Has Blockchain Peaked?

Each year, Gartner, the leading IT research group, publishes what it calls the ‘Hype Cycle’, which looks at emerging technologies and rates them on the state of their hype (or hysteria). The cycle is eagerly awaited each year as an antidote to the flimflam produced by consulting firms, technology evangelists, and other snake-oil salesmen.

The latest 2017 hype-cycle is shown in the graphic above and, as always, has a number of innovation phases plotted against expectations, with a rough estimate of years to adoption. Two phases, in particular, are watched avidly by technologists: the Peak of Inflated Expectations; and the Trough of Disillusionment. If an innovation eventually makes it through the Trough, then it just might emerge into Enlightenment and, if successful, to a Plateau of Productivity.

As every year, it should be noted that in the 2017 cycle, there are very many more innovations climbing up the Peak than will eventually make it to the productivity promised land.

In 2016, Blockchain jumped straight onto hype cycle near to top of the Peak of Inflated Expectations. And boy were those expectations inflated!

From absolutely nowhere, blockchain was suddenly being touted as the solution to world hunger , the housing crisis and overcrowded cities. Fine sounding phrases, like the ‘digital economy’, ‘smart contracts’, were being bandied around, as if they were real things, rather than mere buzzwords.

It was amazing and it seemed like there was no problem that could not be solved by a judicious application of Blockchain. Every day there were claims by blockchainistas that some previously intransigent problem had been solved but, in truth, many of these solutions were so-called proofs of concept (or tests) and afterwards tended to struggle in the technical treacle that they had landed themselves in, never reappearing as finished products. But undaunted, the promisers just kept on promising.

But just how did a forty-year old technology suddenly become flavour d’jour and the solution to all our financial and social problems. Children in primary school today will still be writing Ph.D. theses on this very topic in twenty years, but it has something to do with 2016 being the ‘year of living delusionally’. In 2016, suddenly everybody believed anything was possible, like a reality TV star becoming the most powerful man in the world or the UK leaving the European Union.  Maybe Blockchain solving world hunger was not so silly after all?

Mostly the madness was due to an outbreak of techno-philia -we all had a smartphone and suddenly anything seemed possible with a hand-held gizmo. People who had no idea of the underlying technology believed the buzz. It was ignorance of the technology coupled with gullibility, a heady mix.

The word ‘trust’ was bandied around often when discussing Blockchain, and being a ‘good’ word, everyone wanted a piece of it. In most cases people did not realize that the ‘trust’ in Blockchain was supplied by decades old public/private key encryption technology that has been used for years in banking applications.

Blockchain did, however, add a new flavour of trust, called ‘consensus’, which, at its simplest, requires a majority of participants to agree every decision before it can be implemented – an outbreak of democracy. Coupled then with a lack of a central authority, it is no surprise that Blockchain appealed to the general anti-establishment feeling of 2016. 

Perhaps one of the best (and technically accurate) descriptions of blockchain ‘trust’ is the Orwellian

In Blockchain, everyone trusts everyone because no-one trusts anyone.

 But if Blockchain is solving so many world problems, why has Gartner placed it upon the slippery slope into the Trough of Disillusionment, so quickly?

Basically because, try as they may, people cannot not quite make blockchain work effectively, outside of its original application (‘use-case’) in the crypto-currency, Bitcoin.

First, for practical business applications, the concept of no central authority had to go and the concept of ‘permissioned’ blockchains was invented. Then people realised that ‘smart contracts’ were not only not smart but had been used in business for many years. It then dawned on some of the technology’s loudest spruikers, that the transparency that was such a selling point in blockchain was not such a strong selling point in real business.  It turns out that most firms do not like the thought of others knowing what they are spending their money on - who would have thought?

Getting rid of the need for a central authority through ‘consensus’ is Blockchain’s only unique selling point (USP), but consensus, like democracy, doesn’t always engender a sensible decision (see ‘year of living delusionally’ above). 

So, it proved recently for Bitcoin the poster boy for Blockchain. Adding data to Bitcoin’s blockchain is slow (very, very slow), partly caused by the ’proof of work’ consensus mechanism, but also because the maximum size of each ‘block’ on the ‘chain’ is fixed, currently at 1 megabyte and while that may sound like a lot, it is not, for a ‘digital economy’. So, the answer is easy, just make it 2,4 or even 8 megabytes.

Hold on, it doesn’t work like that!

Remember there must be consensus, and a majority must agree to every change, and then what does one do with the minority that disagrees. This has happened recently in Bitcoin when there was a move towards increasing the maximum block size.  Not a major ask in the scheme of thing, one would have thought? What happened? Well,  Bitcoin split (or ‘forked’ in block-speak), some going with the current size (original Bitcoin) and some the new size (Bitcoin Cash). 

So, imagine what would happen in future when someone comes up with a need to find a way around yet another Blockchain restriction - it splits and splits again until no one will be able to put Humpty together again to solve real-world business problems.

In summary, while a lovely concept, consensus makes Blockchain unusable in the real world (which by the way is why it has not been used to solve real business problems, in the past). 

The theory of Blockchain hit the road and the road won.

Furthermore, it has become obvious that when Blockchain has to be chopped around to make it work in practice, there are usually existing ways to do what is needed, faster, better and cheaper.

Whatever the reason, this year, Gartner has placed Blockchain on the downward slope to Disillusionment and it will not be a happy ride.  With a bandwagon that is careening down a very slippery slope, many of the occupants will bail out and, wiping egg of their faces, they will go back to the start of the climb to find the next technology of their dreams.

Left on the bandwagon will be those too timid to jump off and the true believers, whose blinkers only allow them to see movement, not direction. Some of the passengers holding on for dear life will only do so because their faces are completely covered in omelette and they cannot/dare not scrape the oeuf off.

One such white-knuckled passenger is the Australian Stock Exchange (ASX) which, with wildly inflated expectations, jumped on the Blockchain bandwagon in early 2016, only to be told recently by their customers that they would pass, thank you very much. The ASX are still on the bandwagon because they have said that they were going to make a decision on Blockchain at the end of 2017.  But having spent some A$ 22 million for seat on the board of the Blockchain provider, Digital Asset, the ASX has little to show for their money, except what looks like a very professional Facebook page.

I guess ASX management are willing the bandwagon down the slope in the vague hope that it will gather up enough speed in the next few months, to hit the bottom of the trough and then bounce onto the plateau of productivity in one go. It might. But it might also pancake.

And Gartner is not the only one who is having doubts. It appears that the venture capital community is beginning to have second thoughts about investing in all things Blockchain and Bitcoin, which will not be helped by the Chinese government cracking down on Initial Coin Offerings (ICOs) for new crypto-currencies.

It might be too early to say that Blockchain will not rebound from the Trough of Disillusionment, but in truth, Blockchain is looking more and more like a previous hype, the Segway, a fun idea but a gadget that is not of much practical use, other than as an historical anomaly and lesson for the naive.