Smart Contracts and Dumb Coins

Investors have been wooed by the promise of smart contracts to run a wide range of distributed applications (Dapps) which can be more secure and resilient than traditional, centralized applications. These Dapps are often built on top of a cryptocurrency framework which often raise initial capital using an Initial Coin Offering (ICO). This advent of blockchain technology, more widely categorized as Distributed Ledger Technology (DLT), has been branded as the next Dot-Com Boom with the total market cap of cryptocurrencies now in the hundreds of billions of dollars. ICOs have raised hundreds of millions of dollars for small companies in mere days, making them an irresistible new way for startups and investors to raise a lot of money through a global crowdfunding mechanism. However, this ICO excitement is beginning to wane and smart investors are starting to ask why they are investing in a new currency when Dapps can be achieved using traditional capital and non-currency-based DLT.

The Linux Foundation’s Hyperledger project has made notable strides in proving that DLT can be successfully implemented using traditional capital without a cryptocurrency fueling the technology. Hyperledger is open-source, and many of the biggest technology companies such as Oracle, SAP, and IBM are offering blockchain services for enterprise without an associated currency. Amazon has also released a Blockchain as a Service (BaaS) initiative utilizing Ethereum, which has a native coin Ether (ETH), but does not require a new currency or an ICO for the services offered by Amazon.

New technology is expensive to develop and implement. Cybersecurity is often neglected because the increase in security is rarely worth the enormous cost of rebuilding and hardening entire systems and networks. Therefore, big companies have been slow to adopt DLT frameworks for improvements in their existing services. Some of the well funded ICOs, the open-source Hyperledger community, and the Ethereum development community have now done a great deal of the legwork for enterprise adoption of DLT and big companies are preparing to jump on board. However, the days of raising big money for a new coin using an ICO are quickly fading away and startups will have to re-assess their approach in this space.

In addition to the cost/benefit tradeoff for enterprise blockchain solutions, there is increasing chatter from central banks and governments to implement their own universal cryptocurrency or to adopt a single currency framework for the rest of the technologies to migrate towards. Most notably, China and Russia have both hailed Ethereum as the superior platform and Ether as the currency which holds the most promise for widespread adoption. Vladamir Putin spoke personally with the creator of Ethereum, Vitalik Buterin, last year at an economic conference in Russia. Despite the promise of Bitcoin to decentralize power and reduce waste in financial systems, people still trust and need government to manage their societies and monies. Implementing a new currency and payment system into global use is something that the central banks will lead, along with policymakers and economists from many nations. As these policies flesh out, DLT companies and blockchain-based Dapps will have to adapt and migrate onto the most widely used or legally acceptable platforms or currencies.

It is my personal belief that non-coin-based platforms such as Hyperledger, Hedera Hashgraph, Guardtime, and others will percolate into prominent enterprise usage. Existing big companies will enhance their enterprises with DLT at their own expense or purchase smaller companies which have made strides in their technologies but have yet to achieve mass usage or acceptance of their proprietary cryptocurrency. All while the governments of the world and the central banks create policy and legal adoption of a few key cryptocurrencies on which the business frameworks can then properly operate.

A shift is beginning where the hundreds of new currencies in existence are going to be obsolete and platforms and systems will have to merge and consolidate down to the most popularly adopted platforms and currencies, with proper policy and legal acceptance driving government use and central banks creating policy to upgrade the underlying monetary system.