Mis gustos

Blockchain has become a buzzword in the startup ecosystem and multinationals alike. Numerous benefits provided by the technology has incentivized businesses and governments to adopt, explore or invest in it. 

However, a surprising turn of events took place in 2019 when it comes to the amount invested into blockchain technology and companies behind them. After the incoming funds peaked in 2018 with $5.5 billion in capital raised, this year saw a sharp decline — with less than $3 billion of capital flowing into the ecosystem. 





There are numerous reasons to explain this, however. The bullish hysteria around Bitcoin was over with the value of Bitcoin falling from an all-time high of around $20,000 to a low of $3,100. Another explanation could be that initial coin offerings lost their charm.

There were other external factors, such as the overall decline in funding of the fintech sector, that led to decreasing funds for blockchain companies as well.

Funding of blockchain companies in 2017–2018

2017 was the year when ICOs really began to take off. The majority of funding raised by blockchain companies came through ICOs. Bancor protocol’s innovative token sale of $153 million set a standard for a new generation.





Tron also completed its ICO in 2017, propelling it to swiftly become one of the most recognized altcoins. The ICO became a worldwide phenomenon, as huge token sales were taking place in Israel, Singapore, China, the United States, Germany and more.





While 2017 marked the rise of cryptocurrencies, blockchain and ICOs, 2018 was the year of market corrections. The inflated crypto prices that reached an all-time high in January 2018 came crashing down — along with the hopes and dreams of many people who invested in crypto, believing it was a get-rich-quick scheme. 

As the data suggests, there was a sharp decline in the number of ICOs for the top funded blockchain companies. Institutional investors started to be interested in funding, fueled by their fear-of-missing-out.

Robinhood and Coinbase continued their massive fundraising spree. Bitmain, a major producer of ASIC miners, also raised $340 million in a pre-IPO round, raising its valuation to over $12 billion. However, falling victim to the decreasing mining demand, the valuation fell sharply. 

Funding of blockchain companies in 2019

Back in 2017, blockchain evangelists argued that ICOs would render traditional VCs a thing of the past, but an entirely different story has played out. For the promising potential ICOs had shown at one point in time, they effectively became obsolete. 

Related: IEOs, ICOs, STOs and Now IDOs — How to Raise Funds for Crypto in 2019?

However, VCs were still interested in the blockchain ecosystem, but mostly only advanced-stage funding rounds saw a large influx of funds coming in. Robinhood continued raising funds for a fourth consecutive year, this time clutching $323 million and a further $50 million in its Series E round. Figure, a leading fintech company in both home equity and the blockchain space, raised two rounds of funds that totalled close to $175 million.  




Speaking to Cointelegraph about the decline of funding compared to 2018, Sidharth Sogani, the CEO of Crebaco Global Inc., which offers credit ratings for exchanges, blockchains and coin offerings, attributed it the skeptical nature of the institutional investors when it comes to crypto. He said:

“As per our statistics, over 95% of blockchain or crypto projects failed. Most were scams and MLM/Affiliate marketing schemes and some of them didn’t know how to head a company, and because of lack of knowledge, they failed. More than 10.6 Billion US Dollars were lost from the 2018 Bull run till June 2019 which is a massive figure. That is the main reason why traditional institutional investment is reluctant in entering the space because they do not know how to assess this technology and understand the feasibility of the project.”

However, in many ways, 2019 was the year of enterprise-level blockchain, both in terms of adoption and funding. Even though fewer projects were getting funded, the deal structure is increasing in complexity by having more investors per deal. More money is being invested per project, indicating the maturity of blockchain investment market. 

Blockchain funding coming from China has been a recent phenomenon as the technology penetrates the market. During the first six months in 2019, Chinese blockchain startups raised $368 million through 71 funding deals. However, even these numbers represent a drop of 67% in deal-to-dollar value compared to 2018.

Institutional investors’s interest in blockchain?

Institutional investors have been bullish on blockchain startups for sometime now. In fact, Fidelity’s Global Institutional Investor survey found that 80% of investors think that blockchain and similar technologies will fundamentally change the industry by 2025.

According to reports obtained by Cointelegraph, Digital Currency Group tops the list with 95 blockchain-based portfolio companies such as Coinbase, Circle and Figure under it. Pantera Capital has 55 portfolio companies, while BlockchainCapital has 47. Other notable institutional investors in this domain are Blockchain R&I, Boost VC, NGC and 500 Startups. 

IBM has invested more than $200 million in a blockchain-powered data-sharing solutions for the Internet of Things, and Google has reportedly been working with blockchains since 2016.

Related: Biggest Crypto Hedge Funds and What They Tell About the Market

The number of early stage backers had been high in the pre-2018 boom due to the massive returns from early investments in Bitcoin and Ethereum.

Following the price decline and stabilization, these early investments did not transform to follow on-rounds. This indicates that while early stage funding is comparatively easy, many VCs are waiting for evidence of product–market fit and clearer signs of revenue before making further investments.

Evolving to reach a Series B grant is a hard business, and few firms can reach that stage. Challenges with learning curves in user experience and designing profitable business models make it difficult for startups in the ecosystem to evolve. Speaking to Cointelegraph, Raullen Chai, the CEO of IoTeX, a Silicon Valley-based IoT company said:

“We have transitioned into a phase in the industry where there is more emphasis on actually having customers use blockchain and blockchain-powered products, as opposed to startups focused on raising money. It is true that many companies that raised money have fallen by the wayside or failed or deliver much. But, at the same time, many have been heads-down working and have managed to use the raised money for creating products that get used and that stimulate blockchain adoption.”

Adoption still on the rise

In 2018, a Deloitte survey found that 95% of companies across various industries are investing in blockchain tech projects. In 2019, those projects are finally moving from the test stage to the end user.

What was initially thought to be a tool to enhance the financial industry is finding application in cybersecurity, health care, agriculture, supply chain and more. 

Enterprises no longer question whether blockchain is worth the attention. On the contrary, they are proactively seeking new ways of incorporating this technology in their legacy systems.

Blockchain players in the payments segment, such as Ripple, are increasingly partnering with non-bank payments providers, the businesses of which may be a better fit for blockchain technology.Adoption of blockchain is bound to increase in 2020.

For instance, gaming giants AMD has announced that it is joining the Blockchain Game Alliance. The gaming industry has always been a trailblazer when it comes to emerging technology adoption. Being an industry that attracts a lot of capital, it is clear that more money will be flowing into the blockchain sector.

Furthermore, a Gartner study has found that blockchain is estimated to generate $3.1 trillion in new business value by 2030. The same study emphasized that 2023 will be the tipping point in terms of mainstream adoption, as companies start to explore more realistic means of utilizing the technology. Sogani is optimistic that 2020 will be the year of blockchain. He said:

“There are specific VCs for Blockchain as far as we have observed. The traditional VCs are still taking time to understand the technology. As the industry gets more regulated, scam free and mature, more traditional VCs will enter. I believe 2020 will be a bright year for Blockchain.”

The ability to move blockchain from proof-of-concept to adoption has been less than what was anticipated by early blockchain evangelists. While the market is giving blockchain companies plenty of room to prove themselves, investors are also becoming more concerned about results.

Not long ago investors were getting hyped up about blockchain. Then they dropped it. But they should take another look, says Ben Judge.Just a few years ago, blockchain – also called digital ledger technology (DLT) – was the next big thing.

It was going to transform every facet of our lives, including the entire global payment system; back-end office systems; and supply chains from beginning to end. The hype was immense. Every spivvy entrepreneur and their dog set up a company that somehow had its value inflated by some version or other of blockchain.

Some didn’t even bother coming up with a blockchain business. They just slotted “blockchain” into their name and watched the share price shoot up. The Long Island Iced Tea Corp., which notoriously became the Long Blockchain Corp., immediately enjoyed a share price surge of 458%.

What exactly is this technology?

At its simplest, blockchain is a ledger: a way of storing and manipulating information, like a spreadsheet or database. Crucially, though, where a normal database is a single, centrally controlled entity, a blockchain is a public “distributed ledger”. Each computer that has access to the chain has its own copy. It is literally a chain of blocks of information.

As a new piece of information is added to the ledger, it creates a new block in the chain.The block stores the information, but also who added the information and who has access to it. Once a block has been added and verified, it is given a “hash” – a unique, immutable code that identifies that transaction.

You cannot go back and change any of the information stored. Any changes are recorded as new blocks in the chain with a record of who has done what.

Another unique feature of blockchain is its ability to use “smart contracts”.

A smart contract is computer code stored on the chain that can execute transactions between parties once certain conditions have been met: for example, to automatically transfer the ownership of property once funds have cleared; to release funds to a supplier once goods are confirmed as having arrived; or to impose financial penalties if certain conditions are not met.

All of this is “permissionless” – it can be done with no need for someone to provide access. It is all coded into the blockchain when the agreement is initially drawn up. And it is this security, and the fact that all parties have access to the information so that there is no need for a middleman, that makes blockchains so useful.

In situations where multiple parties need to access and update data in the knowledge that it is secure and cannot be tampered with, and where intermediaries can be eliminated, a blockchain system is an ideal solution, according to IBM, which employs more than 1,000 people on blockchain products. It is making its blockchain platform available to other organisations that want to create their own versions.

The blockchain hype of recent years went hand in hand with the meteoric rise of bitcoin, whose price peaked at almost $20,000 this time two years ago only to come crashing down in the subsequent months. Blockchain was, after all, created to track ownership and transactions of the digital currency.Now, however, it all seems to have gone quiet.

Many of the promised fabulous enhancements to our lives have yet to happen. Other digital currencies launched to cash in on blockchain have withered away. People are now asking whether blockchain was all just a load of hype. Is that true?

Slowly but surely gaining ground

Blockchain is still here and is slowly but surely gaining ground rather than disrupting everything in one fell swoop. Big business is quietly adopting this technology to do the things it’s good at: settling transactions, recording ownership and verifying identities, for example. It may not be a purist’s idea of what blockchain should be – a public, permissionless ledger open to all. Instead, what we are seeing are private, permissioned blockchains.

That means that, unlike public blockchains such as bitcoin, only certain users with the appropriate privileges can add blocks to the chain.The technology is following the classic example of “hype cycle” first observed by research firm Gartner. It consists of five key phases.

A new technology is developed and enters the “trigger” phase. Publicity explodes and everyone wants a piece of the action; the cycle enters the “peak of inflated expectations”. That was the bitcoin peak that prompted chancers to launch new cryptocurrencies. Then, when the technology doesn’t seem to change everyone’s lives as promised by the early adopters, we enter the “trough of disillusionment”. Investors lose interest.

But then, after a while, people find uses for the new technology and we begin to climb the “slope of enlightenment”. Then comes the “plateau of productivity”. With blockchain we’re just past the “trough of disillusionment”, having risen over the peak of inflated expectations and we’re now in the foothills of the slope of enlightenment.

Big business is adapting to blockchain

There have been flops. Insurance giant Axa trialled a blockchain-based flight insurance product called Fizzy. It used smart contracts to pay out automatically if your flight was delayed. But just the other week it decided to shelve it. And some projects have had a rather longer gestation than was originally envisaged.

The Australian Securities Exchange ASX has been planning to replace its clearing system with a blockchain-based system. It has been in development since 2015; the latest estimate for its deployment is spring 2021.

 Australia is not the only exchange looking at using DLT. Shanghai, Hong Kong and New York are interested too. As Joshua Oliver noted in the Financial Times a year ago: “Worldwide, three quarters of the financial market infrastructure operators surveyed by Nasdaq and Celent are working on DLT pilots or already using DLT”.

“Enterprise” blockchain is now most definitely a thing, having moved from proof of concept to real-world applications. Big business has bought in.

Along with IBM’s platform, other big enthusiasts include Amazon and Oracle. Amazon’s clients include management consultants Accenture, AT&T and Guardian Life Insurance. Oracle’s clients include a Jordanian investment bank using blockchain to facilitate cross-border payments; a healthcare technology company providing a network for healthcare organisations to share data and processes securely; and a brewer tracking its supply chain.

Much of the activity is in financial services. One high-profile trading platform is we.trade, set up by a consortium of big banks including HSBC, Societe Generale and UBS. It allows small and medium-sized businesses to guarantee and process transactions digitally, cutting down on paperwork and speeding up trades.Another area where DLT is useful is in identity verification.

In Canada, Verified.Me is a system that has been developed between government agencies and private companies. Customers of five banks including Royal Bank of Canada and Scotiabank can now verify their identities using blockchain technology.

But it is in supply-chain management that it is really proving itself. Last year, IBM launched its Food Trust platform, a blockchain-based system for tracking the supply chain of food.

It was originally trialled by Walmart, but is now being used commercially by, among others, Nestlé, Carrefour, and Unilever, says Forbes. Walmart Canada has now developed its own system with DLT Labs, a Canadian blockchain developer, for tracking deliveries, verifying transactions and automating payments among suppliers to its 400 retail stores. Shipping giant Maersk developed the TradeLens supply chain platform with IBM, to track cargo around the world. Maersk now wants to monetise the platform and it has recently been joined by Hapag-Lloyd and Ocean Network Express of Singapore.

What is China planning?

But perhaps the most fervent adopter of blockchain technology recently is China. President Xi Jinping recently praised blockchain as a “core technology” and called for more support and investment. China’s tech-focused shares surged. Over 500 new projects have been registered with the Cyberspace Administration of China.

China’s big tech companies are involved, says Jane Cai in the South China Morning Post, and there are “dozens of government-led initiatives and schemes, in areas ranging from communications to land development”.

It is somewhat ironic given the technology’s libertarian origins. “China is now pushing toward global blockchain dominance,” says Kevin Werbach in Wired. That’s something that should get the rest of the world – and especially the US – worried, says Biser Dimitrov on Forbes.com. “Having a superior blockchain technology will give China an enormous trading opportunity with the emerging technology markets.” And then there’s the spectre of a digital renminbi.

A digital currency controlled by the People’s Bank of China has the potential to usurp the dollar as a global currency.While blockchain in the West is mainly business-driven, China is adopting it to strengthen its grip on its population.

Mu Rongping, director of the innovation and development research centre at the Chinese Academy of Sciences, told Cai that “The potential is huge for the use of new technologies, such as in areas of public security, public transport, crime investigation and anti-corruption campaigns… Blockchain could open a new chapter on the integration of governance and technology”.

Rather than fulfilling its original imperative of shifting power away from centralised authority, it could actually help China’s government cement it.Still, what is clear is that, for good or ill, blockchain is no longer the brash shouty new kid on the block; it’s maturing.

Slowly but surely distributed ledger technology is integrating itself with public and private systems. It’s here to stay.