Blockchains and Cryptocurrencies: Out of the hype into the fire

For many these three words mean the same thing: Cryptocurrencies, Blockchains, Distributed Ledgers. In the end it is all the same right? Therefore they will all disappear together, now that the hype is over. Or is it?

Three quarters of an year into it and the Cryptocoin and Blockchain hype dwindles. Most of the alternative coins, like Litecoin, Etherum, Stellar or EOS are on a low tide. Bitcoin itself hovers around the 6K Mark and trouble is brewing. Given the strong correlation that most alternative coins have to the “mother coin” things look bad on the crypto side, at least for the moment. But what about the technology behind it? Is the discussion about distributed ledgers like blockchain at risk? Far from it.

For the moment, the crypto discussion has left the first page of newspapers. The blockchain discussion though continues nicely and healthy in their technology and financial sections, thank you.  Savvy individuals do not speak of blockchains alone but of the bigger term behind them, distributed ledger technology. As this technology ripes, the first concrete use cases appear. The discussion has now turned less from speculative trading with the subproduct “cryptocoins” to the long-term effects of distributed ledgers and their application.

There is a fascinating parallel with the usual technical vs. fundamental analyses in the ways this discussion works on the many internet forums about blockchain & CO. On the one hand, you have day-traders and their chart analyses, the crowning of the speculative cryptocoin hype. On the other hand, fundamental analysts try to find out whether the use cases behind a given blockchain technology makes it worth investing in the corresponding cryptocoin or token for the long haul. This last discussion is especially interesting because many times the case for a technology needs not even support the case for its coin at all, as with Ripple. The confusion generated by such complexities is understandable and with the crypto world tumbling down currently many investors decide to not invest time in it, at least for the time being.

In a talk with Gunter Schmidt, a Blockchain specialist from IBM, he mentions how distributed ledgers as a tech are a very old idea which now finds a come-back but still face the very same problem which put it to sleep in the past: the lack of trust between parties. And we are not speaking about trust in a “proof of work / stake / etc” technological sense, but trust as a basic component of a business transaction as in “I’m I willing to work with these people using this very same database”. This is a tricky problem because although decentralized distributed ledgers and their proponents point out to the decentral aspect as a key creator of trust, the fact that, in practice, at the end of the day there are many other elements that come together with the creation of a distributed ledger supported process which still need the type of trust that can’t not be guaranteed by it.

The discussion is therefore heated and going in new directions now, out of the money grabbing speculation into the process, business model innovation and business transformation fields. We will keep an eye on it!