Venture capital (VC) investment in blockchain startups fell by 17 per cent in 2016 as compared to last year, with this decline set to continue in 2017, while the focus of blockchain innovation will change, according to research firm Frost & Sullivan.
Citing CoinDesk research into VC investment into global blockchain investments, George Etheredge, research analyst for ICT in Africa at Frost & Sullivan, said investments will continue to decline over 2017, and exemplifies the “dramatic decrease in the hype surrounding bitcoin and blockchain technologies”.
“The main reason looks to be that while there are many proof of concepts, very few people have actually developed working blockchain applications,” Etheredge explains.
This, and the lessened excitement around blockchain technology, has served to discourage VC investors, Etheredge says.
He also believes the focus of blockchain innovation will pivot in 2017, with companies moving away from crypto-currencies, and re-focusing on core blockchain applications.
“Blockchain-like technologies essentially provide a mechanism by which the authenticity of a digital asset can be verified. Naturally, crypto-currencies would be a non-starter, if not for this fact,” Etheredge says.
“In 2017, firms will explore other applications where the verification of digital assets is required. An example here is in anti-piracy where the authenticity of media files could be verified using blockchain-like technologies. Similarly, blockchain is expected to be used to develop ‘smart’ contracts, automatically verified by virtue of the blockchain.”
From the point of view of banks, Etheredge says despite claiming to be exploring blockchain applications, the banking sector will not move to launch blockchain solutions unless forced to by a market disruptor.
“Although all banks in South Africa claim to be investigating blockchain technology, it is unlikely that anything will come of this in the near future. Banks have very little motivation to change their operating models unless incentivised to do so by external factors. I believe it may be possible that banks will guard their blockchain innovations to use as a weapon against disruption in the near future.”