2018 seems to mark the start of the trend towards mainstream adoption of the blockchain, not least shown by the growing interest from traditional Angel, VC and accelerator funders.
Blockchain trends for 2018 sounds like such a bland topic.
So much hype and media attention are given to the vacillating fortunes of Bitcoin, Ether and other cryptocurrencies and to the huge successes and spectacular failures of ICOs and startups, that we sometimes lose track of the solid hard work going on behind the scenes to improve and apply the underlying blockchain technology.
Andreas M. Antonopoulos is the author of Mastering Bitcoin and The Internet of Money. He is also one of the world’s leading experts on bitcoin and blockchain.
In a recent interview, he compared the development of blockchain with the development of the internet. In 1993, people didn’t need the internet. It was of interest only to the military and government and a few academics, physicists and researchers. Today, connectivity to the global internet is, for many, an essential to life and a human right. Blockchain now is at the 1990’s “email” stage — there is no “web” yet. Digital currencies are the first apps for this technology, but who knows what real development and use-cases are yet to come?
So, I thought that it would be interesting to have a look at what the general predictions are about blockchain trends for 2018, and then to look at what venture capitalists (VCs) and others are putting their money into right now, as this might give us some insight into future trends for blockchain.
If you’re an investor, it might help you decide where to put some of your own money. And if you’re a developer or entrepreneur, it might help you to decide where to put some of your energy!
General predictions about blockchain trends for 2018
A Deloitte report titled 2018 Global Blockchain Survey covers the opinions of over 1000 business executives from Asia Pacific, Canada, Europe, Middle East and Africa (EMEA). They represent nine industries, including financial services, healthcare and life sciences, the public sector, technology, media, and telecommunications.
Despite some reservations about blockchain being “over-hyped”, this report highlights how the business world is moving away from simply exploring blockchain and trying to understand how it works, to identifying real business use-cases. And they are investing in blockchain applications — nearly 40% said that their businesses would invest $5 million or more into the technology during 2018. The goal is generally to achieve greater efficiency, improve business processes or create new revenue streams.
Newer enterprises or startups, referred to in the Deloitte report as “emerging disruptors”, are better placed to apply blockchain solutions than more established businesses with legacy systems. They are also, as a result, increasingly more likely to disrupt the status quo in their industries.
An example of this is the potential disruption of the cloud storage industry by projects like Filecoin, Storj Labs, Sia and Swarm. While they are proposing different protocols, all of them are using incentive models to achieve decentralized storage. The Filecoin ICO raised $257 million in 2017 and included backing from investors such as Union Square Ventures, Naval Ravikant, and The Winklevosses. Storj Labs raised about $35 million over several rounds, with seed funding coming from Angel investors and VCs like Qualcomm Ventures and TechStars as well as industry leaders in the technology security space.
Clearly, investors are seeing the potential in blockchain solutions.
It’s probably true to say that there is a fairly endless list of uses for a transparent, verifiable register of transaction data, especially when it doesn’t need centralized control and is fraud resistant.
Some other trends for blockchain in 2018 include:
· Cybersecurity: Blockchain was created as a way to ensure the security of transactions, and so it is not surprising that it will be a niche for innovation, especially for banking, accounting, real estate and other real-world assets. An interesting example is that China’s new internet courts will make blockchain records admissible as legal evidence. This follows a similar ruling in the US state of Vermont.
· Providing security, connectivity and storage solutions for the Internet of Things: Blockchain-based systems use advanced cryptographic techniques to ensure that data is coming from the correct sources and that nothing is intercepted, and so they are less vulnerable to hacking than legacy systems. The other challenge is to link massive numbers of devices together and allow them to communicate directly with each other, self-execute smart contracts and software updates and maintain product records. This is the focus of established companies like IBM/Samsung with their ADEPT project and of start-ups like Filament with the development of its USB-compatible blockchain hardware (Blocklet) for IoT.
· Increased use of smart contracts and their incorporation into traditional business.
· Content streaming, for companies like Netflix, and also for gaming and eSports (for example Play2Live, which raised $30 million in an ICO earlier this year).
· Identity verification: This is part of the KYC/AML process, but will also be important for such applications as recruitment, medical and educational records, voting systems, etc. An example here is the partnership between Sony and IBM to develop a blockchain-based platform to secure student academic records to be shared by educators in both primary and higher educational institutions. HYPR, with its tagline “Trust Anyone” has introduced decentralized authentication technology which includes biometrics like fingerprints, face and voice recognition. In 2017 it received $8 million in funding from New York-based VC company, RRE Ventures.
· dApps on the Ethereum platform: The platform makes it easier for developers to develop apps without having to code an entire blockchain of their own. According to a curated list by State of the Dapps, there are 1,871 Dapps currently running on the Ethereum network. Each of these represents a unique idea or project across popular categories such as games, exchanges, gambling and finance. Most of them also apply smart contracts. It will be interesting to see how many more are added during 2018.
· Supply chain and logistics have long been touted as obvious use-cases for blockchain solutions. The shipping industry is a key example, where the introduction of blockchain systems is being compared to the revolution brought about by the introduction of standard containers in the 1960s. If the paperwork and involved processes across multiple players and countries could be simplified and streamlined through blockchain platforms, this would save vast amounts of time and cost. In addition, according to the World Economic Forum, improved communication and border administration would add $1 trillion in global trade.
The trend towards VC support for blockchain
In 2017, investments into blockchain and related companies reached nearly a billion dollars. This number, provided by Crunchbase research, did not include VC investments into any ICOs. These were “old-fashioned venture rounds — convertible notes, seed and angel rounds, Series As and on through the alphabet”. Some of these investors are focused specifically on blockchain-type ventures — this includes Andreessen Horowitz, Digital Currency Group, Medici Ventures and the like. But there are also a good number of mainstream investment companies (for example, Draper Associates) and many generalist accelerator programmes, like TechStars and Plug and Play.
By May 2018, Crunchbase was reporting that despite the huge volatility and apparent downward trend in the price of cryptocurrencies, VCs had already invested more into crypto startups than they had in 2017 — a massive $1.3 billion.
Some of the largest of these investments were for the following projects:
· $110 million went to Circle, a global internet finance company, supporting quick and easy payment and remittance options for crypto, together with a crypto-trading desk and a crypto-currency investment product. This Series E investment pushed Circle into the “unicorn club” of companies now being valued at over a billion dollars.
· $118 million went to Orbs, which is building a public blockchain for the development of consumer apps (dApps). It has significantly increased the speed of blockchain transactions on the Ethereum network through two technologies: virtual chains and randomized proof-of-stake (this is quite technical but worth following up if you’re a developer of dApps).
· $32 million went to Shivom. Many companies are working in the arena of personal identities, but Shivom is focused on a programme to store your DNA securely on a blockchain, for you to manage and monetize if you wish. It will work together with genomic counselors and a not-for-profit drug research company.
Some interesting information is given by CryptoFundResearch. According to them, the top 50 VCs who have invested into blockchain have had a total deal volume over the 12 months to June 2018 of $1.19 billion. Only 34% of these 50 invest exclusively in crypto/blockchain assets, so it is clear that traditional firms are slowly moving into this market. The average deal size was $2.1 million.
The case for traditional VC support for blockchain startups
ICOs remain an important source of income for start-ups. According to Crunchbase, ICOs raised at least 3.5 times as much as traditional VC and Angel funding in 2017.
However, there are some advantages to be gained from the more traditional route. Start-ups and founders often need more than just money to become successful.
Maria Palma of RRE Ventures notes that they add value to startups by connecting them to larger companies for potential partnerships, assisting with talent, leadership development and hiring and bringing together peer groups across the portfolio to support “community learning”.
Accelerators like Techstars point to their ability to offer hands-on mentorship, business development opportunities and access to resources through their short- and longer-term live-in programs. Most particularly they highlight that their process helps start-ups to learn faster and to discard or pivot projects when it becomes obvious that they are unworkable.
Interest in blockchain projects from business accelerators
The following is a short list of business accelerators that have decided to expand their support to founders of blockchain-based start-ups.
The Thiel Foundation
The Thiel Foundation was set up by PayPal co-founder and billionaire investor Peter Thiel. A 2014 recipient of a fellowship was Ethereum co-founder Vitalik Buterin. Among the 2018 recipients of $100,000 each for developing their projects were four from the blockchain community:
· Axel Ericsson, co-founder of Vest
· Robert Habermeier, co-founder of Polkadot
· Daniel Ternyak, CTO of MyCrypto
· Aparna Krishnan, co-founder of Mechanism Labs
All of them are working in some way to ensure that the underlying blockchain technology is secure so that further use-cases can then develop.
· The 1protocol of Vest is focused on improving the consensus mechanisms of the blockchain. It also aims to allow people with idle tokens or spare computer capacity to participate in providing digital services, without requiring the resources currently required to be a miner (in proof-of-work) or the deposits required to be a stalker (in proof-of-stake).
· Mechanism Labs is also working on issues around scalability and consensus. In addition, they have set up an open source platform that will allow researchers in the blockchain space to share and collaborate on their findings.
· Polkadot is developing technology to deal with scalability and security issues and also to provide communication and interoperability across different blockchains. (It’s worth noting that Polkadot raised $140 million during its 2017 ICO.)
· MyCrypto is working on improved technology for crypto wallets.
Only two of the sixty-four projects being sponsored by YCombinator in their Winter 2018 programme are concerned with blockchain. Again, the focus is on improving the underlying technologies or user experience:
· Quantstamp is developing technology to check or audit smart contracts and to identify vulnerabilities before the contracts are implemented.
· Ben has a mobile app which aims to educate people about crypto investing and about the multiple wallets and exchanges that are around.
TechStars is a venture capital and technology company accelerator founded in Colorado in the USA in 2006, and now hosting accelerator programmes for tens of thousands of start-ups in centers around the world. It invested in its first cryptocurrency project only in 2013. Since then it has invested in another 36 small blockchain companies. The most well-known of these include Filament and Storj Labs that we have referred to earlier in this article.
In 2018, it has partnered with Alchemist, a blockchain advisory group, to launch a special accelerator programme just for blockchain projects. The special difficulties that it hopes to address for blockchain founders include “complex regulatory environments, rapidly changing technology landscapes, token design, community building, and difficulties attracting talent.”
The first programme will be run in February of 2019.
Daily headlines are bewailing the demise of cryptocurrencies. They may or may not be right.
However, there is no doubt that there is a future for blockchain. Those who choose to be part of its growth as it matures and delivers more and more useful applications may one day look back, as we now look back at the development of the internet, and wonder how we survived without it!