Blockchain Or Bust
Most of the fuss around cryptocurrencies has died down now, but it’s worth reminding ourselves exactly how peculiar the last year in digital currencies was. By May 2017, the best-known cryptocurrency, Bitcoin, had experienced an incredible 12 months. It was trading at R23 000 per coin, three times its value in May 2016, with daily trading volumes below R6-billion. By November, Bitcoin had gained another 370% and was trading at R109 000. The 24-hour trade volume grew to over R77-billion.
Bitcoin’s price was on its way to a quarter of a million rand per token before it peaked on 17 December and crashed by more than 60% in the following weeks. Other cryptocurrencies followed the same trajectory, with popular coins such as Ether losing 70% of their value.
Everyone knows the story of Bitcoin, and most seem to know someone who earned riches or lost a fortune in the 12-month mania. Fewer are quite as well educated about the underlying technology of the cryptocurrency, the blockchain. It’s thanks to the way that blockchain works (see “What is blockchain” on page 20) that bitcoin transactions are verified and cannot be changed after the fact, despite there being no central authority (such as a bank or credit card firm) to authenticate them.
Many enthusiastic watchers were predicting that blockchain would have applications outside of bitcoin, and would revolutionise the way we store data, prove our identity and conduct financial transactions. In 2015, The Economist asked whether or not blockchain was The Next Big Thing?
Has the bitcoin crash seen interest in blockchain also wane?
Gartner, the research and advisory firm, suggests that blockchain technology is at its “peak of inflated expectations.” Enterprises are still deciding how to navigate the technology, and the lack of proven-use cases coupled with the volatility of bitcoin, have created concerns about the viability of the technology.
Blockchain experiments aren’t as common as you might think. In its recent chief information officer (CIO) survey, Gartner found that only 1% of information officers indicated any kind of blockchain adoption within their organisations. Only 8% were in short-term planning or active experimentation with blockchain.
That’s not to say certain sectors aren’t curious. CIOs in telecoms, insurance and financial services were much more likely to be actively involved in blockchain planning and experimentation than CIOs from other industries. Transport, government and utilities sectors are also looking into the technology.
After the hype
In response to the Gartner report, enterprise software company SAP conducted a survey among its own clients and reported a more positive result.
“The numbers don’t lie: blockchain is here to stay, and its vast potential is starting to be realised right now,” SAP said. “As we look to the future, we must understand that a wide variety of industry disruption is happening all around us.”
General manager for IBM South Africa, Hamilton Ratshefola, is an enthusiastic proponent of blockchain’s potential. He points to a recent deal signed between IBM and shipping giant Maersk to use blockchain for container inventories. Providing verifiable information about cargo before a ship leaves port could speed up unloading, reduce smuggling and “grey imports”, and cut down the length of time goods spend in customs. There would also be increased revenue for SARS’s excise department, Ratshelofa says.
Other firms too, such as IOTA, believe that blockchain will be the foundation for “smart contracts” in a world of machine-to-machine communications. As more devices are connected to the internet, they argue, traditional ways of collecting data and decision-making will struggle to cope. Distributed ledgers will allow Internet of Things (IoT) devices to keep accurate records of interactions among themselves and sell services to each other without human intervention.
Prolific South African entrepreneur Vinny Lingham’s latest venture, Civic, is developing a blockchain-based system for proving identity. The first implementation of Civic’s technology is a vending machine which requires age verification to dispense cooled beer.
Another South Africa-based start-up, Tari, has recently launched a blockchain solution for digital asset tracking based on the Monero cryptocurrency.
“We’re focusing on the more modern way of approaching the blockchain system,” says Tari co-founder Riccardo Spagni, “Not every transaction is written onto the chain, but records of them are.”
International aid agencies are also experimenting with blockchain solutions. The ixo Foundation, for example, has developed a blockchain protocol that tracks the progress of impact investments. One of its flagship projects, Amply, is supported by Unicef and allows teachers to keep a record of attendance for donors to South African primary schools.
Others in the field of international aid are investigating blockchains to cut down on corruption and fraud, tracking food parcels or cash transfers from the moment that they leave a donor’s warehouse to the point at which services are delivered on the ground.
For every success story and positive take on blockchain, however, there are still as many points of contention that remain. Some are still unsure that there are any benefits to an old-fashioned database approach to storing information. There’s also the sustainability of the blockchain solutions to consider: the rise and fall of Initial Coin Offerings (ICOs) being a case in point.
In 2017 there was an explosion in products with ICO. ICOs are perceived as an alternative way of raising capital for young firms by giving away cryptocurrency tokens, which will theoretically rise in value as more people adopt the underlying blockchain.
Thanks, in part, to the collapse in demand for cryptocurrencies, along with moves to regulate ICOs by investment watchdogs and a number of reported scams, nearly half of all ICOs launched in 2017 failed by February this year. Google and Facebook have both moved to ban advertising around cryptocurrencies and ICOs, thanks to fears over fraud.
“It can be frustrating,” says Tari’s Spagni, “There are scam coins being pumped by ignorant investors and bank holders and the press, and there are good projects doing solid work. But a lot of the good work by the latter is being clouded over.”
Still, that hasn’t stopped interest. Bloomberg reports that ICOs have raised over R89-billion in 2018 already, which is already higher than the R68-billion total raised in 2017. This sum has been raised from a fewer number of coin offerings (just over 200) and has been boosted by one particular success: encrypted messaging service Telegram raised R21-billion all by itself.
All of which means that even its most vocal defenders would be hard pushed not to admit that Bitcoin’s dramatic rise and fall last year was a classic equity bubble. Its harshest critics, however, can’t deny that the story of cryptocurrencies and blockchain is far from over. Blockchain may not have found a killer app and mainstream adoption yet, but it could be getting close.