The sharp fall in the value of cryptocurrencies this year is misleading. The underlying blockchain technologies remain truly transformational across a host of business applications – and are at a tipping point for adoption.
It’s winter in the crypto sector. Cryptocurrency prices are sharply down from previous awe-inspiring peaks. But champions of blockchain – the technology underlying cryptocurrencies – remain largely optimistic. Why? Because cryptocurrencies are just one possible application of blockchain technology, which, they argue, has a vast range of use cases and immense disruptive potential.
Regardless of the current price of Bitcoin, digital decision-makers can benefit from understanding how blockchain works and why it matters. Retail investors are enduring a deeply painful year, but there are four major reasons why blockchain technology is likely to continue to flourish and remain a source of value for digital leaders.
1. Blockchain technology is driving major innovation
As with the emergence and widespread adoption of the internet during the post-millennium dotcom boom, blockchain technology is giving rise to a new era of innovation. Cryptocurrency may be the best-known (and most hyped) blockchain-based innovation, but the technology can help companies create and deliver value through various other channels. As an indication of the possibilities, while retail investors also suffered during the dotcom crash, the underlying technologies being adopted during that era have gone from strength to strength.
Blockchain technology is driving major innovation in the finance sector, for example, with decentralized finance (DeFi) applications and projects proliferating. A cryptocurrency is simply a decentralized payment system powered by blockchain technology, which also supports applications including digital wallets, decentralized borrowing and lending, decentralized exchanges, alongside more traditional finance operations.
Blockchain is also driving innovation in many other sectors, ranging from healthcare to shipping and insurance to music. Blockchain technology supports large networks that are both decentralized and secure, with the ability to exchange currency or data efficiently. The versatility of blockchain technology means that every business leader can find a use case that allows them to envisage how blockchain could be used to innovate meaningfully in their organization.
Governments, too, are using blockchain technology to innovate. Since 2018, the United Nations has described blockchain technology as integral to “a unique moment in history:”
“Our society … is in transition from an industrial economy to one defined by a new set of technologies, ranging from digitalization to nanotechnology. Among the latest waves of digitalization is blockchain – a technology that many say promises to redefine trust, transparency and inclusion across the world.”
Innovation and experimentation with blockchain are being pursued by governments across the world, including in Switzerland, India, the US, Sweden, Estonia, Georgia, and El Salvador, to name just a few.
2. Blockchain will disrupt legacy institutions
Many legacy enterprises play the role of intermediary, because, without blockchain technology, a trusted third party is required to complete most transactions. Blockchain has serious potential to disrupt legacy institutions by eliminating the need for intermediaries, enabling individuals to interact directly and securely.
There is a growing list of sectors that are likely to be disrupted as a result of this, including:
- Banking: Blockchain technology can eliminate the need for banks to hold deposits, process payments, lend and collect money, and perform many other traditional banking functions.
- Data storage: Blockchain can disrupt the data-storage industry by enabling decentralized storage on individuals’ computers. Rather than paying for the services of a company like Dropbox, services such as Filecoin enable users (for a much lower fee) to ‘rent’ unused storage space on others’ devices.
- Music: Just as Spotify disrupted the traditional music industry, new players such as Audius are likely, in turn, to disrupt Spotify by removing the need for an intermediary supplier between artists and their fans.
- Social media: By supporting decentralized social-media platforms, blockchain can enable individual users to interact directly. Platforms such as LinkedIn or Facebook, which raise many privacy concerns, can be replaced by direct peer-to-peer digital interaction.
- Hospitality: Online intermediary platforms such as Airbnb face a similar threat from blockchain, which could support a decentralized platform, on which individual users could offer or search for Airbnb-style accommodation, intermediary-free.
Government services can also be disrupted by blockchain. The technology has the potential to overhaul electoral systems, legal enforcement mechanisms, property registries, public contracting, and public recordkeeping, among many other functions. As various governments and government agencies begin transitioning to blockchain, limited interoperability between legacy and blockchain systems will be an issue. Technologies such as Chainlink, which efficiently connects on-chain and off-chain data, will become increasingly important.
3. Blockchain continues to mature
As with the early internet, blockchain technology remains clunky and a work in progress. However, widespread adoption is driving a steep maturity curve, including through the proliferation of new operating protocols and applications, making the technology safer and more intuitive to use.
Another crucial aspect of maturation of the blockchain sector is regulation. While regulatory tightening and refinement is a natural process within sectoral maturation, it is to be welcomed as a further safeguard for investors. Switzerland stands out as a country that is using regulation to drive innovation and growth in the blockchain sector. In August 2021 Switzerland enacted legal regulations for blockchain technology, creating not only legal certainty but also attracting many blockchain companies to operate within its borders. More than 1,000 enterprises, many of them in financial services, are already taking advantage of Switzerland’s innovation-friendly legal framework for the blockchain sector.
4. The metaverse will be powered by blockchain
The alternate realities of the metaverse are now taking shape, and many of these will grow out of blockchain technology. The metaverse is creating wholly new communities and virtual economies, with tantalizing opportunities for digital leaders. For those brands that feel comfortable with blockchain technology, establishing a metaverse presence can be a low-risk way to open new sales and engagement channels.