Blockchain hype is dead. And may it rest in peace. For the past few years, cryptocurrencies and blockchain technology—which many enthusiasts refer to affectionately and imprecisely as “the crypto space”—have been touted as imminent economic disruptors of the 21st century. Yet enthusiasm about the technology has often blurred the line between what is happening with crypto, what is hoped for, and what is hype.
That hype suffered a mortal blow earlier this month when the world’s biggest blockchain venture firm ConsenSys laid off 13 percent of its 1,200 employees. (Disclosure: I recently taught a university introductory courseon blockchain technology where ConsenSys experts visited as guest lecturers and provided advice on course curriculum). ConsenSys was reportedly spending $100 million a year on over 50 blockchain projectsinvolving decentralized applications that have mostly resulted in minimal adoption and little evidence of profitability.
Many other crypto startups that raised millions in 2017 through Initial Coin Offerings have similarly cut their fat, prompted by the precipitous drop in cryptocurrency token prices. Even a cryptocurrency-based adult entertainment site saw its value drop from $190 million to $6 million in under 12 months and had to trim its small team of 20 down to eight. It is certainly telling when even porn on the blockchain has to downsize.
The writing has been on the wall for some time. For months, I have been giving presentations on cryptocurrencies and blockchain technology to various law enforcement and other government officials, bankers, entrepreneurs, and university students. I would often start my talk with an icebreaker that was revelatory. I would ask participants to raise their hand if they owned cryptocurrencies. Usually, multiple hands would spring up. Then, I asked if anyone used cryptocurrencies for everyday purchases, not including the act of buying or selling tokens. In almost every case, no one raised their hand.
The most ardent blockchain enthusiasts concede that the technology still lacks a “killer app” that would spread mainstream use beyond token price speculation. Right now the cryptocurrency and blockchain space is at a proof of concept stage, but it garners constant media attention, plenty of meetups and conferences, a robust Twitter community, and billions of dollars in investments in startups hoping their token-based projects gain traction. But what is missing in this space are profitable businesses with growing customers, aside from cryptocurrency exchange websites, which are mainly vehicles for speculation.
Crypto advocates will make the case that it’s “still early.” They acknowledge that current technical scalability limits and the cumbersome management of cryptocurrency private keys hinder crypto mass adoption. Some hope this will all be sorted out because thousands of developers are working on solutions to solve these problems. The future, it could be said, will be here once the software developers build it.
But that is not how a technological innovation becomes mainstream.The 1990s internet wave emerged after incubating in a government and university lab environment for decades. The internet only went mainstream after entrepreneurs—who were not all computer scientists—figured out how to apply the technology’s plumbing to consumer needs.
The crypto space of today is not analogous to the 1994 internet, as many crypto enthusiasts have argued. In 1994, America Online (AOL) had already gone public and had one million paying customers. AOL certainly was not yet mainstream, but the internet’s nascent infrastructure was developed enough to deliver an information service that self-proclaimed “technonerds and netheads” would pay for. These enthusiasts used the new technology regularly, unlike cryptocurrency holders’ current use of blockchain infrastructure. By 1996, AOL had six million subscribers; significant enough so that a day-long service disruption that year was a headline story in most major newspapers. Cryptocurrency use and blockchain technology are nowhere near such market penetration or social impact.
The crypto space, in terms of economic productivity, remains a void. This is an objective assessment and is not motivated by any desire to deride blockchain advocates. In fact, I taught that university introductory blockchain course because of my interest in the technology. For the final project of the class, I asked students to come up with problems on campus that could theoretically be solved by a decentralized application. The aim was not to just learn about how the technology works, but to see how it might impact everyday lives if applied to real-world situations.
A case can be made that cryptocurrencies and their peer-to-peer digital transferability enable new economic incentive models that will probably develop profitable and impactful businesses, eventually. And some of the non-financial use-cases of blockchain being piloted around the world are interesting and deserve greater research and evaluation. Crypto and blockchain are often used interchangeably, but in reality it is unclear which manifestation of the technology will become most relevant.
But the blockchain company layoffs have solidified what was previously a hunch: That too much of what is being trumpeted in blockchain circles are promises for future value detached from any analysis of product/market fit. This is common among many tech startups in general, and the crypto space reflects an über-startup culture, driven by low barriers to entry where almost any programmer can mine Bitcoin and Ethereum or even create a new token. This ease of generating digital assets is what enabled fundraising via Initial Coin Offerings before the practice slowed this year as regulators cracked down.
Crypto/blockchain adoption will not be driven by technical factors alone, and it is not likely to be led by software developers. Blockchain enthusiasts should look a bit more closely at what really happened with the 1990s internet. In fact, they should consider the experience of AOL founder Steve Case, who got a political science degree in 1980 and spent the rest of the decade working in marketing for Fortune 500 brands like Proctor & Gamble and Pizza Hut.
It was Case’s attention to business fundamentals, paired with his enthusiasm for computers, that led to a successful, revolutionary technology venture. But it was after the technology had been brewing for decades. Online services eventually achieved mainstream status and with AOL at the peak of market success in 1999, he remarked about the internet: “We’ll use the technology as a means to an end, but we’ve gotten here because we figure out what the customers want, not what the technologists think.”
That is the sort of approach blockchain enthusiasts will need to take if they want to fill the huge void within today’s crypto space.
Yaya J. Fanusie, a former CIA analyst, is an adjunct fellow at the Foundation for Defense of Democracies, a nonpartisan national security think tank in Washington DC.