Expert’s View on the Decline of Blockchain Trend

The formation of the R3 consortium and the increasing interest of banks, financial institutions, and governments have continued spark the development of private or permissioned blockchain networks over the past two years.

Venture capital firms began to shift their focus on blockchain startups after recognizing the market for banks and financial establishments

Naturally, as money began to flow out of the bitcoin to the blockchain industry, bitcoin startups and entrepreneurs followed, either rebranding their companies or launching new products to serve top-tier organizations in the financial market.

According to the Outlier Ventures research team, there are around 1,000 registered blockchain startups, with the majority of the startups located in the U.S, U.K, and Germany.

Financially, basing a startup—especially a company that is still in its infancy with low funds, capital, and limited clientele—in abovementioned countries is not practical, primarily because of the high salaries and costs of employees and resources.

Despite the financial inefficiency of building a young startup in an expensive region, blockchain startups prefer to remain in large financial hubs to maintain their connections with financial institutions and banks.

The heavy involvement of major financial organizations meant that startups received millions of dollars in investment to build private blockchain networks to optimize existing banking systems. Until recently, the focus of blockchain startup was set on meeting the demands of major financial organizations.

However, with nearly two years past, hundreds of millions of dollars invested, and massive amount of resources spent, blockchain startups that have collaborated with the world’s largest financial institutions have not demonstrated a single working product that is applicable to existing financial systems.

Pavel Kravchenko, founder of Distributed Lab, the world’s second largest independent blockchain startup still believes that there lies a foreseeable future for the blockchain technology, just not in the financial market.

Since the beginning of 2016, the blockchain industry has seen a variety of blockchain startups that are attempting to solve real-world problems using the decentralized infrastructure a blockchain network can provide. Specifically, by utilizing the real-time visibility of data provided by a blockchain network and its ability to establish cross-platform applications, startups have managed to develop blockchain-based platforms for the insurance and real-estate industries.

Kravchenko states that startups must use 4 main selling points of a blockchain-based platform to develop actual solutions that are applicable:

  1. potential reduction of costs per transaction as a result of cutting of the middleman
  2. release of funds that were needed to insure risks during long settelement
  3. optimized reconciliation process
  4. well-tested opensource code

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About Joseph Young

Joseph is a web developer and designer, writer and a passionate musician who loves to travel often. He’s worked as a researcher for a number of venture capital firms and as a freelancer designer for resorts and corporations in Korea and the Philippines. Joseph will be covering new technologies, startups, technical analysis and breaking news in the bitcoin industry.