Here's Why the Blockchain Craze Will Disappoint Investors

Blockchain may be a game-changer, but investors' expectations of when that'll happen are unrealistic.

Sean Williams
Sean Williams
Apr 4, 2018 at 8:21AM
Technology and Telecom

Last year absolutely belonged to cryptocurrencies. Having begun the year with an aggregate value of less than $18 billion, virtual currencies exploded higher to gain almost $600 billion in market cap during 2017. Much of the reason cryptocurrencies did so well can be attributed to the emergence of blockchain technology.

What blockchain technology brings to the table

In its simplest form, blockchain is the digital, distributed, and decentralized ledger that's responsible for logging all transactions without the need for a financial intermediary, like a bank. In even plainer English, it's a brand-new way of transmitting money and recording data in a transparent and immutable (i.e., unchanging) manner.

A person holding a golden glowing lock, surrounded by latticework representing blockchain technology.

Image source: Getty Images.

Why would developers want to change things up? With regard to currency remittances, the current banking system allows banks to act as third parties and collect fees during transactions. Meanwhile, payments themselves can take up to five business days to settle, especially in cross-border situations. Blockchain aims to resolve this by making a transaction about only the sender and receiver, thus pushing banks -- and their fees -- out of the equation. It also reduces the validation and settlement process to a matter of seconds, even in cross-border scenarios.

Blockchain technology has its uses outside the traditional confines of currency, too. For instance, using paper can slow down the approval or tracking process for goods and services within a supply chain. However, blockchain allows a business or consumer access to the real-time tracking of a product, as well as the ability to potentially view how a product fared during quality control testing. Imagine how this could build trust between consumers and industries that have a damaged relationship (like, ahem, the auto industry).

Growth in blockchain has been absolutely phenomenal, with no less than 10 Dow Jones Industrial Average components testing the technology in some varied capacity. On a broader scale, there are at least 200 members of the Enterprise Ethereum Alliance, the largest open-source blockchain initiative, and seemingly every day a new partnership is being announced, whether it's with Ethereum, Ripple, Stellar, or one of the more than 1,600 other virtual currencies people can invest in.  

By all accounts, blockchain technology looks like the greatest thing since sliced bread -- which is exactly why it's primed to disappoint investors.

A frustrated women holding her hand to her head while reading an article on her laptop.

Image source: Getty Images.

Sorry, folks, but blockchain is probably going to disappoint investors

You see, despite blockchain offering game-changing ways to reduce transaction fees, beef up security, and expedite payments, it brings a number of uncertainties and drawbacks to the table as well.

When we look back at every purported game-changing technology over the past couple of decades, we often see a repeating pattern: Investors pump up sales projections about said technology, and expect it to become an immediate force in whatever industry or industries it pertains to. The issue is that even game-changing technologies take time to form a foundation. Whether we're talking about 3D printing, decoding the human genome, or internet business-to-business commerce, none were an immediate hit. They took years to pay real dividends for investors, and that same patience is likely going to be needed if investors hope to make money off the blockchain revolution.

With blockchain, the big hurdle is the proof-of-concept conundrum. Sure, plenty of big-name companies are testing blockchain in small-scale projects and demos, and are finding success. But there's a big difference between testing blockchain in a controlled setting, and unleashing it in the real world. None of these bigger companies have yet to take the reins off blockchain. The reason is that it's an unproven technology in the real world. Without having proved its ability to scale -- and frankly with way too many proprietary blockchain options -- no businesses have been willing to abandon their current (working) infrastructure. And that's the thing: No companies will abandon their existing infrastructure until blockchain proves its functionality and scalability in the real world.

A businessman looking at an encrypted blockchain on a digital screen.

Image source: Getty Images.

Additionally, the implementation of blockchain technology is unlikely to be as seamless as most would figure. Not all industries will necessarily benefit from blockchain, at least in the early going, while other industries may have to completely tear down their existing infrastructure in order to integrate blockchain technology. That's a time-consuming and costly venture that some businesses or industries may be unwilling to undertake.

As alluded to earlier, there are also way too many blockchain options, even in the nascent stages of its development. The barrier to entry in developing blockchain is relatively low, meaning anyone with time, money, and the ability to write computer code can develop their own proprietary blockchain. Remember, blockchain development isn't just limited to cryptocurrencies -- a number of brand-name companies are developing their very own blockchain technology, some of which works independently of virtual currencies. Knowing full well that a better network could come along at any moment could make enterprises think twice about committing to any particular blockchain on a broader scale.

Understand that I'm not suggesting blockchain is a failed concept. It may very well do everything that optimists expect, and then some. But expecting blockchain to be a game-changer right out of the gate isn't reasonable. History shows it takes time for these new technologies to mature, and the proof-of-concept conundrum reaffirms that businesses aren't ready, as of yet, to take that step of applying blockchain technology to real-world conditions.

In other words, caveat emptor.