What will remain of Blockchain after Bitcoin & Co.? – An Estimation

What will remain of Blockchain after Bitcoin & Co.? – An Estimation

The Bitcoin gold rush is over. The job to be done now is to prepare the technology behind it for productive business deployment. The established IT giants are already offering solution for enabling new application scenarios beyond cryptocurrencies. Yet many companies still find it difficult to generate real added value through blockchain technology.

Investments in the times of the “Crypto Gold Rush”

There was a time when Tagesschau – Germany’s most popular evening news program – would report the Bitcoin exchange rate right after the DAX figures. In those days, the hype surrounding cryptocurrencies was reminiscent of the “new market” 20 years prior. And as happened back then, many investors and crypto entrepreneurs now have their feet back on the ground of reality. The gold rush is over, and the hype over digital currencies and the technology behind them is viewed with an increasingly critical eye.

The technology behind Bitcoin & Co. is called blockchain. A technological model based on well-known mechanisms (like public and private keys, peer-to-peer, hash trees or Merkle trees) and providing an answer to a specific question: How can the problem of double spending be resolved when digital assets are transferred? The model at hand illustrates how digital values can be moved between two parties without the sender retaining a copy. Just like in the analog world, where cash moves out of the buyer’s pocket into the seller’s pocket in the form of notes and coins. If that same transaction is taking place without physical cash, then a bank will ensure the process is duly booked. However, things aren’t quite that simple when it comes to the exchange of digital goods: When you send a photo via e-mail, the file is duplicated. There is then a copy of the photo on the sender’s computer as well as on the recipient’s computer. While that generally isn’t a problem when it comes to vacation photos, such duplication absolutely must be hindered for other digital assets (tokens, digital currencies, …).

The cryptocurrency Bitcoin is the reference implementation when it comes to blockchain. It rendered the use of distributed ledger, the omission of intermediaries (banks), and the “proof of work” consensus mechanism tangible for the transfer of monetary units. Bitcoin was an easy choice for our illustrative purposes here, and the consequences stemming from it have been momentous. After all, many people believed it was guaranteed to deliver quick profits, which turned Bitcoin into a catalyst for the advancement of Distributed Ledger Technologies (DLT). Inspired by the constantly-growing number of blockchain evangelists, many companies began to contemplate further fields of application. . That resulted in more than 14 billion USD of venture capital being poured into blockchain-related ideas between June 2017 and June 2018 alone.

Blockchain in the Valley of Tears

In the wake of the hype in recent years, blockchain has now reached a turning point. The former favorite of many investors with a short-term orientation is about to enter the Valley of Tears, according to the Gartner Hype Cycle of Emerging Technologies.

The people who had that kind of gold miner mentality are now gradually sobering up – as are those who, largely independent from market rates, were looking for lasting added value for their company through this technology and are yet to find it.

Yet despite all the pessimism, this Valley of Tears for blockchain technology can also be the start of an important and necessary recovery phase. A phase in which exaggerated expectations and false promises move out of the way for structured analyses, realistic assessments, and lasting value.

Betting on the long-term value of blockchain

Irrespective of all the skepticism, there are people out there who continue to have faith in this technology. At the 2018 World Economic Forum (WEF), blockchain was still featured among the six mega trends influencing our society within the context of sharing economy and distributed trust. That assessment is supported by an WEF study. Respondents indicated they expect 10% of global GDP to be in blockchain by 2025. Today, that corresponding volume remains in the range of thousandths. The analysts at Gartner also believe there will be a promising future ahead. According to their estimation blockchain will represent a value of around 360 billion USD in the year 2026 and will continue to grow exponentially after that.

But which methods should one keep an eye on to generate lasting added value with blockchain technology?

Many of the big technology companies are starting out by concentrating their blockchain activities on expanding their cloud platforms with blockchain as a service (BaaS) products. These kinds of solutions are available from companies like IBM, Microsoft, and SAP.

The appeal behind a blockchain platform supplied centrally (via one cloud provider) may not be immediately apparent at first sight. That becomes all the more true considering how one of the blockchain advantages is rendering all unnecessary intermediaries obsolete in transactions between two parties. Yet BaaS is a manifestation of the hypothesis that blockchain’s value does not stem solely from its role in replacing intermediaries. Rather, the representatives of this hypothesis see blockchain as having the potential to become the standard open protocol of the future for confidential data, identities, and transactions. That means users of these BaaS products benefit from the secure data sharing and automated control over what is shared with whom and when. They rely on the consensus mechanism of the blockchain supplied from a BaaS provider. That mechanism is ultimately a decisive parameter with respect to blockchain efficacy (transactions per unit of time) and, of course, blockchain security (protection against data being compromised). It is only when all or the parties involved trust in those two attributes that a BaaS solution can enable new applications across company boundaries.

Microsoft’s Azure platform likewise relies on BaaS and is additionally partnering with the ID2020 Alliance. The latter is planning to provide blockchain-based identity documentation for purposes such as supplying proof of identity to the more than 1 billion people worldwide who are unable to show identification. The “digital identity” use case was among the first to be discussed aside from cryptocurrencies.

Facebook represents a third example for the blockchain initiatives being put forward by the technology giants. The company has a blockchain team developing a virtual Facebook currency, led by former PayPal president David Marcus. The idea behind the currency is to enable members of the social network to pay content providers (e.g. Facebook video streaming). In a certain sense, this combines certain aspects of cryptocurrency with those of a loyalty system.

Summary

Now that the hype over cryptocurrencies has subsided, the task at hand now is to tap into new fields of application for blockchain technology. That is why many blockchain projects are currently being rolled out with the goal of making the technology’s potential applications tangible and better evaluating potential from a business perspective. That point is also illustrated by the recent figures put forward by Gartner. Their study finds that around 85% of all projects where blockchain was used in 2018 had also reached the intended value addition through alternative and already-established solution architectures. In other words: In many cases, blockchain technology is being used without being necessary.

But once the field trial phase is over, all parties involved will have to ask themselves before deploying blockchain whether the technology is being implemented as an end in itself, or whether it can truly make a contribution to process optimization and problem resolution. This will require a solid understanding of blockchain’s potential, but also an equally broad level of knowledge of potential alternatives.

Irrespective of the current developmental state, however, interesting models are already turning up that can offer true added value for companies. Blockchain especially offers enormous potential in industries reliant upon decentralized, verifiable data transmission beyond organizational boundaries (e.g. communication among autonomous vehicles in the automotive market; mediation of electricity buyers and producers on the energy market). It remains to be seen who the first will be to fully tap into that potential.

Read more

Technology & Innovation at Q_PERIOR

Interested in technology topics and looking for a new challenge? Then get to know the Q_PERIOR Services in the area of Technology and Innovation!
Read more

Read more

WE ARE THERE FOR YOU!

With Q_PERIOR, you have a strong partner at your side.
We look forward to your challenge!