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Looks like a Venture Fad

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A" venture fad "is an investment field that explodes in wild popularity and then fades into darkness, like Nanotech in the last decade Blockchain and Cryptocurrencies are showing signs Blockchain is a technology platform that uses encryption, algorithms and incentives for participants to enable secure transactions without regulation and validation by a large institution. Cryptocurrencies are a key class of blockchain-enabled applications: example, Bitcoin or Ethereum [19659001] Cryptocurrencies and Blockchain have fascinated the start-up and venture investor community over the past four years. Techcrunch counts ~ 1,500 Blockchain-related startups that have collected about $ 4.0 billion from 2012 . in the last two years & nbsp; at least 10 billion dollars have been paid for sale criptovalute of new creation calls ICO (Initial Coin Offerings: the unit of cryptoc the urrency is a "currency"). Prestigious venture capital investors came to the party, for example, Union Square Ventures was an early investor in Blockchain-related businesses.

Photo credit: Getty Royalty Free.

Boosters show that Blockchain technology is a disruptive force that will create new markets and bring down powerful historical operators. It promises a better way to implement key functions of an information economy: move money, keep important records, maintain security, provide privacy to users. How is it better? Blockchains are considered highly safe. Blockchains lack control of the main institutions: governments, banks, health insurances, etc. And the rise of the Blockchain ecosystem creates momentum to redesign processes such as identity verification or credit worthiness assessment using modern architecture and understanding customer needs.

These characteristics fuel the disruptive instinct of young entrepreneurs and remind investors of wealth creation driven by past technological waves such as PCs and the Internet. The Blockchain ecosystem has become a new and recognized novelty that attracts a group of brilliant and ambitious entrepreneurs, many from Stanford . They developed sophisticated schemes to move key parts of the economy into Blockchain; these schemes are presented in "white papers" that often become the offer document (as an informal S-1) for an ICO of the cryptocurrency that is part of the proposed business model.

ICOs are powerful oxidizers for this rich fuel business: they provide large amounts of capital in terms of entrepreneurship. The ICO presentations I have seen promote the potential for growth in coin value, arguing that the new ecosystems built on Blockchains will give value to the coins needed to make transactions in them. They point to chases in the value of ancient coins like Bitcoin and Ethereum. The promoters point out that cryptocurrencies are liquid by design, so investors can exit when they want to sell coins on a cryptocurrency exchange. I have heard venture capital investors who are generally sober and enthusiastic about ICO: "I'm not a speculator, of course, but you could make a lot of money fast to do it!"

However, the now accumulated evidence indicates that there is a little less steak behind all this sizzle. Cryptocurrencies are not widely used for payments : The analysis chain estimates that the volume of Bitcoin transactions was approximately $ 60 million / month in May 2018, a net decrease from the levels of 2017 and an infinitesimal fraction of global financial transactions [19659007]. And the volatility of Cryptocurrencies makes them a wrong choice as a store of value or unit of account (the other main uses of money). The Economist in a recent article concluded that Bitcoin and other cryptocurrencies are useless . Warren Buffett's verdict is more mature: " Bitcoin is probably a poison squared" .

Some barriers to Bitcoin transactions such as high transaction costs and few places to spend could diminish over time. Others are difficult to overcome. Bitcoin has security vulnerabilities: cyberattacks have hit trades that regularly translate Bitcoins into official money, most notoriously when $ 473 million has been stolen from the Monte. Gox. And, the IRS & nbsp; requires that Bitcoin be reported on the tax return as a sale of shares, & nbsp; creating gains or losses.

The evangelists of Blockchain often say that the true value of Blockchain is its ability to create new businesses and destroy important and consolidated ones, not only to enable cryptocurrencies. Their defense often has moral / political implications: "Bitcoin is not just mere speculation, it is a movement." It is a growing number of individuals who favor the principles embodied by the decentralized Bitcoin network instead of banking systems. established. "

Although many disruptive activities of Blockchain have been proposed, no important example of interruption of Blockchain technology is still visible. This could be a matter of time, of course. However, strong arguments are emerging that show that the utility of Blockchain is fundamentally limited. Jimmy Song analyzed the potential of Blockchain for commercially useful systems and found a number of important limitations:

  1. Development is slower and more rigorously constrained than conventional conventional database systems.
  2. With imperfect incentives, users can run amo, because there is no central authority to control how the system is used. And there's no way to get rid of an attacker.
  3. Maintenance is very expensive because the Blockchain technology is based on millimeter redundancy: all updates are voluntary and must be 100% compatible on the contrary because it is not possible to force each node to update.
  4. Resizing is an order of magnitude more difficult than a conventional system. Data must live simultaneously in thousands of places, creating huge overheads for each transaction.

The resource intensity, which drives the cost of transactions with Blockchain, is a major obstacle to growth and interruption. Alex de Vries, bitcoin specialist at PwC, estimates that the current global energy consumption for servers running bitcoin software is at least 22 terawatt hours the year, almost the same as Ireland. A report published this year by the Bank of International Settlements, a cornerstone of the global financial system, said that "[Bitcoin, if scaled up] will end up overwhelming everything from single smartphones to servers … The volumes of communication associates could stop the Internet. [19659007] " The past predictions of Internet crashes have not come true ; however, the key point is that Blockchain is expensive. In large-scale business costs it is often the king. The high costs created by Blockchain architecture will make it non-competitive in many large-scale transaction-based companies.

The bottom line for entrepreneurs: do not expect Blockchain to change the world at any time. The blockchain architecture faces a tough battle in many large-scale applications. The main short-term impact will be limited to a few markets with lower transaction volumes and greater importance for the security and direct control of personal data by the end user: medical and personal financial records are possible. Much of the currently vigorous activity in the Blockchain world is the purchase of options or pure speculation.

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A" fashion of fortune "is an investment field that explodes in wild popularity and subsequently vanishes into darkness, as Nanotech in the last decade Blockchain and Cryptocurrencies are showing signs of doing the same: Blockchain is a technology platform that uses encryption, algorithms and incentives for participants to enable secure transactions without regulation and validation by a large institution: blockchains: eg, Bitcoin or Ethereum.

Cryptocurrencies and Blockchain have fascinated start-ups and venture investor community over the past four years Techcrunch has about 1,500 blockchain start-ups that have raised about $ 4.0 billion since 2012. In addition, over the last two years at least 10 billion dollars have been paid for public sale of newly created cryptocurrencies, called ICO (Initials Coin offer: the unit of cryptocurrency is a "currency"). Prestigious venture capital investors came to the party, for example, Union Square Ventures was an early investor in Blockchain-related businesses.

Photo credits: Getty Royalty Free.

Boosters show that Blockchain technology is a disruptive force that will create new markets and bring down powerful historical operators. It promises a better way to implement key functions of an information economy: move money, keep important records, maintain security, provide privacy to users. How is it better? Blockchains are considered highly safe. Blockchains lack control of the main institutions: governments, banks, health insurances, etc. And the rise of the Blockchain ecosystem creates momentum to redesign processes such as identity verification or credit assessment using modern architecture and an understanding of customer needs.

These characteristics fuel the disruptive instinct of young entrepreneurs and remind investors of wealth creation driven by past technological waves such as PCs and the Internet. The Blockchain ecosystem has become a new and recognized novelty that attracts a group of brilliant and ambitious entrepreneurs, many of Stanford . They developed sophisticated schemes to move key parts of the economy into Blockchain; these schemes are presented in "white papers" that often become the offer document (as an informal S-1) for an ICO of the cryptocurrency that is part of the proposed business model.

ICOs are powerful oxidizers for this rich fuel business: they provide large amounts of capital in terms of entrepreneurship. The ICO presentations I have seen promote the potential for growth in coin value, arguing that the new ecosystems built on Blockchains will give value to the coins needed to make transactions in them. They point to chases in the value of ancient coins like Bitcoin and Ethereum. The promoters point out that the cryptocurrencies are of liquid design, so investors can exit when they wish to sell coins on a cryptocurrency exchange. I have heard venture capital investors who are generally sober and enthusiastic about ICO: "I'm not a speculator, of course, but you could make a lot of money fast to do it!"

However, the now accumulated evidence indicates that there is little steak behind all this sizzle. Cryptocurrencies are not widely used for payments: Chainanalysis estimates that the volume of Bitcoin transactions was around $ 60 million / month in May 2018, a sharp decline from the 2017 levels and an infinitesimal fraction of global financial transactions . And the volatility of Cryptocurrencies makes them a wrong choice as a store of value or unit of account (the other main uses of money). The Economist in a recent article concluded that Bitcoin and other cryptocurrencies are useless . Warren Buffett's verdict is more mature: " Bitcoin is probably a poison squared" .

Some barriers to Bitcoin transactions such as high transaction costs and few places to spend could diminish over time. Others are difficult to overcome. Bitcoin has security vulnerabilities: cyberattacks have hit trades that regularly translate Bitcoins into official money, most notoriously when $ 473 million has been stolen from the Monte. Gox. And the IRS requires that Bitcoin be reported on the tax return as a sale of shares, creating gains or losses.

Blockchain evangelists often state that the true value of Blockchain is its ability to create new businesses and destroy important, established ones, not just to enable Cryptocurrencies. Their defense often has moral / political implications: "Bitcoin is not just mere speculation, it is a movement." It is a growing number of individuals who favor the principles embodied by the decentralized Bitcoin network instead of banking systems. established. "

Although many disruptive activities of Blockchain have been proposed, no important example of interruption of Blockchain technology is still visible. This could be a matter of time, of course. However, strong arguments are emerging that show that the utility of Blockchain is fundamentally limited. Jimmy Song analyzed the potential of Blockchain for commercially useful systems and found a number of important limitations:

  1. Development is slower and more rigorously constrained than conventional conventional database systems.
  2. With imperfect incentives, users can run amo, because there is no central authority to control how the system is used. And there's no way to get rid of an attacker.
  3. Maintenance is very expensive because the Blockchain technology is based on millimeter redundancy: all updates are voluntary and must be 100% compatible on the contrary because it is not possible to force each node to update.
  4. Resizing is an order of magnitude more difficult than a conventional system. Data must live simultaneously in thousands of places, creating a huge overhead for each transaction.

The resource intensity, which drives the cost of Blockchain transactions, is a major obstacle to growth and interruption. Alex de Vries, bitcoin specialist at PwC, estimates that the current global power consumption for servers running bitcoin software is at least 22 terawatt hours in the year, almost the same as in Ireland . A report published this year by the Bank of International Settlements, a cornerstone of the global financial system, said that "[Bitcoin, if scaled up] will end up overwhelming everything from single smartphones to servers … The volumes of communication associates could stop the Internet. " The past predictions of Internet crashes have not come true ; however, the key point is that Blockchain is expensive. In large-scale business costs it is often the king. The high costs created by Blockchain architecture will make it non-competitive in many large-scale transaction-based companies.

The bottom line for entrepreneurs: do not expect Blockchain to change the world at any time. The blockchain architecture faces a tough battle in many large-scale applications. The main short-term impact will be limited to a few markets with lower transaction volumes and greater importance for the security and direct control of personal data by the end user: medical and personal financial records are possible. Much of the currently vigorous activity in the Blockchain world is the purchase of options or pure speculation.

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