on blockchain technology it does not need to be backed by a bank or nation. Bitcoins can be sent directly from user to user on the peer-to-peer bitcoin network. Transactions are verified through a public blockchain record.
One of the shadier aspects, and less environmental, is how one creates bitcoins through bitcoin mining.
Mining is a record-keeping service done through the use of computer processing power, lots and lots of computing power. Bitcoin and blockchain miners keep the blockchain consistent, complete and unalterable.
There is some debate about why Bitcoin and crypto came about. The common assumption is that Bitcoin and cryptocurrencies were created as a response to the economic disaster of 2008 when abuses and corruption in the global banking industry sent the world into a recession. Citizens who were concerned about the abuse of power of banks and their control over financial systems created the identity of Nakamoto to liberate monetary creation and policy from centralized too-big-to-fail global banks.
More recently there has been some pushback on the idea that Bitcoin was a reaction to the 2008 economic collapse, with pundits clarifying the work of blockchain and Bitcoin dated back some time in terms of planning and methodology, and did not simply come into existence overnight in 2008.
The problem with this position is the language in the genesis block of Bitcoin, which clearly spells out an anti-central bank position and the resulting bailout of the banks.
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” - The Genesis Block, January 2009
Over the past decade Bitcoin has been known for its volatility, seeing huge price fluctuations from $1 in the early days to $68,990 at its height a few years ago.
"Bitcoin's history is largely one of astronomical growth punctuated by a few severe price retrenchments," says Peter C. Earle, economist and research fellow at the American Institute for Economic Research.
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The Challenges of Blockchain
According to senior executives worldwide in this Deloitte survey, there are several barriers to blockchain becoming more widely implemented across industries. They state implementation (30%), regulatory issues (30%) and potential security threats (29%) as three key barriers to blockchain adoption. Other reasons cited were lack of in-house capabilities (28%), uncertain ROI (28%) and concerns over sensitivity of competitive information (25%).
58% of organizations say that cybersecurity is only one among many issues that they consider blockchain technologies for their digital asset strategy. (Deloitte, 2020)
Some of the biggest concerns and challenges are environmental and sustainability. Bitcoin mining relies on computing power to compute and earn bitcoins and has led to a massive increase in electricity for bitcoin miners. Today, blockchain miners are using up 0.2% of the world’s total electricity, according to data from 1Blockchains.
Is It Hip or Hype?
According to Deloitte, 88% of senior executives think that blockchain technology will eventually achieve mainstream adoption.
Since its inception, Blockchain has had a relatively small group of zealots promoting the technology prior to 2019, with most IT and tech executives not sure it could be applied to applications that mattered to them. Around 2019 it began to go mainstream with a broader understanding of the variety of applications, both traditional and novel, it could be leveraged for.
Blockchain is real and is starting to live up to some of the hype that has been heaped upon it. There are some good and useful applications in being able to bypass intermediaries for certain things, like moving money around.
And let’s be honest with ourselves for a moment. Doesn’t giving people the ability to cut a middle man out, like a bank, who is adding no value but benefitting tremendously simply due to their proximity to money, make good economic sense for everyone?