Tuesday, June 20, 2017

Growing Skepticism Challenges the Blockchain Hype

By Izabella Kaminska

Blockchain, the shared database technology that powers cryptocurrencies such as bitcoin, has over the past three years developed an almost unchallenged reputation as the next big thing in finance and technology. Many prominent financiers, technologists and entrepreneurs have staked their reputations and fortunes on it.

Take Blythe Masters, the former JPMorgan executive who is attributed with creating the credit default swap. After she joined Digital Asset Holdings, a blockchain start-up, in March 2015, she said that the technology should be treated as seriously as the development of the internet in the early 1990s.

And investors did exactly that. Up to $1.74bn has been invested in blockchain ventures to date, $796m of that since the beginning of 2016, according to data tracked by industry media company Coindesk. But as investment increased, so did the hype. Almost everything, from tracking tuna to managing medical records, has been touted as in line to benefit from the technology. Claims about blockchain’s potential range from the outrageous (the end of poverty) to the more mundane and operational (cost reduction in repo clearing and real-time settlement).

Yet executives at blockchain-investing companies have rarely been able to explain what it was that blockchain would be enhancing in their businesses or why. “You’ll have to ask my tech associate,” has been the invariable answer. When asked what makes blockchain so exceptionally useful, the answers ranged in nature from “It’s a compression algorithm, and makes data storage cheaper” to “it enhances security and can’t be hacked”.

Neither assertion is strictly accurate. But the confidence demonstrates the scale of mythmaking in the industry. By 2016 the unchallenged claims were so out of whack with reality that even Gartner, the information technology adviser that created the hype cycle curve, had put blockchain near the top of its “peak of inflated expectations” section.

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