As two millennials living out our comfortable and perfectly ordinary lives in a developed nation, it’s questionable how much life wisdom we will be able to offer up during the course of this blog.
During the course of the first 5 blog posts, we have spent a significant amount of time talking about the world altering potential of blockchain technology and the significant investment opportunity that exists in this space. Today we’re going to have a look at some counter-arguments to that narrative. These counter arguments can be broken down into three different categories:
- The rate of blockchain adoption will be significantly slower than what most blockchain enthusiasts think
- Blockchain will not have a significant impact on the world
- Investing in cryptocurrency and dApps have more cons than pros
Note. these are not arguments against Bitcoin or any other specific blockchain but rather arguments against blockchain technology and cryptocurrency in general.
Lets have a closer look at each of these three counter arguments:
Blockchain Adoption Rate
If you google ‘blockchain potential’, you’ll find article upon article touting blockchain technology’s disruptive properties and world-altering potential. There is no doubt that plenty of people are hugely excited about blockchain technology. It is important to remember however, that excitement is easier to muster than skepticism. Human beings have a bias towards excitement. As a result, we tend to overestimate the short-term impacts, and underestimate the long-term impacts of technological advances. This is perhaps best described by Gartner’s famous Hype Cycle.
Gartner’s hype cycle has its critics and the belief that every new technology passes through a predictable pattern is a bit too simplistic for our liking. Nevertheless, virtual reality, 3D printing, biometric authentication and artificial intelligence are all examples of recent technologies whose short-term impact was greatly over-estimated. In publicly listed companies, this is frequently reflected in a company’s stock price. Google any 3D printing stock and you’ll see something similar to this:
3D Systems Corporation (DDD) and Stratasys (SSYS), like almost all 3D printing companies, saw a massive spike in their share price through 2013 coinciding with news coverage about how transformational 3D printing would be for the manufacturing industry. This was followed by a relatively sharp drop caused by slow user adoption and lower than expected revenue streams. The news media (and investors) weren’t wrong to think that 3D printing will dramatically change manufacturing as we know it (it will), they simply overestimated how quickly it would happen.
Gartner certainly seems to think so. They actually added Blockchain to their 2016 hype cycle of emerging technologies.
In fact, they have been quite outspoken about this for the past year (Gartner 1, Gartner 2) Don’t get us wrong, Gartner are actually openly enthusiastic about the potential of blockchain technology. Unlike many of us however, they believe that current prices are over-inflated and that it will take many years before mass adoption occurs.
We don’t completely disagree with Gartner, however our assessment differs in two significant ways:
- We believe there will be a fundamental difference between the rate of corporate/government adoption and the rate of public adoption
- For both cases, we believe that blockchain technology is still far from the peak of inflated expectations
When it comes to large institutions such as banks or governments, it is probably reasonable not to be overly optimistic about their rate of adoption. Some immediate barriers which industry leaders have already pointed out include:
- Regional regulatory consistency: If a large firm wants to store information on a blockchain, how do they ensure they comply with regulations in every region where information is stored (i.e. everywhere the blockchain has a node) (BBVA)
- Lack of legal recognition immutability: Many corporate use cases require corporations to prove to regulators that information is correct. As of now, there is little to no legal recognition of the accuracy of information just because it is stored on a blockchain (BBVA)
- Immutability: Often hailed as a positive, immutability is actually a concern for many industries as control of information is limited. What happens if an employee makes a mistake? There are no takesies backsies in blockchain so the company would just have to live with it. Private/permissioned blockchains are a potential solution to this problem (Deloitte)
- Integration: Anyone who has worked for a large organization such as a government or a multi-national corporation knows how slow change can be. Blockchain is a technology that could fundamentally change how a company does business. Adapting to such a change carries inherent risk and many companies would rather sit on the sidelines and let the technology mature before making the transition (Deloitte)