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No More Blockchain Hype!

May 3, 2019

By: Dennis Ensing

I was always puzzled by the hype surrounding blockchain. I started my career as an accountant and now only reluctantly admit it as I have really enjoyed the twists since then. But in simple terms, blockchain is nothing more than a very evolved accounting system. A more technical explanation is that it was created (around a decade ago) as the public, distributed ledger for the bitcoin cryptocurrency. An evolved accounting system in my opinion because instead of just the old double-entry checks and balances, it provided for the third, secure entry. But, built on fundamental research in cryptography, distributed data, distributed computing, game theory and other advanced technologies, it is far more advanced.

 

The hype was the realization that its original objective of supporting bitcoin was chump change compared to its disruptive potential to the global financial system. Now, with that transformative power well established, together with the struggles to provide enough computer power to manage the distributed ledgers and digital assets, the hype is over.

 

In a recent CIO Journal article, Irving Wladawsky-Berger summarizes why.

 

First, pilots will soon go into production. Walmart recently wrapped up a pilot on the use of blockchain-based ledgers to manage the supply chain of food projects from farm to shelf. The article also mentions that two blockchain-based platforms will soon go into production to support the management and trading of digital assets.

 

Second, there are real-world smart applications now envisioned taking platforms beyond the management of distributed ledgers and digital assets. These applications are based on the concept of smart contract, that is, programs that are automatically executed when a set of pre-specified conditions are met. For example, a flight insurance policy that automatically pays out if a flight gets canceled is an example of a simple smart contract application. The power of blockchain’s tamper-proof system can feed the necessary trustworthy data.

 

Despite bitcoin’s lofty objective of being a universal currency, now a number of central banks are taking a serious look at embracing some of the technologies pioneered by bitcoin and launching state-backed digital currencies. Why? The shrinking role of cash in our increasingly digital economy; the potential to reduce the costs of managing and replacing physical banknotes; better security, privacy, and consumer protection; and the ability to better reach the hundreds of millions around the world who don’t have a bank account or access to financial services.

 

In hindsight, blockchain’s evolution has certainly confirmed our angel group’s reluctance to invest in any of the enabled applications that have come our way. Some may have fueled the disruption that is now well underway, but the path behind us is littered with thousands caught up in the hype.