August 15, 2020

Market News

What remains of the blockchain hype – an analysis

Looking back, it can be said that 2017 was probably the most important year for blockchain technology . After all, numerous projects were on the up and the prices of most coins and tokens were listed above and beyond good and evil. But what's left of the blockchain hype? In which areas has the blockchain established itself and where are there still problems? Can you assume that the blockchain is a technology that remains? We have analyzed the development and give an outlook on the further development.

Blockchain is entering the real economy

Buying food can be a real challenge. Numerous food scandals, poor production conditions and poor working conditions make consumers doubt. This is where the blockchain comes in, because with the help of intelligent solutions, consumers can track the supply chain of their food. This is made possible by a QR code, which then initiates a call on the blockchain.

This example alone shows that blockchain does not necessarily mean the development of completely new applications and business models. This key technology can also revolutionize traditional areas. After all, this first application example shows that blockchain technology is more than just hype. However – and this doesn't play a major role for a large part of the industry – numerous people use the blockchain to invest in coins and tokens.

According to experts, we have not yet fully exploited the potential of the blockchain. After all, the technology should ensure that intermediaries no longer play a role. Processes should become more efficient – only the breakthrough has not yet occurred.

Prof. Dr. Michael Henke from TU Dortmund thinks that after a hype, the disappointment will come first. Nevertheless, the technology has great potential – especially in combination with other key technologies. A main reason for the failure of numerous blockchain projects is simply too high expectations. For example, the central use of decentralized technology is not an advantage. Rather, the participants benefit from transparency and trust.

Reality follows the hype

Christian Schultze-Wolters, head of IBM Blockchain Solutions, is also happy that the hype about blockchain technology is over. Exaggerated optimism would have dominated the market in recent years. In the meantime, however, the expectations of other market participants have become more realistic. The blockchain hype from 2017 remains unforgotten. Numerous cryptocurrencies peaked at the end of 2017 – including Bitcoin at a price level of just under $ 20,000.

Bitcoin in the corona crash?
After the blockchain hype – cryptocurrencies consolidated

At that time, numerous investors assumed that Bitcoin and Co. would replace the classic currencies. But also newly issued tokens and coins, which were brought to the market as part of an initial coin offering, quickly achieved high price gains.

However, the hype already came to an end at the beginning of 2018. The demand for ICOs fell rapidly and even today the old level has not been reached. The data from CB Insights shows that there were still around 800 investments in blockchain startups in 2018 with a total volume of $ 4.1 billion. A year later, 450 companies received $ 1.6 billion in capital. It is also striking that capital flows to companies in the form of risk capital in two thirds of the cases. As a result, the companies are still in an early market phase.

Great market potential even after the blockchain hype

However, the cooled interest does not mean that blockchain technology has no further market potential after the hype. Rather, data from analysts at Jupiter Research, for example, show that sales generated with blockchain applications in retail are expected to increase to $ 4.5 billion by 2023.

Such a scenario is perfectly understandable, because corporations like Walmart or Carrefour are already relying on the blockchain in the supply chain. The Chinese e-commerce giant Alibaba is currently experimenting with blockchain – in addition to IBM, Alibaba is also filing most of the blockchain patents.

Fidelity also shows in a representative study that around 80% of institutional investors are interested in crypto investments. 36 percent of those surveyed already have their own crypto positions in their portfolios.

Fidelity Survey
Fidelity study shows institutional interest in cryptocurrencies

Finally, there are also numerous large-scale projects that show an interest in the technology. For example, Libra, a joint project by Facebook, Uber, Spotify and numerous other companies, aroused government interest. The global project could officially start this year.

Blockchain in the supply chain promises optimization potential

The use of blockchain in the area of the supply chain is particularly exciting. According to Michael Henke, material, information and financial flows can be combined using the blockchain. This helps make the blockchain a perfect solution for the supply chain. From a global perspective in particular, supply chains are very complex, because in addition to the freight forwarder and the customer, numerous other contracting parties are involved in the process. The transparency created here ensures that the blockchain can also map particularly complex processes.

A good example of optimization is provided by the Fraunhofer IML with a blockchain-based pilot logistics system . The IML has integrated a chip in Euro pallets, which play an important role in freight transport within Europe. This sends information on moisture, location and temperature twice a day. This data is particularly relevant from the perspective of the food industry. The data received in this way then land on a blockchain that uses smart contracts . The smart contracts can be used to monitor compliance with the contracts.

But Maersk also developed the “ Trade Lens ” platform in cooperation with IBM. The platform can be used to document all steps that occur during the transport of freight containers. In this way, numerous processes that are still processed manually today can be automated. Already today 60 percent of the international container freight trade runs on the platform. Another good example that illustrates the potential of blockchain in the supply chain is IBM Food Trust . Thanks to the high level of transparency, customers can understand the supply chain directly in the supermarket. Food Trust is already used by Walmart and Carrefour. However, acceptance will also increase here in the future.

After the blockchain hype is before the CBDC hype?

One topic is inevitably connected to blockchain technology: the financial world. And the rapid development shows that this potential is not just wishful thinking among investors, because more and more central banks are dealing with digital currencies.

The federal government published its blockchain strategy in 2019 – however, the promises have not yet been implemented. With the help of the blockchain strategy, Germany should set itself apart from other nations such as the USA or China. A dependency like in the area of platform companies (Amazon, Facebook, Netflix and Co.) must not arise again.

Central Bank Working Group Researching CBDCs
Central Bank Working Group Researching CBDCs

The biggest use case for the blockchain is probably not in the area of digital stocks and securities, but rather in a programmable currency. According to Philipp Sandner, head of the Blockchain Center at the Frankfurt School of Finance and Management, it is high time for a digital and programmable euro.

China's pioneering role is particularly exciting here. The country's central bank may be able to publish its own digital currency this year. This is intended to reduce the United States' superiority in the area of international finance and give China an important role.

DeFi – the new blockchain hype

However, the year 2020 also shows that the blockchain hype has not yet completely passed us by. Decentralized Finance (DeFi) in particular shows once again what potential the technology offers. DeFi is roughly the decentralization of financial transactions. Chalk awards, insurance, interest rate transactions and other business models can be represented using smart contracts.

This approach has met with market participants clearly willing to listen, because while we include at the beginning of 2020 still around 680 million US dollars, we have already in July the limit of 3.75 billion US dollars skipped .

At the same time, this hype also creates some curiosities, for example the Utility Token Comp. Since it is a DeFi token, the market price has within a short time of 64 US dollars to 372 US dollars increased . In the meantime, the hype surrounding the token has cooled somewhat, but at $ 134, COMP is still twice as high as it was before the DeFi boom. The same developments can be seen in all DeFi sectors and show that the entire market takes a close look at the further development of the DeFi market.

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Conclusion: the blockchain hype is over – it's time for mass adaptation

Blockchain is more than Bitcoin! Blockchain technology is a key technology that is likely to have an important impact on the future of numerous business models. While numerous ICOs still aroused memories of the Neuer Markt around 2017, the market has now consolidated. More and more companies are pursuing valid business models.

Large-scale projects like Libra are likely to be particularly exciting. The integration of a digital currency in the world's largest social networks is very promising. However, the ongoing low interest rate phase and increasing acceptance of DeFi is an exciting trend – however, this submarket is currently in hype.

Furthermore, the state's interest in blockchain is also increasing. For example, the Chinese government is focusing on the development of blockchain and wants to make China a pioneer in this area. The Federal Government also wants to drive development here, but has not yet implemented the corresponding blockchain strategy. The central banks also focus on developing their own digital currencies.

Overall, the coming years are likely to be very exciting and show the potential that blockchain really has. One thing is certain, however, we have left the blockchain hype of 2017 behind us.