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.
Blockchain Financial Plumbing Is Still Years Away, Says LSE Spinoff Exactpro
- Several major blockchain projects aim to streamline post-trade processing for securities.
- The new systems are still prototypes and need rigorous testing before safely connecting to live infrastructure.
- A former unit of the London Stock Exchange, QA specialist Exactpro, estimates that DLT post-trade systems may still be two years away from such testing.
- The upshot for big post-trade blockchains is the potential for further delays.
If blockchain is supposed to be the new plumbing for the world’s financial markets, then think of Exactpro as the home inspector who checks the pipes for leaks.
A former subsidiary of the London Stock Exchange whose management bought it out in 2018, Exactpro employs some 560 specialists who test trading and clearing systems for traditional securities exchanges, investment banks, brokers and technology firms.
As such, the firm knows better than most the ins and outs of “post-trade,” the back office processing after a trade is complete where buyer and seller change records of ownership and arrange for the transfer of securities and cash.
And in Exactpro’s estimation, distributed ledger technology (DLT) systems are still a few years shy of tough benchmark software tests, which they would have to pass before anyone could use them to handle post-trade processes in the real world.
“I think there are still gaps in technology so we can’t assume that the fabrics already support everything,” Iosif Itkin, co-CEO and co-founder of Exactpro, told CoinDesk. “I think it is still a question of a couple of years before there will be a radical shift from prototyping to software testing.”
What’s more, even when they reach this testing phrase, Itkin is skeptical that they’ll pass at first, telling CoinDesk:
“Based on our experience in post-trade and what we’ve observed with the prototypes, I do have doubts on the outcome of the first rounds of real testing.”
If he’s right, a number of ambitious DLT projects tacking post-trade could have to push their go-live dates further into the future to account for an exacting round of tests.
For example, Digital Asset is busy replacing Australian Securities Exchange’s (ASX’s) CHESS system for cash equities, which had been pushed back until Q2 2021. Meanwhile, the blockchain re-platforming of DTCC’s credit derivatives Trade Information Warehouse is scheduled to go live later this year. And recently, R3 Corda was recently contracted to build the DLT plumbing for Swiss exchange SIX Digital, also slated to go live this year.
So far, Exactpro is only considering the DLT created by R3 (with which it has a partnership), Hyperledger (it’s a member of the consortium) and Digital Asset, and has not focused on any enterprise versions of the ethereum blockchain. (Hyperledger, R3, Digital Asset did not return requests for comment.)
Points of failure
In particular, the most likely points of failure will be where these DLT systems connect to legacy architecture, according to Exactpro, which will present a white paper on its methodology for testing such “hybrid financial software” at the ICST 2019 conference in China next month.
Itkin noted that DLT systems are still largely at the prototype stage and therefore the builders are trying to prove that these things work. The essence of software testing, by contrast, is to try to break it. In other words, pushing an already battle-hardened system to explore its limits is a very different ballgame from proving a prototype can muster a minimum viable product.
“Professional testers always expect that the system will not work,” Itkin said. “Other testers assume that the system will be OK. Good for them. Bad for the live service.”
When Exactpro tests a next-generation post-trade system, as it recently began doing (with non-DLT tech) at Hong Kong Exchanges and Clearing (HKEX), it checks both the functional specifications and also non-characteristic conditions, such as when a huge load is placed on the system, or in the case of a server going down or some other type of service disruption.
Most of the problems, when these systems go live, will happen at the boundary between a distributed ledger and the rest of the platform, Itkin predicts. He pointed out this has also been observed in crypto exchanges, where most of the problems are not within the fabric of the exchange itself, but at the intersection with the “real world.”
Itkin said that when looking at implementing DLT prototypes, his team constantly finds particular parts are not implemented yet. For example, “domain models are absent in most of the areas and software developers need to build them from scratch for every new use-case. In the code, there are still some trade-offs between what is already available and the security/reliability requirements.”
He reiterated that such missing parts are well known to developers and expected to be released in the next versions, adding,
“It is just [that] there is still lots of work to do.”
Itkin added that Exactpro does a fair amount of work in the swaps space and is interested in the possibility of implementing the International Swaps and Derivatives Association’s Common Domain Model on R3’s Corda, adding,
“We are looking at the systems that are most likely to be used as the foundation of the future generation of settlement and clearing systems, and Corda, Hyperledger and DA look like the most probable candidates to serve as the foundation going forward.”
R3 Co-Founder Jesse Edwards Is Leaving the Enterprise Blockchain Firm
Jesse Edwards, one of the co-founders of R3, has left the enterprise blockchain company, CoinDesk has learned.
Edwards, a former Sandler O’Neill investment banker, helped found R3 back in 2014 with CEO David Rutter and ex–Standard Chartered executive Todd McDonald.
In a statement provided by R3 to CoinDesk, Edwards said:
“It’s true that my work here is done and it is time to move on. This has been one of the best experiences of my professional career, and I am incredibly privileged to have worked alongside such a talented and passionate team in building this business. R3 has broken away as the market leader and standout partner of choice for professionals looking to apply this technology to their industries. I couldn’t be prouder.”
His departure appears related to a strategic difference over how to spur investment in startups that build on top of Corda, R3’s blockchain fabric and base for running open-source applications.
Edwards, who was heavily involved in getting R3’s initial funding in place, had been working at R3 on “a side fund targeted for $50 million to $60 million,” similar in kind to the various funds for Dfinity and Tezos, according to a source who wanted to remain nameless. “Adroc was the name of the fund (which is Corda spelled backwards),” the source added.
Instead, R3’s board has opted for what it called “an internal corporate development function,” which the company said will be tasked with supporting early-stage companies building on the Corda platform, and also explore a variety of potential joint ventures, acquisitions, and related activities focused on later-stage companies.
Still, Edwards had long wanted “to set up his own independent investment shop, one dedicated to driving Corda adoption globally,” R3 said in a statement.
As such, R3 and Edwards have decided “it made sense for him to explore his own path, which we fully support,” said the company said. “Jesse remains an investor in and a close friend of the firm, and we look forward to working with him closely in the future.”
R3 said in its statement the firm had indeed earlier explored the idea of launching an outside fund built with R3 capital and supplemented with third-party investment focused on the same goals with early-stage companies.
“Yet after careful consideration, and especially in light of the financial strength of R3, we determined that we would accomplish these objectives more rapidly and with a more streamlined process by doing it ourselves,” the company said.
Rutter praised his departing colleague, telling CoinDesk:
“Jesse Edwards is an amazing friend and colleague, and we continue to invest alongside each other in multiple business ventures. We are forever grateful for the contribution he made to launching R3. People come and go in your professional life, but I am proud and honored to have worked with Jesse at R3, and look forward to continuing our work together in other ventures.”
It’s no secret R3 is getting itself into lean and mean shape for the road to Corda adoption this year.
An internal reorganization back at the end of January saw two members of its management committee depart: Brian McNulty, a managing director and head of global services; and Lauren Carroll, chief administrative officer.
France Won’t Launch Cryptocurrency Anytime Soon: PwC Blockchain Exec
France’s central bank won’t issue its own digital currency anytime soon because doing so would be a complex undertaking that could hurt the country’s flailing economy. That’s the assessment of Pauline Adam Kalfon, a blockchain and cryptocurrency partner at PwC France.
PAULINE KALFON: BITCOIN IS GREAT, BUT COOL YOUR HEELS
Kalfon admits there’s growing interest in bitcoin and blockchain in France.
However, she warned against unchecked over-exuberance, saying the virtual currency economy needs to be battle-tested to ensure that investors are protected from scams, Forbes reported.
“Having said this, Banque de France could seize technological leadership by following European Central Bank guidance.”
“It is clear that a European-level project would be very complex and challenging governance-wise, requiring alignment and the political consensus of all relevant stakeholders from each Member State.”
CRYPTO SHOULD BE ‘BATTLE-TESTED’ BY CORPORATIONS
Kalfon says rather than have France’s central bank issue a cryptocurrency first, it might be a better idea to have corporations such as Facebook or JPMorgan “battle-test” this experiment first.“This would reduce the likelihood of potentially negative consequences on the economy arising from any central bank issuing a digital currency.”
“The underlying rationale is…to achieve the right balance between investor protection and technology friendliness.”
FRANCE’S FINANCE MINISTER ONCE HATED BITCOIN BUT NOW EMBRACES IT
Interestingly, French finance minister Bruno Le Maire was once a vocal bitcoin opponent. He changed his mind in 2018 and started wholeheartedly embracing cryptocurrencies and blockchain.“I was a neophyte a year ago [in 2017], but now I’m passionate. It took me a year. Let us show a lot of pedagogy with our fellow citizens to make France the first place of blockchain and crypto-active innovation in Europe.”
However, Le Maire says the cryptocurrency revolution in France cannot happen without appropriate regulation to protect the public against the numerous scams that have roiled the industry.
Part of the reason for French politicians’ abrupt reversal on crypto has to do with their hopes that France can harness blockchain technology to bolster its anemic economy.
Pro-Crypto French MPs Want to Invest 500 Million Euros to Make France ‘Blockchain Nation’ https://t.co/H4gxrZQKwJ
— CCN.com (@CCNMarkets) December 13, 2018
POLITICIANS: FRANCE MUST BECOME A ‘BLOCKCHAIN NATION’
In December 2018, two members of the French Parliament urged the government to invest up to 500 million euros in blockchain programs to transform France into a “blockchain nation.”
To this end, Deputies Jean-Michel Mis and Laure de La Raudière outlined 20 proposals to promote the mainstream adoption of blockchain, as CCN reported.
“2019 will be the year of the blockchain in France,” Jean-Michel Mis said. “This 10-year technology is moving out of the experimental stage into industrial implementation. The public will see the emergence of its uses in their daily lives.”
Conférence de presse à @AssembleeNat suite à la présentation de notre rapport sur la #Blockchain. Occasion de montrer que les élus peuvent travailler ensemble sur des sujets innovants et aux potentiels essentiels pour notre pays #numérique #technologie #souveraineté #formation pic.twitter.com/JID6awOX8m
— Jean-Michel MIS (@JeanMichelMIS) December 12, 2018
Similarly, Laure de La Raudière admonished France to wake up and capitalize on the blockchain revolution before its rivals China and the United States beat them to the punch.
“France must have a conquering philosophy on this subject. I’m sounding the alarm: It is time to invest. We must accelerate with French and European public money.”