The appetite for blockchain investment

It looks like there was a major Bitcoin and Ethereum bull run at the start of April reaching 2017 peak levels, but will it last? Cryptocurrency pricing is certainly volatile, but what we do know for sure is that blockchain investing doesn’t seem to be going away any time soon.

Andreessen Horowitz is trading its VC title for RIA so that it can invest more into the crypto space without restrictions. In fact it plans to invest as much as $1 billion into the industry – if that’s not a telling enough sign that the company is in it for the long haul.

And the VC giant is not alone in its thinking. More and more large organisations are looking into digital innovations. In fact, according to a survey by identity management firm Okta, 61% of them are investing into blockchain, among other technologies like AI, Augmented Reality, and the Internet of Things.

A new report  known as the “United States Blockchain Business Opportunities and Outlook Databook Series (2016-2025)” by ResearchAndMarkets.com, the world’s largest market research and data store, estimates blockchain spending in the US to grow thirteen times over by 2025.

According to the report, the United States blockchain industry is expected to increase from $3.12 billion to $41 billion by 2025. With an expected growth rate of over $37 billion into blockchain, it comes as no surprise that 22 out of the 50 largest companies in the world investing into the technology are from the US. A leader in this race is JP Morgan as it looks to apply its own stablecoin – the JPM coin – to solve internal remittances between clients and partners.

Failure to launch

While companies are clamouring to invest into the space, why does there seem to be such a lag in mass adoption? It has become increasingly clear that companies like IBM have been working arduously on implementing the open source hyperledger technology for the sole purpose of replacing inefficient processes in industries like supply chain. Walmart has tested and approved it for produce distribution and many other companies are making it work for other industries.

Similarly, following the Intercontinental Exchange’s (ICE) announcement of Bakkt, as well as Fidelity and other players’ announcements of their institutional offerings, investors are now safely able to trade and store digital assets without any issues.

But there are obstacles in the way of mass adoption. For one thing, using blockchain technology isn’t exactly seamless for consumers. The best example of this is in payment processing. If for example, consumers want to pay for a service online using blockchain, the process involves creating a wallet with a corresponding wallet ID – an encrypted combination of letters and numbers, which grants access to the wallet, plus any Two-Factor Authentication that the user must also enable. This adds extra complication around an already easy process where a user’s credit card details are saved and if there are any payment issues, customers can voice their concerns with customer service. In this case, decentralisation isn’t the best way to go.

Scalability

Another highly publicised problem applying to virtually any industry interacting with the technology is scalability. There have been numerous network lags/crashes as a result of high transaction volumes – take the CryptoKitties incident when it clogged the Ethereum blockchain. As a result, blockchain companies are challenged to successfully scale while also being fast and secure – one of which will inevitably be sacrificed.

With great disruption comes great fees

As a by-product of higher volume, more nodes are needed which adds more costs. This translates to higher transaction fees during peak usage times. Going back to payment processing, the potential to scale in blockchain pales in comparison to much larger payment processors like Visa.

Of course, there’s also the problem of completely revamping a company’s infrastructure, which is timely and costly. It would disrupt operations, indefinitely, and many companies aren’t willing to take that risk while also losing money in the process. That is yet another reason why we aren’t seeing more industries throwing their hats into this race.

The hacking problem

Finally, the problem of hacking has yet to be solved. According to a recently released analysis from Carbon Black, $1.1 billion worth of cryptocurrency was stolen by hackers through the first five-plus months of 2018. What makes matters worse is that 44% of the stolen cryptocurrency was Monero, a privacy coin – cloaking both the sender and receiver of the funds.

Price volatility

Brian Armstrong, the CEO of Coinbase, touched on the issue of crypto mass adoption during a recent AMA. In addition to the reasons above, he mentioned another important problem with blockchain/crypto adoption – price fluctuations. Bitcoin generally fluctuates drastically against the dollar, making it a risky investment for anyone. In response to this, he suggests that stablecoins be used as a means of exchange. While this could potentially help people feel more protected and would reduce volatility, there is no guarantee it would fuel greater adoption.

Although there is evidence to support that blockchain will impact business as we know it, it needs to work out its kinks. Unless society as a whole makes a substantial effort to get on board with updating its financial and operational systems, blockchain will struggle to prevail in its current siloed environment.

Stewie Zhu, Founder and CEO of Distributed Credit Chain