Bitcoin and Blockchain Seem More and More like Solutions Looking for a Problem

The bitcoin and blockchain world is in a bit of an investment slump.

Venture money flowing into startups working on cryptocurrencies or the technical principles underpinning them, generally known as blockchain technology, is getting harder to come by, according to data from trade publication CoinDesk.

“It really seems like we’re in a slow phase with bitcoin and blockchain right now where people are mainly building infrastructure,” says Zavain Dar, a venture capitalist at Lux Capital who has taught classes on cryptocurrency at Stanford and has invested in Blockstream, one of the biggest companies in the sector.

What’s more, efforts to adapt blockchain tech to replace legacy financial systems by the world’s biggest banks seem to be hitting roadblocks. This week saw the departures of Goldman Sachs and Santander from one of the highest-profile attempts to create a consortium of financial institutions to work on the technology, called R3CEV.

It seems both risk-loving venture capitalists and generally risk-averse banks are dialing back their investment in a technology supposed to change the world—but hasn’t, as Timothy B. Lee at Vox has pointed out.

Startups working on blockchain tech have raised $376 million so far this year, which is 17 percent less than the amount raised over the same period last year, according to CoinDesk’s latest quarterly research report. Funding declined every quarter in 2015, in stark contrast to three quarters of successive growth the previous year.

Even as bitcoin had a slow 2015—both in terms of VC interest and its price—a wave of interest took hold of the world’s biggest financial institutions who saw blockchain tech as the key to increasingly expensive regulatory demands and outmoded infrastructure. Here was a way for banks to increase transparency, cut costs and appear to be on the bleeding-edge of technology while doing so.

Yet, the blockchains in service of banks haven’t produced a revolution, either. Most firms appear to be either paying lip service to talk of innovation or are reluctant to commit more than a sliver of resources to experimenting with the technology. As Simon Taylor, the former blockchain lead at Barclays in London and now a co-founder of fintech consultancy 11FS, has pointed out, there are a lot of the same old proofs-of-concept floating around, and few, if any, production-ready software systems.

Indeed, the boom in blockchains for banks seems to have mainly benefited consultants, who are eager to offer their services in guiding brick-and-mortar bankers through a complex world of cryptography and vexing computer-science problems.

The departure of Goldman and Santander from the R3 consortium is another troubling sign for the banking crowd. They were founding members of the group of 70 financial institutions and are among the most bullish on the notion of using blockchain tech for their own ends.

Their departure, reportedly because the terms for gaining equity in the consortium were too dear, signals further fragmentation in an ecosystem rife with competing alliances. The group told the Wall Street Journal departures were to be expected, and the banks say they will continue to work on blockchain tech independently.

But bitcoin and blockchain tech aren’t down and out yet. Average daily transaction volumes have doubled this year compared a year earlier, CoinDesk’s report shows. Central banks from China to the U.K. are showing strong interest in implementing elements of the technology for their own digital currencies. And bitcoin’s famous volatility—which many thought precluded it from being taken seriously as a currency—has been reduced to historic lows, according to one measure by CoinDesk.

The bitcoin world has become “boring,” as Cornell professor Emin Gün Sirer told Vox. That might simply be a necessary step as the companies dealing in cryptocurrencies and the tech that powers them continue their ascent up the “slope of enlightenment.”