The Blockchain Market of 2016
In late 2015, the market for blockchain technology began to shift with regard to financial applications. Much of the discussion still revolved around digital assets and exchange markets, but the industry's incumbent financial institutions began to realize that securing these assets required a capable identity management system and solutions for private storage. If assets were to be traded on a blockchain, they needed to identify the users. This sparked exploration into bitcoin-wallet-like solutions for financial identity and the various types of data that could be attributed to them.
In 2016, interest in blockchain technology exploded in every direction, inspiring significant trends across finance, identity management, supply chain technology and healthcare. New models of identity and access management, distributed registries, data attribution models, and digital asset exchanges have emerged, changing the dialogue from "what is a blockchain?" to "what can it do differently than x?" 2016 was a year of discovery, in which new enterprise opportunities challenged us to define what this technology is - and what it isn't.
2017 will be a year of rapid iteration of these discoveries, with companies at every stage trying to quantify the business impact of blockchain-based applications - and build them. Discussions will inevitably move higher in the stack, toward the business use case, which will drive more interest in app layers, APIs, platforms, messaging systems, and smart contracts. It will be a time for hyper growth in technology and architecture as companies seek to prove how to unlock value and how to implement it.
Functionality and identified value impact will drive the demand for scale, and network and protocol development will need to converge. Fortunately, 2016's developments have laid substantial framework for ledger networks of different shapes and sizes. If you follow the history of the internet, it was the adoption of intranets that drove the adoption of common protocols and infrastructure like TCP/IP to connect them all . If we follow the same path, then the open source, consortium and working group efforts to develop these protocols will play a critical role in scaling these solutions.
2016 Takeaways - Protocol Plays, New Markets and Hype
One major trend of 2016 was the emergence of a competitive enterprise protocol market. The Chain Protocol , Intel's Sawtooth Lake , Corda from R3, and the IBM Blockchain are just a few. This trend is rising to meet the demand for different types of blockchain architecture, and the new protocols range from being purpose-built to more general use. One defining characteristic of this trend is that many of the protocols that sprang up in 2016 were presented by companies offering other platform, application and infrastructure products - where the addition of a blockchain adds to a total solution.
This year was also a great year for new markets with blockchain technology gaining interest in healthcare, insurance, supply chain technology and IoT. As we close the year, more markets are heating up, like adtech, energy and digital rights management. These industries see data as the new asset class, because when secured against a blockchain network, the data's integrity has global consensus. These markets are quite nascent with much discovery still ahead, but the wider success of the technology in Bitcoin and in enterprise finance will accelerate the demand to begin development.
One of the biggest challenges this industry faced this year is a measure of its success - the hype cycle. As the industry races to answer a growing audience, the hype takes on its own narrative often misleading the capabilities or blurring the layers of the tech. It comes as a relief to many decision-makers to find that blockchain technology is not going to gut their decades of investment into IT infrastructure but connect it. This year, the entire industry was consumed with defining what, technically speaking, a blockchain is, but the customer base is more concerned with what it can do and why it matters. Dialogues around the technology will shift dramatically in 2017. Companies will emerge who use blockchain technology, but it will not be their calling card.
Signals to Look for in 2017
Companies who are now entering the fold may not need the "blockchain 101" primers of early 2016. The new market focus is less about understanding consensus mechanisms and block size, and more about how the technology is differentiated in terms of capabilities. Continued investment by major companies into blockchain technology answers the "why" for most people. It's time for the industry to show them "how." We should expect a rise in white papers on business impact, sandbox blockchains, and engineering experts in particular domains joining startup companies. This is a signal for hyper growth among companies with complete product vision.
"Blockchain" will continue to become more of a blanket term for distributed ledger technology (DLT) as the form and function of distributed ledgers look less and less like their blockchain origins. The novelty of blockchain technology will continue to attract companies, but the impetus to implement will be driven by perceived business impact versus "blockchain fomo." Some will view the changes in technology as dilution of the original concept and some will view it as expansion.
So as you're drilling down on your blockchain use case - as it becomes more federated, as the data becomes more centralized, as the programming becomes more opaque - you'll have to return to the question of "why blockchain?" If you believe that the network you're building, however federated in its early stages, will require (or could benefit from) multi-system and multi-party participation in the future, blockchain technology remains relevant.
As the conversation moves up the development stack, we'll see increased focus on applications, smart modules, listening services and smart contracts. Companies that are exploring blockchain technology are asking about identity management, data resolution and network connectivity solutions. The processes they are looking to innovate are higher level than protocol administration, which places a lot of focus on the app layer. 2017 will see the emergence of more companies who focus on contracts, messaging and other feature-adds, either vertical-specific or for the blockchain developer ecosystem.
At Gem, I talk to a lot of companies who are discovering this technology for the first time. The experience usually starts out with a bit of skepticism followed by far-flung ideation. Strong use cases stand out, and the path for developing them materializes through conversation and a lot of whiteboarding. This is when it starts to feel real. There's a shift in energy because we realize the opportunity and now we have a plan. Putting the plan into motion requires collaboration and a process of rapid iteration and discovery of key learnings.
Going into 2017, the energy is shifting. The technology is still nascent, with many markets just now waking up to the topic, and the hype cycle isn't slowing down . The underlying protocols, their governance, and the communities that develop them are the key to scaling the business applications and will continue to play a critical role in defining what is possible. But the conversation is moving upward, and companies are ready to build, test and iterate these ideas. These layers will eventually come together to form a new type of digital supply chain, in which information is the asset. And when the business impact and technology converge, you'll want to be on the right side of the disruption.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
