I’ve been thinking about some of the problems of blockchain startups and what (if anything) can be done to address them. The fact is, this “Web 3” revolution has been very slow to get going. I had expected it to ramp up faster, but instead the industry is still overly focused on cryptocurrency speculation and promoting new protocols (such as the various Ethereum killers). The speculation won’t stop until there’s a market crash, but it’s the lack of progress on the product side that most concerns me. It’s not protocols we need now, it’s products! Where are the betas of the Web 3 products that consumers will eventually use?
This concern has led me to identify three key challenges with the blockchain startup ecosystem. If we can make progress on each one before the year is out, I think the industry will be in a much better place.
The first problem is a communications one: blockchain is (still) incomprehensible to most people. I should note that with Blocksplain, my goal is to uncover the market opportunities for blockchain for entrepreneurs, business people and early adopters. So this blog isn’t for the general consumer, at least not at this time. That said, I had expected by now that we’d at least have some interesting new products to showcase to our non-tech friends – apps we can point to and say “hey, you’ll be using this product in a year or two.”
Yet all we have so far is CryptoKitties and hundreds of ICOs that all claim – via their white papers – they’re building products for consumers. But what I’ve found with these ICOs is that there’s either no product yet (e.g. Augur) or if they do have a product it’s seriously flawed (I’ll get to an example shortly).
What I’m saying is that it’s understandable most people don’t ‘get’ blockchain yet, because there’s no real product evidence of its use. Here’s a good illustration. This week, one of my country’s main two TV networks ran a primetime news story about a local blockchain company called Centrality. I was interviewed for the story, but in the end only a short soundbite was used. Regardless of my minor involvement, the feedback I got from people who watched the news that night was mostly incomprehensibility. Even after seeing the story, friends and family still had no idea what blockchain was – even though the reporter, Patrick Gower, actually explained it very well. But I don’t blame people for not understanding, because the subject of the story wasn’t Centrality’s products. Instead, the focus was on how much money the company thought it was worth.
Which leads to the second key problem in the blockchain startup ecosystem currently: almost every blockchain company is wildly over-valued. In the above case, Centrality’s claim to fame in New Zealand is that it’s the only kiwi company in the top 100 of CoinMarketCap. The problem is, as I made clear in a column I wrote about Centrality at the end of January, its product range is currently immature and there is no real evidence that it can build what it claims in the white paper. In short, I don’t think it’s worth anywhere near its current CoinMarketCap valuation – let alone the extra few hundred million dollars the founder tried to tack on during the TV interview.
I had told Newshub’s Patrick Gower, in a section of my interview not used in the tv clip, that I also think many other companies on CoinMarketCap are wildly overvalued. Why? Due to their lack of product and often unsubstantiated technology claims. That’s the context for me saying we’re in a bubble.
So it’s not just Centrality I’m calling out. It’s nearly every blockchain startup that has a hundred-million dollar or more “market cap.” These valuations have no basis in reality. I’ve had some experience as an angel investor and most of the early-stage startups I come across have valuations below, or just above, $1 million. Many of the ICOs I’ve looked at are not even as mature as these angel-seeking startups, yet they’re worth over $100 million? It’s absurd.
The third key problem with blockchain companies right now is the poor usability of early products; and in particular the dangers of the immutability “feature” of blockchain. This is something that was brought home to me last week, after I reviewed a promising Twitter alternative called Peepeth. Even while I was testing the product, the usability of setting up a Peepeth profile bugged me. Not the Peepeth website itself, rather the app I had to use to establish my identity and make Ether micropayments with: MetaMask.
Long story short: due to a mistake I made using MetaMask, I permanently locked myself out of my Peepeth account! I had inadvertently created more than one MetaMask wallet and neglected to back-up the correct one. This not only means I lost the ETH I had transferred to that account (fortunately only about $10 worth), but I now cannot log back into my Peepeth account. Since there’s no central authority to reset my account, the immutable nature of blockchain means my login for that Peepeth account is lost forever.
Let me be clear, this was a case of User Error. I should’ve been more attentive when using MetaMask. Nevertheless, it does illustrate the user problems that can arise when you have a fully decentralized, immutable blockchain app. For the industry to get mainstream take-up, it has to solve these usability issues and do more to prevent this kind of user data loss (not to mention money loss).
In summary, I think we – the blockchain industry and media – have a long, long way to go before we can expect mainstream people to take blockchain seriously. It starts with making blockchain understandable, and the best way to do that is to showcase beta products. Not writing white papers, but building products. Secondly, we have to get real about market valuations. I suspect that will only happen once the market crashes (which I have no doubt it will at some point, given the current absurd valuations). And thirdly, we have to address the crippling usability problems with blockchain. Immutability sounds great in theory, but in practice it has serious downsides.