waves-Blockchain’s Third Wave is going to be fun
Whilst it’s too early to write the definitive history of blockchain, I’m borrowing some terms from feminism (or ska, or coffee…) to chart the development of the tech and its use to date. My sense is that as we enter the Third Wave of blockchain, the time to get really excited is right about Now.
Back when it launched, bitcoin was groundbreaking but utterly obscure. To begin with, almost no one knew about it. There were a relative handful of miners — notably Satoshi, who collected around a million coins over this period. A chart of bitcoin addresses by age over value gives the broad picture: hardly anyone else was involved for the first three years, and Satoshi’s coins have never been moved (courtesy of John Ratcliff).
We’ll call this Wave Zero, or the Geek Days of blockchain — when bitcoin was blockchain, and the only people who used it were hobbyists, anarchists, a guy who desperately wanted a pizza — very early adopters who saw something special and explored it out of sheer curiosity and enthusiasm for the new.
Successive Waves of blockchain broadly correlate with market cycles, but are about far more than that — and ultimately about far more than bitcoin.
The First Wave: bitcoin
Blockchain’s First Wave began sometime around 2011, as bitcoin began to attract some degree of attention — again, the chart above suggests that mining and overall activity cranked up a few notches at this point. This was the era when bitcoin was established as the blockchain protocol, the only show in town. Its security was tested, userbase built, bugs ironed out, all before there was any real competition. Enterprising users figured out it was the ideal currency for certain types of illicit transaction — partly thanks to its relative anonymity, and partly thanks to the fact that the authorities had barely caught onto its existence yet.
That Wave culminated in the massive hype of 2013, first with the bubble fuelled by Cyprus’s economic problems and then by the China-led bubble of November/December, which pushed bitcoin’s prices to their still unmatched high. It was the heyday of speculation, with MtGox still functioning and leading the market. Bitcoin hit the mainstream news on a regular basis thanks to its volatility and association with the Silk Road. And then, as abruptly as the bubble began, it ended.
The Second Wave: the proving ground
The result of flying too close to the sun was a near two-year period of depression, for the market and for blockchain overall. MtGox’s implosion was on a scale large enough to lead not only to soul-searching but existential angst from many both within and outside the community. Criticism from the mainstream media was harsh, scepticism rife.
New protocols had begun to within the First Wave, but few had achieved any success. Litecoin picked up a lot of users and market cap, taking second-mover advantage. But it represented little fundamental innovation over bitcoin.
That picture changed markedly over 2014 and 2015. That period of time was a Cambrian explosion of innovation, with new technology developed rapidly and being tested by the market. It was fuelled by bitcoin’s own fall, as holders threw value at other projects in the hope of gaining returns. Few came to anything. Pump-and-dump clone coins, exit scams and hacks were a weekly occurrence. The market cannibalised itself, a zero-sum economy amid the backdrop of a falling and stagnating bitcoin market cap. Money lurched into and out of different projects, and very often back into fiat. It was the Wild West, crypto’s Environment of Evolutionary Adaptedness, and it was brutal.
This was a harsh and formative time in blockchain’s history. Those two years were a testing ground — not just for technologies but for business models, developers and entrepreneurs. A lot of people came and went, some made money, a lot more lost it. It was a tough period; it’s hard to stay optimistic when the market is haemorrhaging and your investment of time, money and effort along with it. Regulation hadn’t really caught up, exchanges generally still weren’t operating on best practices and criminals had a field day.
Those who were still standing at the end had earned their place in the future of crypto, having clung on by their nails through a time of cynicism, disillusionment and often substantial personal financial loss. But this phase also laid a solid foundation for the next one. We learned what worked and what didn’t — and a lot didn’t work — and more importantly why. We learned who could deliver reliably on their promises. Those who were cut out for the long haul tended to cluster together, knowing they had found the movers-and-shakers they could rely on to do a good job. Reputations were forged and those who weren’t competent or honest selected themselves out of the circles of influence. Any mainstream business that launches in a recession knows that if they can survive that, then they’re well-positioned for the next cycle. It was the same through 2014–2015.
Third Wave: application and early mainstream adoption
Characteristic of the Second Wave was the development of the major crypto infrastructure — basically bitcoin and crypto exchanges and brokerages, as well as ‘2.0’ platforms — but also a large number of smaller, less formal initiatives. As is the case with most start-ups, the majority failed, or at least failed to gain much traction. But the lessons that were learned and the relationships that were established paved the way for the Third Wave.
The tech had substantially developed and matured over the course of 2014–2015, but it was the reputations and relationships that made the difference. Blockchain’s Third Wave is less about innovation than it is about application. The Second Wave saw huge technical innovation but little adoption. The Third Wave will be about the meaningful application of this technology to real-world problems. (It’s fair to say this with a high degree of confidence, because we can see it happening in front of us.) The increasing professionalism of the sector, the clearer regulatory environment, better understanding of pinch points and business needs in which blockchain can make a difference — this is the point at which, to use an analogy, TCP/IP became e-commerce. Businesses are now grasping how blockchain can make them more efficient and more effective, and blockchain developers and entrepreneurs are in a position to deliver those solutions.
Bitcoin itself has taken a backstage in all this. The dialogue has decisively moved on from bitcoin to blockchain. Backstage does not mean irrelevant, by any means; bitcoin is still the reserve currency of the crypto world and it is still the largest and most secure blockchain. It’s the best way of transferring value peer-to-peer, but it’s fair to say it’s starting to look more like a foundation than the edifice itself.
Critical to the Third Wave will be blockchain platforms like (no pun intended) Waves and others that are arising from the crowdfunded development of the last several months. However, it’s in the nature of blockchain that it should always be under the bonnet rather than in plain sight, and hence these platforms will serve in the same way that Linux or Intel chips do — as infrastructure that powers a broad range of applications rather than as the application itself. That, unfortunately, is one of the things we tended to overlook in the First Wave (back when bitcoin was everything) and learned the hard way in the Second (when innovation for innovation’s sake so often failed to take off). But once the right toolkits have been created, it’s relatively trivial to create applications on top of them. This is what we’ll be doing in the remainder of 2016, as the projects founded over the past few months come to fruition and launch in the autumn/winter and through 2017.
In the future, we can expect a Fourth Wave of government- and commercial-bank-backed blockchains, which are the subject of intense research and development at the present time. These will mostly be permissioned ledgers, and it remains to be seen how they will compete and co-exist with the open platforms of the earlier Waves of blockchain development. Alongside these will probably come a Fifth Wave, which will make blockchain a near-ubiquitous feature of life through IoT devices. But both of these are still some time away, and in the meantime, anyone who has had their ear to the ground and moved in the right circles has every right to be very excited.
UK-based cryptocurrency writer and communicator since early 2014. Editorial Director for @bitscanner. Direc