Blockchain: the rupture potential of a technology
Translated from an article published in Forbes France. You would have to be completely disconnected this fall not to have heard about the rise of Bitcoin and the “crypto-millionaires” it has created. At its base, Blockchain is a simple but very secure technology, as it duplicates its own ledger and proof of its transactions on many machines. Its potential goes well beyond cryptocurrencies. Since 1998, it has been essential for your organization to have a website. Since 2008, you have to have a mobile application. And in 2018, a Blockchain will be a must in many areas as well. Here’s why.
Blockchains have a growing presence in publications and innovation events. The reason is that in terms of organization, and therefore of power, the great Blockchain revolution is about removing centralization. It no longer requires a central system that coordinates everything, and therefore throws into question the role of players whose added value is precisely to be this central system. We might think of banks and insurance companies, but ultimately any platform as Uber or Airbnb can be bypassed (or “uberized”). In the end, it is therefore a very economically efficient principle because it eliminates the cost of this central player, and yet provides increased security.
The many information systems due for a power revolution are very diverse in character, but they share one thing in common: they have only a few years of immunity left.
The rise of a Blockchain ecosystem
It goes without saying that start-ups have cornered almost every possible subject. Blockchain funds have been created, Blockchain consortiums and alliances have formed. The Initial Coin Offering (ICO) has hit the headlines : companies using Blockchain technologies are financing themselves by pre-selling units of value for their future ecosystem, to the tune of over $4 billion in 2017, with some quite admirable successes … and some projects that are perplexing, to say the least. The largest ICO to date, Filecoin, a payments system based on a method of secure data storage in the cloud designed to strengthen cyber security, raised $252M in September 2017. The ICO of Telegram, the secure messaging App, will probably blow this record in the coming weeks. And yes, there is the risk of a bubble, as this inflation of ICOs would seem to indicate. But behind this financial market, there are real solutions as well — and they are progressing rapidly.
Simplicity as the essence
The principle of the Blockchain is simple to implement: keep the history of all transactions in a chain of encrypted data blocks, whose storage is decentralized because each block keeps track of the previous one. No need to issue cryptocurrencies to use them in many areas. No need to be a bank, or insurance company, to use them. Some examples:
- All B2C, B2B, or P2P transaction platforms have value and security to create using Blockchains, whether they consist of real estate, mobility or e-commerce … even social networks could become totally decentralized.
- Energy is an application whose stakes are massive: consider the need to secure metering, and certify origin of green energy, and you’re looking at amounts in the trillions. About fifteen ambitious start-ups have launched with capital fundraising, such as Conjoule for P2P energy trading or LO3 Energy for microgrid development, or Grid+, which publishes a security solution and raised more than $29M with an ICO.
- Logistics also have great potential for transformation because of the daunting challenge of securing the flow of goods and their payment. This is a challenge that startups such as Shipchain.io, Ownest.io, and Ledgys.io propose to take on.
- Trade.io intends to reinvent stock trading
- In luxury or pharmaceutical, Blockchains can be used to protect against counterfeiting.
In the end, Blockchains affect almost all major sectors of the economy, to different degrees.
“Hype” or not?
Several projects raised a lot of money through their “Initial Coin Offering” or ICO, only to deflate immediately afterward… and the ICOs that have worked well are projects whose teams are very solid. Nothing illogical. But the volatility of cryptocurrencies is extremely high, and for all of those that are currently thriving, there have been and will be plenty of failures — after all, there’s not enough room for everybody.
A very solid ecosystem has developed around Bitcoin and the main cryptocurrencies. Demand is strong, especially in Asia, and the acceptance network is growing. There are brokers, market makers on derivatives, miners, sellers of storage solutions… so bitcoin will not stop tomorrow morning or next year. But it is not eternal, either. After all, in its very principle, each transaction must verify the completeness of the previous transactions. The computing power needed, and the energy used to make it — in other words, its cost — has increased by a factor of 6 since the beginning of 2017, which for the moment represents only a few tens of cents and a few kWh per transaction. But if we multiply it by 6 every year, we will quickly understand that Bitcoin cannot continue for 10 years in the same operating mode and at the same growth. And its very essence is that no governance can easily modify it… which is also one of its weaknesses. Of course, some other cryptocurrencies correct this bias. The risk is that Bitcoin will turn out to be the Netscape of cryptocurrencies, i.e. the pioneering version, the “evangelizer”, emblematic but not sustainable, of a principle that will be eternal.
Like Artificial Intelligence, Blockchain technology has a breakthrough potential that can create — and destroy — considerable value. Existing actors, threatened as they are by its rise, will inevitably seize it, and their potential of “good will” on these subjects is strong because the stakes are high, in some cases a question of their survival.
Obviously, we are at the high point of Gartner’s famous “hype-cycle”, as the technologies are far from fulfilling all their promises in each of the areas mentioned above, and we have already encountered very high valuations, including of particularly fragile projects . The market will necessarily be very Darwinian, but it is a safe bet that some players in this universe will quickly take important positions, even though it may take a while. In many of these “winner takes all” markets, there will be only one very profitable player at the end. It is on the still unknown valuation of these few big winners that the return on investment will be built, so one must be very selective. We’re talking about billions invested in issues for which several trillion are at stake. With that in mind, we are far from saturating the potential of this technology, whose robust principle is here to stay.
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Related articles from the author
In preparation of a Post Corona Crisis (Forbes, April 2020)
After a record breaking year, how should you invest in start-ups in 2019? (Forbes, February 2019)
Blockchain: the rupture potential of a technology (Forbes, January 2018)
«Blue Ocean Shift», the sequel to the bestseller on innovation (dec 2017)
Why is the Corporate Venture growing so fast? What are the keys? (November 2017)
Liked the first digital revolution: you’ll love the second (Sept 2017)
