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Paul Brody is EY's global innovation leader for blockchain. The opinions expressed are his.
The following is an exclusive contribution for the 2018 year of CoinDesk under consideration.
By dipping the cryptocurrency values in 2018 and the collapse of the white card market with no money in initial token offerings (ICOs), last year it focused a lot on many people when it came to mindshare blockchain.
All that drama on the market, however, concealed enormous real progress in technology that, slowly but inexorably, will lay the groundwork for a solid recovery of blockchain markets in the future.
Over the last year, the market has provided a lot of dramas related to ICOs. Almost a quarter of all ICOs in 2017 lost most of their value and the market as a whole decreased by almost two thirds.
The first half of 2018 was not better. There were about 1,000 ICOs each month, but only 5% of them raised more than $ 1 million – with one, EOS, raising about $ 4 billion.
Not only did the bulk of the money raised go to a very small number of ICOs, but almost every aspect of the blockchain world has also become more consolidated and, I dare say, centralized, in 2018 – rather counterintuitive for blockchain, since decentralization it's in the middle.
Public blockchains consolidate
According to a study by EY that examined the progress and returns on investment of ICOO, ethereum, which is the dominant platform and shows the highest activity among developers and on social media, has become even more dominant, with over 95% of all ICO and funds raised.
The stock market also consolidated rapidly, with 73% of the daily trading volume in the first half of the year taken from the first 10 stock exchanges. Although the numbers of the whole year have yet to be updated, this trend looks set to continue.
The major exchanges are consolidating their positions partly by rapidly maturing their processes and moving closer to regulatory compliance. Know-your-customer procedures have been tightened and many of the major exchanges are, or will soon be, verified by some of the major financial services organizations (including EY). These same exchanges also reinforced their security, with less large-scale theft in 2018 compared to 2017.
Another big trend of last year in the world of public blockchain was the increase in the popularity of stablecoins of all kinds, mostly based on legal currencies. While stablecoins offer some advantages, including stability, they raise the most important question that remains for public blockchains: why are they useful?
Parking the parking lots in a stablecoin is advantageous if between investments or purchases is a way to avoid volatility, but it is not an excellent investment in itself and for itself. The purpose of capital markets is to allocate capital to productive uses and, at least for the time being, it does not seem to happen. For public blockchains in 2019, this is the most important question.
Delivery of private blockchains
While public exchanges have consolidated their grip on the market, private blockchains are entering work by offering real business value to businesses. At EY, a number of systems went into production, including our software licensing solution with Microsoft and a maritime insurance joint venture with Maersk and Guardtime.
Looking at the corporate space, there are three key approaches from working with blockchain in 2018.
First of all, the biggest blockchain rule seems to be: "If it's not broken, do not fix it". Over and over, when companies are working on projects where blockchain seemed to be an excellent measure, they did not move forward because they already found a solution to their problem. Despite the fact that blockchain in almost all cases would be better, this is not necessarily sufficient to justify replacing the already existing processes, given the costs and risks.
Secondly, and closely related to first learning, it is the primacy of solving real problems. While the main innovation managers sometimes love to make blockchain proof of concept, the technology is far beyond that. It's about focusing on producing and solving solutions for business line executives – with a real ROI. If it is possible, with confidence, to aim for a ROI from a solution, then it is not necessary to worry about which blockchain platform or future will occur. There is a return from this investment, no matter what.
Finally, and perhaps most importantly, it is clear that companies prioritize operations before finance. While it is useful to monitor products and resources as they go through the supply chain, there are many financial services that could add value, from the very simple "payment to delivery" approach to complex services such as factoring credits and commercial financing.
However, in most cases, companies want to gain confidence in their operating systems before closing the cycle with payments and financial services, a challenge that they will start to take at the start of 2019.
Scale image using Shutterstock
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