Blockchain technology is often heralded as a revolutionary advancement in decentralization, immutability, transparency, and security. At its core, it promises improved data management and the elimination of intermediaries, as a transparent database that cannot be altered and requires no trust. Given the significant value tied up in middleman services and the vast amounts of data—hundreds of millions of terabytes—collected daily, blockchain presents a tremendous opportunity. However, despite its potential, many people remain unaware of its capabilities, as it has yet to become a part of everyday life for the average person. This raises two key questions: "What has been created so far?" and "What comes next?"
Where We Are in Development
Blockchain technology traces its origins back to the 1980s, notably with David Chaum's dissertation, Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups. This early work laid the foundation for future developments in blockchain-like protocols. Over the years, significant progress has been made, culminating in the publication of Satoshi Nakamoto's Bitcoin whitepaper in 2008, which marked a pivotal moment in blockchain's evolution.
Despite the creation of numerous blockchains, infrastructure, and applications since then, blockchain is still often regarded as a "nascent technology." This perception persists even as the technology continues to evolve and expand its influence across various sectors. The journey from Chaum's initial concepts to the present day reflects a continuous trajectory of research and theoretical advancements, underscoring blockchain's potential to revolutionize data management and decentralization.
There are currently over 1,000 blockchains and tens of thousands of companies developing infrastructure and applications to leverage this technology for a wide range of use cases. Solutions are continually evolving to enhance the security, scalability, decentralization, and practicality of blockchains for their intended users. However, until a breakthrough application achieves mass adoption, it remains challenging to fully grasp the potential developments and value that blockchain can create.
The slow pace of blockchain development and adoption is often likened to the early days of the internet. Before the internet's widespread use, it was difficult to envision the diverse business models and applications it would enable; as the saying goes, "you don’t know what you don’t know." In hindsight, it's clear that the internet was not a fleeting trend or limited to a select few, but a disruptive technology that has facilitated the growth of some of the largest companies and applications we rely on daily. In the 1990s, leading up to the dot-com bubble, the perception was vastly different from today's understanding. Similarly, the adoption of blockchain technology, proxied through crypto token adoption, mirrors or even surpasses the internet's growth trajectory entering the 2000s.
The evolution of blockchain technology is being driven by advancements in scaling solutions, incentive structures, interoperable data systems, improved user interfaces, and other efficiencies. While these developments are crucial, the spotlight will ultimately fall on the front-end applications that attract users. Key questions remain, such as which blockchains will become the focal points of activity, whether monolithic or modular scaling will prove most efficient, and whether open-source projects can maintain strong competitive advantages in the long run. Additionally, it's uncertain if the most valuable underlying infrastructure solutions have even been developed yet.
The technology will continue to evolve, but we are due for mass consumer adoption.
What is Needed to Allow for Scalable Applications
Loyal early adopters of blockchain technology have often been motivated by potential returns from crypto token investments and technical expertise to navigate the complex structure. However, for non-native users, using crypto wallets and decentralized applications can be challenging, particularly when it comes to transferring assets of value. Many users are uncomfortable with or unprepared for the responsibility of self-custodying significant assets. To achieve broader adoption, solutions must resemble familiar systems, abstracting away the complexities and responsibilities associated with crypto, allowing everyday users to experience the benefits seamlessly.
Amara’s Law is particularly relevant at this stage, reminding us that we often overestimate the short-term impact of technology while underestimating its long-term effects. As short-term goals and promises have passed without fulfillment, skepticism has grown. Early promises included tracking carbon credits, managing healthcare records, real estate titles, facilitating programmed micro-transactions, and enhancing supply chain transparency. Progress in these areas is ongoing but resembles a gradual ascent through the tech stack rather than a binary leap.
While used as proxies of blockchain infrastructure development progress, it's important to recognize that not all promising blockchains, middleware, and scaling solutions survive in the long run. Blockchain network projects like Cardano, initial roll-up scaling solutions, and various DeFi applications showed early promise, but initial success does not predict the long-term steady state.
Infrastructure advancements are vital for enhancing blockchain throughput and speed, which in turn improve user experiences. However, the journey toward mass adoption really begins to show with user onboarding, necessitating a simple and intuitive interface. Users often resist change, and any initial complexities can become significant barriers for those unfamiliar with the technology, regardless of the solution's potential benefits.
Therefore, to achieve widespread adoption, the front-end of blockchain applications must be frictionless and abstracted from technical complexities. This means creating interfaces that are as user-friendly as traditional applications, allowing users to engage with blockchain technology without needing deep technical knowledge. By focusing on the end-user experience, developers can work backward to identify the necessary backend improvements and infrastructure enhancements. This translates to scalable, quick (high throughput), interoperable, private/secure, flexible, and transparent capabilities displayed in a friendly way.
The following is a non-inclusive list of how the above is being tackled.
Scalability with Layer 2 protocols and Sharding.
Throughput through Optimized Consensus Mechanisms.
Interoperability by Oracles and Bridges.
Privacy via Decentralized Identity and Zero-Knowledge Proofs.
Flexibility with Modular and Diverse Structures.
Transparency with Indexers and Data Analytics.
With significant progress being made in developing the essential infrastructure, attention now turns to identifying the "killer use cases" that will showcase the true potential of blockchain technology.
Real World Use Cases
With the (not always realistic) assumption that blockchain applications are designed to address existing pain points and create meaningful demand, there remains an element of uncertainty and the challenge of overcoming switching costs. For individuals and businesses to embrace a technological or platform shift, they need to perceive magnitudes improvement in efficiency or value. This perceived improvement is needed to drive innovation adoption, even if it doesn't align proportionally with actual switching costs.
Blockchain technology can be, and is, being applied across various industries to solve real-world problems and enhance transparency, efficiency, and trust. Here are some key use cases:
Supply Chain Management: Blockchain provides end-to-end visibility and traceability of goods, creating a tamper-proof record of each transaction and movement. This transparency helps prevent counterfeit products from entering the supply chain and ensures consumers receive genuine, high-quality goods. By streamlining processes and reducing friction, blockchain enhances supply chain efficiency, improves compliance, and builds trust among stakeholders.
Healthcare: Blockchain is used to securely manage healthcare data, ensuring data integrity and privacy. It enables the secure exchange of patient information among healthcare providers, improving data accessibility and reducing administrative burdens. This application enhances patient care and facilitates compliance with regulatory requirements.
Finance and Banking: Blockchain technology is transforming financial services by enabling faster and more secure transactions. It reduces the need for intermediaries, lowers transaction costs, and enhances transparency, which tend to be a larger pain-point in an international setting. Smart contracts automate processes, ensuring compliance and accountability in financial transactions. Furthermore, as many large institutional players including Blackrock, Franklin Templeton, and JP Morgan have done, representing physical or financial assets on blockchains allow for broader accessibility to investment, reduced lock-up periods, and improved price discovery.
Identity Management: Blockchain offers a decentralized approach to identity management, allowing individuals to control their personal data. This enhances privacy and security, as users can manage their identities without relying on third-party intermediaries. It provides a solution to challenges related to identity verification and data breaches.
Real Estate: Blockchain simplifies real estate transactions by eliminating intermediaries and providing a transparent, immutable record of property ownership and transfers. This reduces fraud, speeds up transactions, and lowers costs for buyers and sellers.
Government and Public Services: Blockchain enhances transparency and efficiency in government operations, such as public procurement and voting systems. It provides a secure and auditable record of transactions, reducing corruption and increasing public trust.
Sports: Tokenized fan engagement through blockchain can enable increased accountability of key information and statistics, fan attribution, customized content and experiences, voting rights and influence, and fundraising. The technology allows for more transparent and interactive relationships between sports organizations and their supporters. Additionally, initiatives are already underway for reduced risk ticketing and real-time sports betting, leveraging blockchain's security and transparency features to enhance the overall sports experience.
Physical Infrastructure: Blockchain networks leveraging token incentives can build out physical infrastructure networks from the ground up. Highly capital-intensive industries that have become oligopolies can now be disrupted through crowdsourced hardware network buildout. This approach is being seen in various sectors, including internet provision, mapping services, and compute providers. By incentivizing individual participation, blockchain enables the creation of decentralized infrastructure that can challenge traditional models and potentially offer more efficient and accessible services.
Artificial Intelligence: As two of the fastest growing emerging technologies, AI and Blockchain can be synergistic, rather than competitive. The fusion can address critical challenges in the AI landscape, including GPU shortages and deepfakes. The technological convergence unlocks exciting new possibilities in AI development, including token-based incentives for contributing to AI systems, collaborative model refinement, and decentralized dataset generation. The integration of AI with blockchain infrastructure may accelerate the adoption of decentralized networks, as AI agents could leverage crypto protocols for transactions and accessing essential digital resources like storage, computing power, and network bandwidth. This fusion of AI and blockchain technologies has the potential to drive innovation across various sectors, creating more robust, transparent, and efficient systems.
Blockchain Application Company Structures
Tying back to an investment perspective, understanding how value accrues in blockchain applications is crucial for making informed bets. While investing in companies involves navigating numerous uncertainties—such as market conditions, valuation, industry trends, management quality, and macroeconomic factors—some risks can be mitigated by comprehending industry trends and structural nuances.
One key consideration is the use of equity versus tokens in a company's structure. A traditional equity structure may be suitable for businesses that leverage blockchain technology but operate with conventional revenue and expense models. In contrast, introducing tokens can add a new layer to the incentive flywheel, which can act as a double-sided-sword. Tokens can incentivize user onboarding by offering potential profits, but if token value declines, it could lead to a mass exodus of users; potentially catastrophic for the company.
Added risk structures can pay off higher, but come with more uncertainty and volatility. Typically when people see news about the blockchain industry, it is typically associated with the crypto token segment. The less regulated and newer structure has been abused and applied to a variety of speculative and fraudulent use cases beyond those fundamentally driven, which of course is what becomes top of mind for many. The massive short-term profits have distracted builders and led to a sour taste for the less informed investors. A token structure has its added benefits and is necessary at times, but the thoughtful distinction on when that is the case is not always properly made.
While higher-risk structures can yield greater rewards, they also come with increased uncertainty and volatility. The blockchain industry is often associated with the crypto token segment, which, due to its less regulated nature, has been exploited for speculative and fraudulent purposes. The large short-term profit appeal has sometimes distracted from and overshadowed fundamentally driven projects, leaving a negative impression on less informed investors. Although token structures have their advantages, they should be employed thoughtfully and only when appropriate.
Ensuring structurally incentivized alignment is crucial. Decentralized physical infrastructure (DePin) applications introduce a novel structure where token incentives can enable business models that were previously not possible. This innovative approach can disrupt oligopolistic industries, such as Telecom, which typically require substantial upfront capital expenditures. These models allow numerous participants to provide key infrastructure components in exchange for profit sharing, rather than a single entity bearing all the risk and reward. As another variation of the “Airbnb for …” model, token-based structures for renting excess GPUs or data labeling & cleaning services, driven by increased AI demand, have emerged as efficient solutions that previously required costly intermediaries.
The decision to build on an independent ecosystem or an institutional commercialized backend is also crucial. This choice affects whether a company should have its own token or leverage an existing one for blockchain interactions. Broader institutional platforms offer interoperability and supplementary structures but come at the cost of sovereignty and control. The corresponding decision made by management teams should be evaluated on a case-by-case basis, considering its implications for long-term incentives and success.
While adding a proprietary token can introduce unnecessary complexities and potentially create misaligned incentives for some stakeholders, it can also be the most efficient approach in certain situations. Tokens may be particularly suitable further down the technology stack, where investment assets have relatively more resemblance to commodities. Therefore, the expected value accrual based on the decision to use tokens should be carefully evaluated based on the specific context and objectives of the project.
Takeaway
Ultimately, it's not possible to predict exactly which use cases and structures will succeed in achieving mass adoption. We are likely to begin with applications that more efficiently address existing pain points across various industries through solutions more akin to those existing, gradually evolving into less predictable business models. What is certain, however, is that companies are emerging to tackle significant pain points more efficiently using blockchain technology. It increasingly appears to be a matter of when, not if, this technology will become an integral part of our society—even if its presence goes unnoticed by most.
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