I called the massive Bitcoin bubble less than two months before it popped – or perhaps my articles helped it pop, who’s to say? In any case, I’m calling another bubble – and given I now have a 100% track record on these things, perhaps people should listen.
Today, the entire blockchain/cryptocurrency hairball is itself in a massive bubble. Rather than speculation in cryptos driving the market over the cliff, however, it’s speculative interest in initial coin offerings (ICOs).
This is no mere currency play. Deep pockets with more money than sense are betting on an entire market full of startups, largely because of FOMO – ‘fear of missing out.’
All this hullabaloo is giving me a serious case of déjà vu. I’ve lived through such a bubble before – the dot-com bubble of the turn of the century.
Unlike most of the blockchain/crypto players out there who were children at the time, I saw the craziness of the dot-com runup and bust from the inside. Similarities to the current bubble abound.
Lest we make the mistakes of the past, however, it’s also important to point out the differences. In truth, the two bubbles only have superficial similarities. We can only gain wisdom by understanding both how they are alike – and how they are different.
How they’re similar: All the money pouring in is bringing out the scammers in droves.
In contrast, the money has poured into the blockchain/crypto world much sooner. The speculative interest in Bitcoin led to an explosion of speculative interest in other cryptos, and in turn, in ICOs – long before the businesses getting the funding had any real customer base.
As a result, it’s hard for any investor to differentiate the honest ICOs (assuming there are any) from the scam ones, since neither is likely to have a running business with paying customers. In addition, scammers are taking advantage of the mad rush to this market, preying upon the confusion and ignorance, as well as the lack of adequate regulation and enforcement.
How they’re similar: There is a massive speculative investment bubble that is bound to collapse.
How they’re different: The fact that the dot-com boom had a longer runway impacts the nature of its bubble. During the dot-com run-up, most of the speculative interest was in public companies on NASDAQ. While many were not profitable, at least they were in business, and had their act together well enough to navigate the complexities of an IPO.
In addition, the public status of many dot-com players forced them to open their books, so that everybody could see when a company was unlikely to ever turn a profit.
With blockchain/crypto, the speculative interest is primarily in ICOs for companies not yet in operation, or just launching their operations. All these investors have to go on are each company’s white papers, which they typically write in order to avoid regulatory attention, rather than to conform to it as in the dot-com days.
The risks, therefore, are far greater this time around. The rewards? Not so much.
How they’re similar: Talk of a ‘New Economy.’ Widespread belief that business will be forever transformed.
How they’re different: The dot-com ‘New Economy’ centered on web-based business models disrupting ‘bricks and mortar’ precursors. Yes, the Internet changed the world – but it turned out the Web was really little more than a new marketing channel.
Just how much blockchain/crypto will actually change the world remains to be seen, but it’s shaping up to be nothing more than a better way to conduct multi-party transactions.
Furthermore, much of the ‘New Economy’ buzz around blockchain/crypto is mostly around crypto’s use as money. The dot-com era had no equivalent, unless you count money alternatives like Beenz and Flooz. Don’t remember Beenz or Flooz? Maybe there’s a reason.
How they’re similar: All the hype and speculation obscure some real businesses that will survive the crash and disrupt the world. Perhaps that disruption will be so great as to swamp the silliness that came before.
How they’re different: True, dot-coms like Amazon and Google survived and ended up disrupting the world. But other than those two exceptional cases, disruptive dot-com survivors are few and far between. Yahoo! survived the crash but is no more. eBay caused its fair share of disruption in its day, but nobody cares about it or companies of its ilk anymore. It’s hard to even think of many others.
It’s too early to be sure about blockchain/crypto, of course, but the most disruptive ideas are plans for fully distributed platforms of various sorts. Just one problem: because they are fully distributed, founding such a platform isn’t a good way to make money.
It’s no wonder so many blockchain platform businesses are ‘dot orgs.’ They have no clear business model. Amazon and Google may have been among the only broadly disruptive dot-coms to survive, but so far there’s no new blockchain/crypto Amazon or Google in the offing.
How they’re similar: A handful of open standards-based technologies are at the heart of the movement.
The dot-com era’s B2B standards like ebXML, however, didn’t fare as well. The complexities of business interactions largely proved too complex for the standards of the day.
Unlike core Internet standards, core blockchain technologies have a far narrower applicability. Because of its multiparty transaction sweet spot, blockchain’s promise lies in B2B transactions.
However, just as with the dot-com days, nascent blockchain standards aren’t likely to address general B2B scenarios.
In fact, it’s not clear if a core set of generalized blockchain standards is going to coalesce, as many of the standards efforts underway are industry-specific.
Finally, what about the security standards that underlie blockchain? Such standards predate the blockchain/crypto movement, and in fact, some of them date to the dot-com era.
How they’re similar: A vast community of techies, entrepreneurs, investors, consultants, and others are changing their career paths to join the new community.
On the one hand, this exodus is depriving enterprises of desperately needed expertise. On the other hand, when the bubble bursts, these people will return to more traditional employment, the better for their experience.
How they’re different: The people at the heart of the dot-com movement were a mix of university intellectuals and US Department of Defense and other government techies. In fact, it wasn’t until the US National Science Foundation ended its sponsorship of the Internet in May 1995 that it was technically legal to build a for-profit business (aka a ‘dot-com’) on it.
The initial instigators of the blockchain/crypto movement – early Bitcoin insiders – couldn’t have been more different. This crew was a core group of radical libertarian anarchist misogynists, intent on bringing down the global financial system.
Even though the blockchain/crypto community has expanded well beyond this rotten core, its radical principles still pervade the movement. The belief that decentralized transaction processing holds the moral high ground over its centralized alternative impacts blockchain businesses broadly, even those business that have nothing to do with crypto.
The problem with radical libertarian ideals, of course, is that they are really only good at one thing: giving criminals cover. Organized crime in particular has ridden the coattails of this trend, and now threatens the entire permissionless side of the blockchain/crypto movement. Nothing even remotely like this craziness took place during the dot-com days.
The biggest difference between the dot-com and blockchain/crypto bubbles, of course, is that we know how the former ends, while the latter is a book that is still being written. There is always the possibility that cooler heads will prevail where they didn’t before, thus proving skeptics like myself wrong.
All indications, however, point to the opposite happening. The blockchain/crypto bubble is more inflated, more scam-ridden, more devoid of business value than the dot-com craziness ever was. And it will pop much more loudly as a result.
Copyright © Intellyx LLC. Intellyx publishes the Agile Digital Transformation Roadmap poster, advises companies on their digital transformation initiatives, and helps vendors communicate their agility stories. As of the time of writing, none of the organizations mentioned in this article are Intellyx customers. Image credit: Beenz and Flooz.