What does 2017 have in store for digital assets and underlying blockchain technology?
This is a vital question for those in fintech, especially in light of recent news that Goldman Sachs and Santander left R3 and speculation that bitcoin, the only blockchain protocol in widespread use, is over.
Are the doubters correct? Is this the end of digital currency as we know it?
Not by a long shot — though we can certainly expect some ecosystem changes ahead.
Consider the following: In the wake of Brexit earlier this year, the value of the British pound, assumed by most to be a “safe” currency, tumbled overnight. During this same period, the value of bitcoin increased. The same trend was seen after the U.S. presidential election. The stock market took a nosedive, yet during the same period, the value of bitcoin went up.
Are these two events merely coincidental? Not from where I sit. Both of these data points speak to the secure, borderless, frictionless power of digital assets. Digital assets are immune to control by a central authority, capital controls or currency manipulation. As a result, they are insulated from global risk.
More importantly, digital assets are designed for today’s era of digital information, and the underlying blockchain technology has the power to completely overhaul the current financial system, making it more efficient, transparent and accessible.
When taking a look at the industry over the last 12 months, the first quarter of this year saw total investment in blockchain startups topping a staggering $1 billion. But that investment is starting to pull back.
In the first nine months of 2016, blockchain startups raised $429 million across 92 equity financings. Compared to the same period in 2015, the deal activity fell this year by 16 percent, and funding was down by 7 percent. And we are already seeing some of this reticence play out in the market. For example, just last week, Circle announced they were pivoting away from the buying and selling of bitcoin through their wallet app.
Is this evidence that we are at the beginning of the end?
Not exactly. In fact, this is what should be expected when you are dealing with technology that radically innovates and transforms something as important as the financial system. Or, in the framework of the much-noted Gartner Hype Cycle, bitcoin has passed the so-called Peak of Inflated Expectations, where “early publicity produces a number of success stories — often accompanied by scores of failures. Some companies take action; many do not.”
Instead, the blockchain industry is moving into the Trough of Disillusionment, marked by waning interest “as experiments and implementations fail to deliver.” During this time, many will fail and exit the market, while those that survive will continue to enjoy market success, secure investment dollars and march forward along a path to widespread market adoption.
Thus, we are exactly where we should be in the life cycle of an emerging technology with such widespread potential for impact.
When I look out at 2017, I do see some shifts ahead in the market.
In the spirit of the Gartner Hype Cycle, some will decide to focus on driving incremental change in our current financial system. Some will decide it’s a more strategic move to partner with other players in the market than to keep building from the ground up. And some will simply flame out.
But that doesn’t mean that this space is over. I believe that radical innovation comes not from incrementally improving the current system but, rather, from building a new system purpose-built for today’s global world. And as far as blockchain is concerned, that will continue throughout 2017 and beyond.