Blockchain Technology: Value gets built in Bear Markets

About a year ago the website chain.de was launched to provide an overview of the German Blockchain and ICO landscape by listing blockchain startups, investors and consultancies. 

Much has happened in the Blockchain industry since then: The cryptocurrency market experienced its worst cryptowinter so far with bitcoin plummeting 82% from its all-time high on December 17, 2017 and Ethereum losing 92% to its all-time high on January 15, 2018. Overall, the total crypto market cap shed 83% over 12 months as the market corrected sharply, thus negatively affecting the profitability and continuation of mining operations, as well as key altcoin development projects.

Fuelled by the crypto hype of 2017, many ICO projects managed to raise tens of millions of dollars but eventually failed to build a working product. The ICO craze was based on the promise that Blockchain technology would quickly disrupt every digital business model. Suddenly, there was an "Uber in the Blockchain", "Tinder in the Blockchain", a "Foodora in Blockchain" and even beercoins and whisky tokens. Also, the VC business model was put on the line for disruption:"Why should we give away equity in our startup to investors when we can raise millions of dollars by just turning on a money printing machine called ICO?", was a common founders' narrative in those days.

Looking back at the ICO mania of 2017, the idea that every startup could be as successful as Bitcoin by just putting the label "Blockchain" on their whitepaper seems not only ambitious but slightly ironic. Unsurprisingly, it didn’t take a lot of persuading to convince retail investors that just by changing the data structure of a business model from centralized to decentralized, it would deliver the same characteristics as the bitcoin network (secure, stable, no middlemen).

With more than 40 ICOs, German startups also had their fair share in the ICO game with IOTA (exchange listing), Gnosis and LISK being amongst the better-known examples. Some ICO projects also caused controversy, thus inherently damaging the industry and leading to a loss of reputation and trust in the public eye which has yet to be regained.

Regardless, the Blockchain space seems to be very alive:

  • More VC money than ever is pouring into the Blockchain space: In 2017, VCs invested $1B in Blockchain companies, with a median investment of $1.5M. In 2018, VCs have invested nearly $4B, with a median of $2.5M.
  • The total number of BTC transactions until December 2017 was 275M; a year later, the total number is above 360M.
  • Ethereum has processed a total of over 353M transactions to date. That’s an increase of over 100 million transactions since June 2018.
  • MetaMask hit 1M lifetime downloads in April 2018 and has picked up an additional 400k since then.
  • Many enterprises have started to implement Blockchain technologies or are at least running pilot projects, including Munich RE (B3i), Bosch (IoT Alliance) and Daimler (BiTA).

It appears that the pace of innovation, development and talent inflow is inversely correlated with the price action. Value gets built in bear markets. Critics often confuse the current state with the potential end state — and that’s a mistake, since we’re still in the "AOL/CompuServe Days" for Blockchain.

Florian Huber
Founder chainDE