It’s the end of the beginning.
Cryptocurrencies were the proving ground for blockchain technology – the decline in value and popularity is attributable to the asset class and not the technology itself – important lessons were learned, and the next iteration of blockchain products will have significantly more longevity and success.
We believe that success will be driven by a convergence of the best qualities in public and private protocols – finding the sweet spot between the openness and accessibility of public blockchains with the trust and reliability of private networks.
Public blockchains have severe limitations that are becoming well understood – in the place of trusted functionaries, they require huge inputs of computational power, electricity, and (most importantly) rising native asset values. The result is a hugely inefficient and volatile ecosystem, not a reliable environment for building businesses or engaging with the service providers that support our financial activities. The cost of a truly trust-free protocol is high and getting higher.
Private blockchains have struggled to progress for different reasons… while they don’t suffer from the same structural inefficiencies of the public protocols, they are beholden to the inertia and prudence of businesses and institutions that us innovation as a defense mechanism… break glass in the case of emergency. While the presence of trusted parties eliminates the inefficiencies that have hamstrung the public blockchain space, it prevents the rapid growth and ubiquitous adoption that makes blockchain so interesting to begin with. Private blockchains don’t look or feel like the great equalizer we were promised.
So what’s the answer?
Hybrids. Take the best parts of the public blockchain – ease of access and execution, innovative products, direct to consumer issuance… and merge it with the best elements of private networks. Leave the inefficiencies of mining for dead. Build diverse networks of validators where control exists but is diluted. Incentivize these validators in the same way that trusted parties are compensated traditionally – with real and tangible compensation, not protocol specific assets.
Blockchain as a technology is a spectrum. If trust (or the lack thereof) is our defining input, dialing it up or down can generate any number of different iterations and any number of valuable solutions to real problems. We started with the most pure – and by definition, most ambitious version. The fact that bitcoin has failed to supplant fiat currencies as a ubiquitous instrument of transacting says very little about blockchain as a technology, and very much about how hard that dial was turned…
While the market is disappointed, and rightly asking the question “where is the transformation?”, the reality remains that blockchain is a huge step forward in how we can manage the relationships between parties with varying degrees of trust. While the most pure applications might be further in the future than we hoped, the solutions that strike the right balance – the right setting on the dial – will deliver transformative outcomes.