In recent years much has been said about the transformative power of blockchain – the distributed, encrypted ledger technology that powers Bitcoin.
Although Bitcoin and other cryptocurrencies are its most publicized use cases, it was often said that blockchain would revolutionize many other business processes across industries, from banking to diamond mining and food safety.
However, a recent study into 43 initiatives reported that despite a great number of promises and convincing arguments, none of the projects have been able to show that they have been able to use blockchain technology to achieve their objectives.
With Bitcoin and other cryptocurrencies steadily losing value during 2018 – as much as 80% compared to their peaks last year – is it time to admit that the great experiment with decentralized, distributed ledgers has failed?
Whenever any new technology emerges which has the potential to shake things up, the loudest noise will be made by those selling it.
On top of this, blockchain has been tainted in the minds of many, thanks to the large amount of hot air, and outright scams, that have been generated by the cryptocurrency industry.
Aside from a large number of exchanges vanishing with customer funds, and later being exposed as illegal operations, the trend of ICOs – initial coin offerings – has resulted in many failed projects and lost money.
ICOs are touted as a new way of raising capital for a business by offering digital cryptocurrency tokens which in theory will increase in value as the business grows. However, the lack of transparency around the practice, and the tendency for initiatives to disappear into thin air along with investors’ money has led to regulators issuing warnings about getting involved.
While these issues bear little relationship with industrial blockchain concepts, which often use private blockchains, the large amount of negative press has undoubtedly led to organizations becoming more careful.
This is even impacting the language companies use – where the term distributed ledger technology, abbreviated to DLT, is becoming more common so that businesses can avoid the negative associations of the word blockchain, according to Forrester.
Beyond that, Blockchain has other fundamental barriers to adoption. One of these is the fact that it isn’t always easy to explain to someone what’s so revolutionary about blockchain. Sure, it allows us to keep secure records of transactions – but so do other conventional databases if properly secured with cryptography.
Perhaps most damningly are the environmental costs of generating the computing power needed to fuel many blockchain applications such as Bitcoin.
Solving the cryptographical challenges that keep information stored on a public blockchain secure requires vast computing resources. Earlier this year it was reported that the Bitcoin network is on course to burn through 42 terawatts of energy in a year – which is more than the entire energy used by countries like New Zealand or Hungary. Producing this amount of energy creates 20 megatons of CO2 emissions – the same as about one million transatlantic flights.
Indeed, private blockchains implemented within enterprises wouldn’t use energy at anything like that scale – but proportionally, they are still often highly CPU intensive. And with CPU power at a premium thanks to the rollout of Artificial Intelligence (AI) and predictive modeling technology, which have been proven to generate growth, it’s often hard to make a case that blockchain represents a worthwhile business investment.
Analysts at Forrester predict that 2019 could be the beginning of a “blockchain winter” – when frustrations and lack of results, together with a lack of understanding of the technology, mean excitement wanes and enterprise projects are mothballed.
It may not all be doom-and-gloom, however. Some have pointed out that it’s possible that blockchain is a technology which arrived ahead of its time. This is something we have seen before with AI and machine learning algorithms, which were developed in the 1950s, and only today have access to the data and computing power to deliver transformative results. AI has gone through various hype cycles and ‘AI winters’ before it finally became mainstream.
Bitcoins, Ethereum and initiatives such as Kodak’s venture into the world of blockchain may burn out and fade away. But the fundamental concept of a shared ledger technology secured by encryption may become more appealing if new technologies (for example quantum computing) can make it a more viable, and less environmentally damaging, proposition.
Whatever the eventual outcome, it’s clear that blockchain, in general, is taking a less significant position in many commentators’ predictions for where tech will take us in 2019, than it did in 2018. Time will tell whether this means the beginning of the end of blockchain, or merely the end of the hype that fuelled blockchain’s beginning.