Block by blockchain: a status update on the technology
In the space of a year, the seemingly relentless rise of cryptocurrencies has come to a grinding halt. For bitcoin, the original cryptocurrency, valuations have bombed from more than $11,000 to around $3,000. Ethereum, the currency that had been following hot on the heels of bitcoin, has similarly crashed from a valuation of just over $1,200 at the beginning of 2018 to just over $120 today. The bubble has well and truly burst. The enabling technology for cryptocurrencies is of course blockchain.
While blockchain is in essence a database, it is the ability to maintain a distributed and immutable ledger of transactions that meant for those who sought an alternative to traditional currency, cryptocurrencies could be trusted to deliver the value they sought. Never mind the criticism that the single biggest use case was illegal transactions for which anonymity was of primary importance. Cryptocurrencies in principle looked like they might just provide a new injection of economic lubrication to fuel the growth of global capitalism well into the future.
Alongside cryptocurrencies has been the astonishing rise of ICOs, or initial coin offerings. Essentially a new unregulated method of funding startups, rather than issuing shares, a company issues digital tokens or coins.
The startup creates a new cryptocurrency via a platform such as Ethereum and then offers them up to the public where they can be purchased using other cryptocurrencies. With no shares changing hands, the investor will be able to use their newly minted coins either to buy the product that they have funded or better still, the company is so successful that the purchased tokens will inflate in value and then be sold for a profit. Consequently, ICO funding went from $100 million (46 ICOs) in 2016 to a staggering $3.7 billion (235 ICOs) just through October of 2017. However, the ICO bubble also seems to have burst. At their peak, companies raised close to $1.7 billion dollars a month. In January 2019, this had fallen to $28million.
So, if bitcoin and ICOs have left the rails, where does that leave blockchain technologies? The day when the naysayers could barely be heard over the sound of the rapidly inflating expectation of the growing number of gold diggers has long since gone. With currency valuations in free fall, the inflated expectations of crypto prophets have been replaced by the harbingers of doom. In the legal services world, the echoes of ‘I told you so’ can be heard loud and clear.
Various studies have appeared suggesting that blockchain projects have yet to yield positive results. It was recently reported the blockchain projects have a 0% success rate.
Deloitte claimed in a 2018 report that of 27,000 blockchain project on GitHub, the biggest repository of software code in the world, more than 90% were no longer active.
Is blockchain dead? Not at all. It is at moments like these, after the circus has left town and with it the capital mob, that the real creatives, developers and enthusiasts start to tease out the real value of a new technology.
So, is blockchain dead? Not at all. It is at moments like these, after the circus has left town and with it the capital mob, that the real creatives, developers and enthusiasts start to tease out the real value of a new technology.
Looking at just one interesting area: border control technologies are somewhat topical now. Many of the emerging border control technologies are, according to The Economist, built on blockchain technologies. Switzerland, for example, is aiming to digitise its border with the EU by 2026 on the back of a $400 million programme, DaziT, which will use blockchain to facilitate pre-clearance of shipments and online payments of tariffs.
Last year, Singapore introduced electronic certificates of origin developed by local firm vCargo, again based on blockchain. Many international ports have apparently started to use a blockchain-based process called TradeLens to track shipping containers and their contents. Blockchain is the perfect technology for these sorts of applications. Any tampering of certificates or records becomes considerably more difficult than it would otherwise have been, reducing the need for physical checks.
Border control technologies just don’t have the glitz and glamour of cryptocurrencies—they’re just not sexy. They are, however, transformative. Borders create frictions. Frictions create disputes and opportunities for fraud. Both affect claim costs and indemnity spend.
This article was first published by Claims Media on 7 March 2019.