Anyone who remembers the “dot-com” boom — and subsequent bust — of the late 1990s might be having flashbacks amid the hype surrounding the terms “cryptocurrency” and “blockchain.”
But proponents of the emerging technology underlying the new buzzwords say it largely deserves the attention it’s been getting, and they turned out in force at South by Southwest to make the case.
Dozens of “crypto”-related panels and events dotted this year’s conference, with titles ranging from the relatively staid “Blockchain Meets Reality” to the more frothy “Why Blockchain Tech Equals 10x the Internet’s Value.”
Many speakers acknowledged that excitement surrounding the technology has led to huge amounts of investor speculation, surging prices for hundreds of half-baked “virtual coins” and a proliferation of fly-by-night promoters angling to capitalize.
But similar to how the Internet two decades ago ultimately lived up to its billing as a disrupter of commerce and communications worldwide — despite many of the early, hard-charging “dot-com” startups falling by the wayside and becoming roadkill — they said the potential for blockchain and virtual currencies is vast.
“There is a lot of underlying (blockchain) technology that is being built that is applicable to every single industry,” Jalak Jobanputra, a New York-based venture capitalist, told a crowd of SXSW attendees. “Every industry that was affected by the internet will be impacted by this.”
‘A lot more applications’
Boiled down, a blockchain is a database — or “digital ledger” — that’s distributed across far-flung, independent computers. Additions to the ledger are verified and replicated automatically across the network, providing an authenticated chain of entries as well as confidence that changes can’t be made without everyone knowing about it.
Bitcoin, the first and highest-profile cryptocurrency, is underpinned by blockchain technology.
Ethereum — created in 2014, five years after bitcoin — is the second most-traded cryptocurrency, and its open-source software platform takes blockchain technology a step further by adding a programmable element. The result is the potential for so-called “smart contracts,” in which complex instructions can be encoded into the digital ledgers and automatically executed when pre-programmed conditions are met, opening up myriad possibilities aside from merely enabling the creation of stateless virtual currencies.
“You are going to see a lot more applications built besides currency,” said Kim Jackson, a film producer and co-founder of SingularDTV, a company creating blockchain applications for the entertainment industry.
Jackson, speaking during a panel titled “Blockchain & the Impact of a Decentralized World,” said the technology will reduce the number of intermediaries that artists currently have to go through to reach audiences and retain control of their work.
Distribution rights, royalty management, pricing and other provisions all can be “tokenized” into single digital units and then sold repeatedly, she said, with the conditions executed instantly upon purchase and able to be tracked.
“It alleviates the need for the intermediary and brings people closer to their fans and to the artists who they love,” Jackson said.
‘Cover the trust gap’
Proponents say blockchain’s potential to drive such decentralization is among the keys to understanding its capabilities. They say the technology can cut out middlemen — or central gatekeepers — in industries ranging from banking and finance to retail and shipping.
“The most valuable thing blockchain can do is really cover the trust gap between two companies” and thus reduce the need for third-party verification, said David Johnston, chairman of Austin-based blockchain company Factom.
During a SXSW panel titled “Quantifiable Business Benefits of Blockchain,” Johnston cited the mortgage sector as an example. He said blockchain and its digital ledgers can substantially decrease the steps and personnel needed to verify financial information and originate new home loans.
A number of major companies have been experimenting with blockchain technology. Among the efforts, an organization called the Enterprise Ethereum Alliance — which includes Microsoft, Intel and others — was formed last year to develop standards and applications.
Still, most real-world uses for blockchain technology are still just at the concept stage or have very little adoption. Similar to the dot-com era, however, that hasn’t stopped hype surrounding the possibilities from fueling a speculative investment frenzy.
Bitcoin was trading Wednesday at about $8,400 per token, according to Coinmarketcap.com, which provides cryptocurrency price quotes. It has fallen significantly since hitting an all-time high above $20,000 in December.
Ether, which is the name for individual Ethereum tokens, was trading Wednesday at about $620. Ether climbed nearly 10,000 percent in 2017 after beginning last year at about $8 per token, and it hit an all-time high above $1,400 two months ago before slumping.
Meanwhile, hundreds of companies — including some with only cursory business plans and no products — have been attempting to capitalize on investors’ thirst for the next hot cryptocurrency. Billions of dollars have been raised through so-called “initial coin offerings,” a form of crowdfunding in which companies create tradeable digital tokens and sell them to investors based on the possibility that the tokens someday can be exchanged for their goods or services.
‘Enable better behavior’
The U.S. Securities and Exchange Commission has said that at least some promoters of initial coin offerings and cryptocurrencies could be violating securities laws, and the agency recently began a wide-ranging inquiry into the fund-raising mechanism. Regulators in some states also have been attempting to crackdown on potentially fraudulent crypto-related investment schemes, with the Texas State Securities Board among the most active.
Joseph Lubin, a co-founder of Ethereum, said at SXSW that he has no doubts there are “scam” operators in the emerging cryptocurrency sector, and he said he welcomes regulatory scrutiny to root them out.
“I think it’s prudent for the SEC to let people know that they are watching,” he said. “I think that will enable better behavior (and) I think it is very healthy.”
Still, Lubin said investor excitement surrounding blockchain is a good thing, because it increases awareness of the technology’s potential and spurs more research and innovation in “a positive feedback loop.” He made the comments during a session titled “Why Ethereum Is Going to Change the World.”
“Prices going up drives attention,” said Lubin, a Canadian entrepreneur who also started ConsenSys, a company that builds Ethereum applications. “So it’s good news that our ecosystem is growing and bringing in value and attention.”
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