Time Machine

Blockchain: Is it 1994 … or 1974?

in Economy by

In an earlier article, we argued that TCP/IP – the underlying protocol which manages the vast majority of internet communications – was perhaps the best analogy that could be offered up for the Blockchain.

TCP/IP, as a reminder, emerged in or around 1974, before it was then adopted as the basis for the first generation of very clumsy email technologies in the 1980’s – arguably the first successful application deriving from it.

And if you were among that very small number of users in the late eighties who had already been using email for the best part of a decade, you likely would have had a hard time convincing yourself that it would become one day the world’s leading form of communication.

Just recently, however, I discovered a Forbes article which was first published in November of 2017 – and which qualifies as possibly one of the best analyses you’ll find on the subject of Blockchain technology adoption.

ICO Numbers

In that article, author Ari Paul comes to the conclusion that, in his view, we are instead at the 1994-equivalent stage of DLT’s life-cycle. His justification for making that statement is an interesting one: “The first commercial web browser went live in 1993 and provided access to the 130 websites that existed at the time.  By 1994, the count ballooned to 2,738 websites,” he states.

There was, in other words, an inkling in 1993 that web technology had potential. Over the course of 1994, there was an indication that others – who were perhaps ahead of their time – agreed with that idea. Hence the vigorous growth in the number of websites that went online, even if very few people were paying attention to them.

And so the argument goes that over 2016/2017 we saw something similar with the explosion in the number of ICOs coming to market – working from the assumption that ICO numbers can be used as a proxy for tracking the adoption and implementation of blockchain tech. As a reminder, an ICO is simply a blockchain start-up – or at least in theory (in practice, as you might know, that’s not always the case).

There were nothing more than a few dozen ICOs in 2016. In 2017, there were, by some estimates, around four thousand, making the 1994 comparison an almost eery one. And over the same period, the total market capitalisation of cryptocurrencies went from around $20 billion – with Bitcoin dominance sitting at over 85% – to breaking the $100 billion mark for the first time, with BTC dominance falling to around 50%.

At this stage, perhaps something just shy of 50 million people held crypto-currency of some kind – even if the vast majority of those currencies had as yet no real-world use case: e.g: Stellar, Ripple, Golem and so on.

But does it matter which analogy of the two analogies applies better? It probably does if you’re an investor – a 1974 scenario implies that we are sitting at around 1984 currently, and it will be another fifteen years before you see a world in which blockchain technology re-defines commerce and human social relations in the same way the internet did.

On the other hand, if it is 1994, you may want to start making some strategic investments (with money you can afford to lose) to finance an ostentatious retirement.

Paul points out, however, that if it is the investment aspect of cryptocurrencies that has attracted you to blockchain technology, then you may want to be careful – there were plenty of first-movers, he points out, in 1994 who were full of wonderful ideas. They tried – but failed – to bring web-based products and services to market. Yet, ten years later, when others set out to do the same thing, they enjoyed considerably more success – for the simple reason that the ecosystem itself was much bigger by then.

In other words, if you see an ICO promising to disrupt such and such an industry thanks to blockchain technology, then you may want to ask if they aren’t perhaps a little bit too ahead of their time. They may be ten years or thirty years too far in advance, according to the two scenarios outlined above. My own feeling is that we may be sitting at around late 1996, arguably the eve of the internet explosion. Although this is not investment advice, naturally.