Remember blockchain? That transformative tech ready to upend the internet, the financial system, the world? It’s still out there — it’s just taking a little longer than promised to achieve total domination.
In a recent talk from European Startups, a collaboration between Dealroom and Sifted, we heard the latest on a tech that’s tiptoeing closer to the mainstream, and beginning to provide services and tasks beyond sending and receiving coins with funny names.
We spoke to Jessi Baker, founder of blockchain startup Provenance, Nicolas Brand, partner at Zurich and Berlin-based VC firm Lakestar, and Pēteris Zilgalvis, head of the digital innovation and blockchain unit in the European Commission. Here’s what we learned.
1. Blockchain hype has crested
“The whole space has developed slower than I thought — I had a good dose of naivety in 2013,” said Baker, referring to the year she founded Provenance, which tracks the origin of products and their impact. “I learned that this is a multi-decade step-change.”
The hoped-for blockchain utopia is a world unshackled from legacy financial intermediaries — like high street banks — but also from big tech institutions which some argue have evolved into gatekeepers.
Blockchain technology, which is used for verifying and recording transactions, is at the heart of cryptocurrencies like bitcoin and ethereum but faces hurdles to wider adoption.
The hoped-for blockchain utopia is a world unshackled from legacy financial intermediaries — like high street banks — but also from big tech institutions which some argue have evolved into gatekeepers.
“[The internet is] a massive walled garden policed by a few giants,” said Baker.
She wants to see a decentralised network of blockchains take control away from the likes of Google and Facebook. “It’s a really exciting vision for the future internet that allows a fairer tech ecosystem, one that’s in the hands of the many,” Baker said.
“One of the things holding back innovation now is the lack of connectivity between chains.”
2. There are too many blockchains
What would help in achieving this vision is if developers congregated around one or a handful of chains — and if blockchain becomes more standardised.
“It’s quite overwhelming, there’s loads of different blockchains, tonnes of different governance structures — and lots of these structures are quite centralised,” Baker said. “One of the things holding back innovation now is the lack of connectivity between chains.”
“There’s amazing potential for this tech that at the moment is being overshadowed by the crazy energy guzzling.”
3. Blockchains are giant energy hogs
Crypto critics point to the volatility of digital currencies like bitcoin, which can rise and fall upwards of 10% in any given day, as a reason to steer clear.
Another problem they see: blockchain’s growing carbon footprint. “I find it quite frustrating because there’s amazing potential for this tech that at the moment is being overshadowed by the crazy energy-guzzling,” said Baker.
Cryptocurrencies are created or ‘mined’ with enormous computing power, which in turn uses huge amounts of electricity. One bitcoin transaction is the “equivalent to the carbon footprint of 1,869,814 Visa transactions or 140,608 hours of watching YouTube,” according to Digiconomist.
There are various efforts to clean up blockchain. Ethereum, the world’s second cryptocurrency, is investing big money in so-called ‘proof of stake’, a mechanism which does away with the energy-intensive mining process required by ‘proof of work’.
In April, a coalition of crypto bodies announced the Crypto Climate Accord, an industry-driven pact in which signatories vow to switch to renewable energy sources by 2025 and go completely net zero — eliminating greenhouse gas emissions altogether — by 2040.
“Some of this stuff clearly is mind-bending.”
4. Virtual sneakers are a hot new blockchain thing — no, really
Digital currencies are slowly invading art, sports and entertainment. They’re also playing a part in the emerging virtual fashion world.
You can now buy blockchain-compatible trainers, for example, meaning the physical shoe you own also has a digital twin with a unique identity token. What this potentially does is kickstart a market for rare digital trainers. “Some of this stuff clearly is mind-bending,” said Lakestar’s Brand. “But those sneakers can be proven to be truly yours; that’s powerful.”
Aglet, one of Brand’s portfolio companies, has created its own digital sneakers. The company, based in Los Angeles and Dusseldorf, wants to create a “metaverse for commerce,” where online and offline consumer experiences fuse together.
‘Pokemon Go for sneakerheads’ is how Aglet describes its concept, which involves limited edition ‘drops’ of virtual sneakers at locations around a city and players going to those spots to add the virtual sneakers to their collection.
Yes, it sounds a bit crazy. But virtual brands are a natural extension of our increasingly digital existence, Brand explained. The pandemic has been a “tailwind for the crypto world, with people hang[ing] out more online now,” he said. “If you talk to Gen Z and ask, ‘When are you offline, when are you online?’ they don’t get the question. They don’t make that distinction.”
5. The top engineers are joining blockchain companies
Blockchain companies are magnets for talent, apparently. Lakestar keeps track of the movements of engineers after they leave top tech companies like Apple and Amazon. “They’re [mainly] going to AI and blockchain companies,” Brand said.
As market signals go, it’s not a bad one. “The desire to experiment in decentralisation today, independent of the [blockchain] hype cycle, has never been higher,” Brand added.
6. The EU: regulatory blockchain trailblazer?
Experiments with digital ledger technology continue apace in Brussels and Luxembourg. In April, the European Investment Bank sold the world’s first syndicated digital bond. To carry out the deal, the bank issued bond tokens registered on the public Ethereum blockchain network. Investors paid for the tokens using traditional currency.
Crypto’s libertarian wing would likely baulk at the enthusiasm displayed by EU institutions for this new decentralised tech.
The next big EU project involves building up blockchain infrastructure in the 27 member states. The Commission is also throwing its weight behind plans to introduce a digital euro.
Crypto’s libertarian wing would likely baulk at the enthusiasm displayed by EU institutions for this new decentralised tech. But, actually, the blockchain is a great fit for the EU, argues Pēteris Zilgalvis, head of the Commission’s blockchain unit. “Because it is multi-level, it enables multi-level governance,” he said.
Legislation — though much feared by core blockchainers — could perhaps even empower the tech.
Zilgalvis sees a future where EU citizens save time and money accessing public services on the blockchain. Third level diplomas will go on a public chain for example, he said, ending school leavers’ awkward and tedious tracking down of exam results from college administrators.
Legislation — though much feared by core blockchainers — could perhaps even empower the tech. A new German law, for example, allows for hefty fines starting at several hundred thousand euros for companies if their contractors abroad are found to breach human rights or environmental rules. What better way to demonstrate your supply chains are free of human rights abuses than using the transparency of the blockchain?
Still, this shift won’t happen overnight. “Supply chains are not digitally native networks — they’re almost the furthest away from that of all the things you can imagine. It’s not like a bunch of gamers connected on Twitch [the streaming platform]. It’s more like ’80/’90s-era teletext tech they’re using,” said Baker.
7. Blockchain will allow us to create our own personal currencies
Ultimately, Baker sees a world where more interactions will be turned into transactions — or ‘tokenised’ — via the blockchain.
She hopes this method can someday help conserve at-risk parts of the world. You could tokenise a forest, for instance, via an initial coin offering, selling cryptocoins or tokens to the public.
Humans may also one day receive tokens, a kind of money, from companies in exchange for access to our data or our time. “I’m a die-hard believer in tokens. Whatever you can link to finance, the potential is enormous. I think we will tokenise our own personal data in the future to health companies [for example]. Why not?” Baker said.
“What we’ve seen over seven [or] eight years is real systems butting up against the new decentralised model.”
8. Some blockchain ideas are ‘mildly insane’
Blockchain’s appeal lies in the way it can theoretically streamline complex processes. Still, the barriers to wider use remain significant, said Baker.
The tech’s underlying principle is there is no central authority controlling a single ledger. Everyone who is part of the system controls a shared record.
Baker’s early blockchain pitch, then, was to create a fully transparent supply chain between food producers and retailers, with everyone able to see each other’s records.
She now calls the idea “mildly insane in hindsight. It’s such an unequal supply chain — the fisherman in Indonesia in no way has the same power as the supermarket in the UK,” she said.
“We have a mechanism but that network doesn’t want to be fully transparent. What we’ve seen over seven [or] eight years is real systems butting up against the new decentralised model,” she explained.
After Baker’s main idea went on hold, her company, Provenance, did “a major pivot”. Now, the focus is on tracking product impact.
“We created a feature called ‘proof points’, which looks at things like whether a product is carbon neutral. This is a much easier application for us to run on a blockchain and that impact could become a financial asset [to a company] one day. We could use it to drive loyalty [to a brand] or things like that,” she said.
Tesla founder Elon Musk, meanwhile, keeps tweeting about Dogecoin, a currency that started as a joke based on a meme about a Shiba Inu.
9. Elon Musk and Doge are distractions
There is plenty of fun and madness in the crypto world. You have Reddit forums bubbling with financial advice. There’s an annual celebration to mark the day that guy bought a Papa John’s pizza using bitcoin. Tesla founder Elon Musk, meanwhile, keeps tweeting about Dogecoin, a currency that started as a joke based on a meme about a Shiba Inu (it’s a breed of dog).
But the constant online noise surrounding cryptocurrency is not really doing blockchain techies many favours.
“It’s a shame that people focus on the price [of cryptocurrencies] and what Elon [Musk] thinks when this could be the future of the internet. It could recalibrate capitalism. I wish more people could see it like that,” Baker said.
To find out more about the coming blockchain world, you can watch the full European Startups talk here.