In 2018, the promise of a decentralized future fell apart.
The most widely used dapps have a few thousand daily users and a study of 43 blockchain applications found a zero percent success rate. With so much funding and talent in the space, why do we have so little success to show?
There is a broken process for building and launching blockchains applications today. Rather than working within an low-risk environment that supports iterations and learning, blockchain companies follow a playbook that stacks the odds against their success. By pre-selling a product before it is built, projects set themselves up to failure with unrealistically high user expectations on their V1.
Moving forward, this approach to building creates three problems:
- To appease an early adopter crowd of crypto-enthusiasts, projects preach to the choir and build with the assumption that decentralization is the answer (rather than a means to an end)
- With vocal supporters, projects make sub-optimal decisions by committee
- With a market emphasis on ideas and theory, projects follow the white paper as if it is the final product plan rather than the starting point.
With so little to show from 2018, we have to change how products are incubated and tested. For a better 2019, we can take lessons from how successful technology companies are built and apply them to the blockchain space.
Build a product not a protocol
Many blockchain projects that pitched a future of decentralization just a year ago are realizing you cannot find mass market success by preaching a philosophy alone. Open-source projects as an alternative to closed, centralized networks are nothing new. It has been tried before with Diaspora vs Facebook, Mastodon vs Twitter and DuckDuckGo vs Google.
The takeaway from these projects is the same: openness and decentralization only matter to developers.
Blockchain applications need to go back to basics and ask the question of who is the user and what is their problem. Bitcoin created a way for darknet users to exchange funds online. Ethereum allows developers to run a script on a decentralized computer. IPFS is a way to store censorship data.
No crypto-economic incentive is strong enough to overcome a missing use-case.
Don’t let users tell you what to do
Facebook released the newsfeed to overwhelming negative public response. Apple product launches have all been met with the same media reaction: too expensive to succeed. Netflix moved to streaming and lost over a million customers in the transition.
Some of the most important product decisions that seem obvious in hindsight were controversial at the time. For crypto projects, a vocal community can be the biggest asset or biggest liability. Listen to your users but filter the feedback. Don’t give your users what they ask for; give them what they want.
Focus on iteration over the idea
There is an mistaken perception in crypto that the idea is the most important part of success. So, we see teams focusing on white papers and delaying the launch for years. But what we have learned from how successful technology startups are built is that a good idea is only the beginning.
Two markets with runaway success in 2018 were exchanges (e.g. Binance) and mining hardware (e.g. Bitmain). Binance went from zero to over $1 billion in revenue in under a year. ASIC mining efficiency for bitcoin has increased by over 10 times. In the same year, no decentralized application has seen mainstream success.
The product development cycle for building smart contracts and decentralized networks is excessively slow because the high risks of mistakes are too high (e.g. Parity wallet hacks). Rather than launching and learning from user feedback, teams iterate in isolation and delay the valuable learnings that come from real users. Moving forward, projects should launch earlier and smaller. Test the product with a small group of users, get feedback, and iterate.
Despite a 2018 with few signs of success, I am optimistic about the year ahead.
As seen in the dot-com bubble and burst, bear markets are some of the best times to collect talent and build. That said, as Einstein said, “the definition of insanity is doing the same thing over and over again, but expecting different results.”
So let’s shift to a new way of building in 2019.
Waves Founder Sells Blockchain Startup to Russian Financial Consultant
A startup founded by the Waves platform team, Vostok, has been sold to one of the project’s earliest investors.
According to a report by Gazeta.ru, Waves CEO Alexander Ivanov “sold his stake” in the data management and smart city oriented project to Mark Garber of the financial consultancy GHP Group.
The Waves platform has developed blockchain solutions through partnering with some of Russia’s largest private and state-owned enterprises, as well as global firms, for institutional, industrial, and military use.
Vostok, in particular, aligned with the Russian state-owned conglomerate Rostec in 2018 to securely manage data for the firm’s 700 industrial entities. Additionally, the startup was instrumental in roadmapping the “digital economy” as part of the “Strategic Development Objectives of the Russian Federation up to 2024,” announced by President Vladimir Putin.
Ivanov told Gazeta:
“I would like to focus on the international development of the Waves Platform. The tasks of building a decentralized Internet of the new generation based on the blockchain (the so-called Web3), which we implement in Waves, require my one hundred percent concentration.”
Though details of the deal have not been disclosed, Garber plans to integrate Vostok’s digitalization solutions in GHP’s mining, production, and logistics projects.
Gazeta also reports that Garber holds a stake in the container transporting company Fesco and serves on the board of another trade logistics company, called TransContainer.
Vostok was formed in 2018. Its”Gorod N” project saw a partnership with Nizhny Novgorod region administrators to develop a civic voting and public budgeting solution, which reportedly enables citizens to vote on where tax dollars are spent.
Garber intends to keep the startup’s development team aboard, but will elect a new supervisory board. As part of their initiative to strike larger international deals, Waves will open a Berlin office.
Tether Stablecoin to Launch on 5th Blockchain
The popular and sometimes controversial stablecoin tether (USDT) is to launch on a fifth blockchain.
Announced by the (mostly) U.S. dollar-backed token’s issuer on its website, the news means traders will have a USD stablecoin option on omni, ethereum, tron, EOS and, soon, algorand.
“Extending Tether into the Algorand ecosystem is a fantastic opportunity for us to further contribute to blockchain interoperability and collaboration. … We are very excited about the potential this enables for other projects in the decentralised ecosystem and we eagerly await working closely with many of them in the future,” said Tether CTO Paolo Ardoino.
Tether is widely used by traders to move money in and out of cryptocurrencies like bitcoin without needing to exchange back into dollars with each trade. Crypto exchanges also use the token to transfer funds between each other to avoid having to move lots of bucks through not always cooperative banks.
Despite its widespread use in the crypto markets, the stablecoin has had its issues – including accidentally minting $5 billion USDT during a chain swap process last weekend.
Long a concern to users and regulators, Tether has never released a full accounting audit to prove its coin is backed by USD, as it claimed for years. Its lawyer recently acknowledged that, in fact, USDT was only about 74 percent backed by fiat equivalents as of April 30.
Tether’s relationship with its sister firm, crypto exchange Bitfinex, has also come under the spotlight, with claims the token has been used to prop up the price of bitcoin.
New York’s Attorney General’s office has further alleged that Bitfinex lost $850 million and subsequently used funds from Tether to secretly cover the shortfall, and said that Bitfinex had operated in the state without a license.
40-Strong Blockchain Insurance Group B3i Appoints CEO
Insurance industry blockchain group B3i, which is now building DLT solutions for some 40 member firms, has appointed John Carolin as chief executive officer.
Carolin, who joined B3i as chief financial officer in March 2018, had served as interim CEO since March of this year.
B3i began life back in October 2016 as a blockchain consortium and later became an independent company owned by 17 insurance and reinsurance industry big hitters like Allianz, Munich Re, Swiss Re, Tokio Marine, XL Catlin and Zurich.
The company added $16 million to its coffers back in March 2019, after suggestions it was trying to raise as much as $200 million, according to some reports.
Last month B3i, which aims to use distributed ledgers to streamline back-office processes and claims handling, held a hackathon to let industry members test its platform.
Speaking about the B3i hackathon, Carolin said:
“Our team of subject matter experts is highly motivated, especially following the very positive feedback received last month at our Hackathon to test the initial product.”
Last year, B3i decided to switch from Hyperledger Fabric to R3’s Corda platform. The move was followed soon after by another blockchain insurance consortium, RiskBlock, also moving to Corda.
“I look forward to leading the B3i team as we execute on a bold vision to enable better insurance through frictionless risk transfer,” Carolin added.