Will 2016’s $300 Million Blockchain Startup Bubble Burst?

Blockchain tech has produced quite a haul this year, passing a quarter billion dollars in startup investment during only the first six months. How long will this investment bubble last?

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Will 2016’s $300 Million Blockchain Startup Bubble Burst?

Startups powered by Bitcoin and Blockchain technology raised $290 million during the first six months of this year, resembling the dot-com bubble of the late 1990s.

According to a report by Juniper Research, venture capital investment raised by companies employing either Blockchain technology, or Bitcoin directly, amounted to more than a quarter of a billion dollars.

About a third of this was raised by three companies: Circle, a social payment provider, which raised $60 million; Distributed Asset Holdings, a distributed ledger solutions provider, which raised $50 million; and, of course, Blockstream, the sidechain developer, which raised $55 million.

Lee Gibson Grant of the Drachmae Travel Club sees investments flowing into Blockchain startups as more and more people become aware of the technology’s capabilities.

He says to CoinTelegraph:

“The Blockchain space is typical of new technology coming onto the market. This early stage sees many startups and experiments, which will provide proof that the technology is applicable in specific, practical use cases. Once identified, there will be consolidation into leaders within those areas at first, and progressively more capital will flow into those entities. Over time the investments will be billions of dollars, and will create new businesses and many new employment opportunities.”

Will the Blockchain investment bubble burst?

Marc De Mesel, early investor behind Bitcoin and NXT, as well as emergency response app Cell 411, believes that the Blockchain investment bubble will pop in a few years.

He explains to CoinTelegraph:

“Many new technologies which change society fundamentally go through a big bubble where everybody wants a piece of it and mass hysteria leads to overvaluation. This was true for railways (1840s), radio stations, telephone & electricity companies, motion pictures, auto manufacturers, airlines (1920s) as well as more recently computer, internet & mobile phone companies. Cryptocurrencies are part of this wave of digitization which makes communication and transactions much cheaper, faster and richer.  Suddenly, money becomes of much higher quality, available for everyone in all kind of flavors. I think crypto will have a big bubble just like dotcoms had, I estimate around 2020. Fortunes will be made by a few while the masses, as always, will lose their shirt. Still, just like dotcoms, digital coins will be here to stay and become part of everyday life.”

Christopher David, CEO of ride-sharing startup Arcade City, sees a similar bubble in Blockchain tech, but sees long-term viability in the industry.

“Blockchain tech will go through the hype cycle the same as any emerging technology. But the trajectory is upwards and the curve should only get steeper. Compare it to the internet revolution, which liberated flows of data. Blockchain tech will liberate flows of value, disrupting existing power structures and affecting everyone. Decentralization is the future, and blockchain is the tech to make it happen. Huge impact, huge opportunity. Investment in the space should rise year after year with no end in sight.”

Christopher David, CEO of ride-sharing startup Arcade City

A warning against combining smart contracts and blockchains

The Juniper report does caution against some potential pitfalls behind Blockchain technology. According to the research, when smart contracts are not properly tested through and through for potential bugs or vulnerabilities, and are then placed on a Blockchain, all weaknesses are available for anyone to see and publicly exploit.

This is similar to what happened with the DAO, where almost $80 million in Ethereum was stolen, prompting the community to hard fork the currency and give rise to Ethereum Classic.

As research author Dr. Windsor Holden explains, the promise of Blockchain technology should not be seized in haste without fully testing all the variables involved:

“While Blockchain technology offers the potential for increased speed, transparency and security across an array of verticals, there has to be rigorous and robust road testing in each unique use case before any decision is taken.”

Regardless, critics are once again declaring Bitcoin dead

Despite the aforementioned success this year, critics have taken to their favorite pastime of declaring cryptocurrency’s digital gold to be a thing of the past. This has taken place year after year, practically since Bitcoin’s inception. In fact, 99 Bitcoins has created an ongoing Bitcoin obituary list. This list logs all the articles which have declared Bitcoin to be over, including the price in USD at the time of writing, so that we all might reflect on how many times Bitcoin has proved the naysayers wrong.

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