Seven Reasons Why Investment in Blockchain Has Slipped
It doesn’t feel like Blockchain is slowing, quite the reverse from where I sit in the heart of the City of London.
There has been a lot written in the press recently that investment in Blockchain has declined and Blockchain is losing its lustre. But is this a blip, a decline, a correction, or is it a natural part of a technology maturing or are there more sinister reasons?
Until recently, Blockchain had enjoyed a great run in 2015 and 2016. Bitcoin and Ethereum have been well up year after year, which has coincided with Zcash setting new records and the big tech boys Microsoft, IBM and Amazon opening up for Blockchain business.
I have been hanging out with a wide range of entrepreneurs that have had their own particular Blockchain epiphany and calling to build their version of Blockchain.
I have been in the tech industry for 35 years and have personally experienced many waves of technology, so here is my take on what is really going down in the Blockchain community.
Firstly, the majority of the entrepreneurs that have created their own particular forked version of Blockchain are ‘geeks’ in the sense that they are Phd computer scientists, cryptographers and data scientists, and I love these guys. Then you have corporate managers that have functional expertise and respond to a personal calling to start their own business and become a tech entrepreneur. But how much real world business expertise do they have to run a business beyond initial start up?
Secondly a large number of successful start-ups have secured Seed or even Series A in 2015 and 2016, and quickly burned through the cash building cool stuff, forking the code again, building labs and hiring reclusive and expensive developers and coders. Feels like kids playing with the latest gadgets, who are losing focus of the end goal to monetize a return for investors.
Thirdly many of these start-ups are convinced that the way to go, in an Open Source Libertarian world, is essentially to sell Proof of Concepts for a few hundred thousand, given that the end user world is not yet ready for commercial mainstream adoption and rolling out production level Blockchain solutions - platforms - that create ongoing revenue streams and the creation of second tier Blockchain Service companies.
Fourthly, several owner/entrepreneurs I have met are naive and obsessed with maintaining the open source mantra and determined to give their developed code away for free. Some have no plans for monetization and don’t even know who has downloaded their code, whilst others haven’t grasped the concept of making a return. However, maybe they are the clever ones and have convinced investors to part with cash because the investors wouldn’t even know what Blockchain, Solidity, LLP and Serpent code looked like, even if it hit them in the face.
Fifthly, banks have been quick to jump into Blockchain in the fear of missing out. They feel threatened and have hovered up huge swathes of available resources and expertise, and it is debatable whether these projects will ever see the light of day. Whilst banks promise much, they will be slow to finally adopt the Blockchain technology as they are burdened with draconian regulations, armies of compliance people and legacy tech they cannot move from. This has distorted and tricked the market somewhat given their activity and investment, but they will be well down the list of final adopters going mainstream.
Six, investors couldn’t wait to fill a vacancy in their portfolio with a Blockchain investment, and luckily for us, a ‘dotcom’ frenzy almost took off in the first half of 2016. Investors have thrown money at ‘geeks,’ very clever guys to build stuff, to write convincing white papers and support the early adopters, and there are many looking for investment opportunities. The problem is that the number of new opportunities coming through varies and many want to fund their own journey using ICOs, Blockchain crowdfunding and foreign investment, which is also under the radar and not picked up.
Seven, in the west there is a lot of talk surrounding Asia and MENA, where there is enormous activity in these regions and has the potential to make big jumps in technology. There is also a closer link between regulation, central banks and government, who are taking the lead while the west goes to another committee meeting.
This is just the end of Act I
It doesn’t feel like Blockchain is slowing, quite the reverse from where I sit in the heart of the city of London and Shoreditch, the hotbed of innovation.
I meet dozens of entrepreneurs every week with hot ideas and great Blockchain concepts with many complaining they don’t want to go down the VC and PE channels.
This is merely the end of the first Blockchain Act and it has been a brilliant opening scene. The second act is going on behind closed curtains, unseen, where there are literally thousands of use cases in flight and being worked on. 2017 will be a transitional year for the technology. Act Two will be more profound and drive more investment activity as investors, who will be corporates, will be able to touch and feel real stuff, as projects come out of concept stages into pre or full production, and they want a piece of the action.
Blockchain is exactly where it needs to be…as commerce jumps into hyperspace!