A while back, a PR rep offered me an interview with the CEO of a blockchain company about how decentralized social-media platforms could halt and reverse the “echo chamber” effect.
What made the pitch intriguing was that it made no mention of blockchain, even though the company was clearly a blockchain startup. Instead, the rep presented the company’s product simply as an “unstoppable network.”
Although blockchain is a key component of its platform, according to a whitepaper, the company also made scant mention of it on its website. Instead there were plenty of choice keywords that pointed to a connection with blockchain technology, such as “decentralized,” “unstoppable,” “censorship-resistant,” and “surveillance-resistant.”
This is not an isolated case. I receive a steady stream of pitches from blockchain companies, but in contrast to the 2016-2017 era, when everyone was doing “x on blockchain,” organizations are now more circumspect about their use of the technology.
To a degree, blockchain resembles the AI industry in the 1980s. At the time, many researchers in the field overpromised and underdelivered, which led to a general sense of disappointment with the industry and a slump in government and VC funding—an era that became known as the “AI winter.” Companies and organizations refrained from attributing their work to “artificial intelligence” for fear of disenchanting their audience and associating themselves with an industry that hadn’t delivered on its promises.
A prominent example was IBM’s Deep Blue, the supercomputer that defeated world chess champion Garry Kasparov in 1997. At the time, IBM explicitly stated that Deep Blue did not use artificial intelligence.
To be fair, blockchain isn’t yet in the state that AI was in the thick of its winter. Plenty of publications cover blockchain developments, and several blockchain summits and conferences occur each year. Initial coin offerings are still raising funds, if not as much as they did before. But signs of a “blockchain winter” are looming, as many are observing the industry with increasing skepticism.
The Skepticism Surrounding Blockchain and ICOs
I reached out to several companies that sent me “non-blockchain” pitches. Only one replied.
Mark Devlin, CEO and founder of Newblocks, a platform that wants to establish trust in online journalism by registering facts on the blockchain, tells me that the reason he omitted mentioning blockchain in his pitch was that he wanted to focus on the functionality of his application. But he acknowledged that reporters, on whom startups rely to spread the word about their projects, are increasingly negative about blockchain startups.
“When you have a valid case for using the blockchain, and you see journalists cutting themselves off from any contact, then it just makes your heart sink,” Devlin said.
But there’s more than enough reason to be skeptical of blockchain startups. During the 2017 ICO boom, blockchain projects raised insane amounts of money by providing little more than a flashy website and a whitepaper. Predictably, many of those projects failed to deliver on their promises, while others turned out to be exit scams. And with little regulatory oversight, the industry has become the subject of many questionable practices, like onboarding celebrities to create hype and manipulating prices through artificial pump-and-dump schemes.
All of this has contributed to a general sense of suspicion around blockchain and cryptocurrency, including among journalists and investors.
“Right now, we’re in a stage that draws parallels to the aftermath of the dot-com bubble,” said Antoni Trenchev, cofounder of Nexo, a crypto-lending platform. “We had some irrational exuberance and saw all sorts of unrealistic ICO ideas, propositions, and valuations. The popping of this bubble led to mistrust.”
Devlin said that on several occasions, he has been told he is running a scam just because he mentioned the words “ICO” and “blockchain” while discussing news integrity in online forums. “These are technology people. They should understand the opportunity with this new technology,” he said.
The Cryptocurrency Price Drop
Most sectors of the tech industry rely on angel investors, VCs, and government money to fund their projects. In contrast, blockchain projects have received most of their funding from holders of cryptocurrencies themselves.
“In crypto, the technology and the funding are related,” Devlin said. “The funding is particularly tied to the success of bitcoin at the moment.”
Since the beginning of 2018, Bitcoin has shed more than 80 percent of its peak value and has dipped below $4,000. Most of the people who jumped on the cryptocurrency bandwagon in the past couple of years have suffered massive losses, and there’s very little incentive to invest in an industry that has been steadily been on the decline.
This has made it hard for new blockchain startups to find funding. But a lot of the companies that raised hefty amounts during the ICO boom are still flush with cash, so some legitimate projects will get a chance to develop their applications and maybe restore some of the damaged reputation of the industry.
“It is now up to those companies that have secured funding to deliver [on] the promises they made so that the trust of investors can be regained,” Trenchev said.
After the Blockchain Winter
In spite of the current downturn, blockchain technology continues to plod forward at a steady pace, and a lot of innovation is still happening in the field.
“The technology is moving at an amazing pace, and it’s inevitable that the funding will catch up,” Devlin said.
The AI winter came to an end with breakthroughs in deep learning, the flavor of AI that has become the bread-and-butter of many online services and companies in the past few years. From self-driving cars to facial recognition and medicine, the many practical applications of deep learning revived interest in artificial intelligence and poured billions of dollars into the industry. If history is any guide, the fortunes of blockchain will eventually take a positive turn.
Before that happens, however, blockchain has to find its killer app. The past few years have shown that replicating existing online applications on the blockchain is not the most popular use for the technology. But we’ve seen some unique paradigms emerge, such as crypto-collectibles and decentralized prediction markets. Social-media networks have also shown interest in integrating some aspects of blockchain or cryptocurrencies. This is especially the case as they struggle to redefine their businesses in response to the increasing wave of contempt toward the collection and mining of user data.
What’s for sure is that a lot of blockchain projects will fail. But those that survive might eventually achieve mass adoption and become the new tech giants of the future.