Andrew Parker, a partner at Spark Capital, a New York-based venture capital firm which transformed various early-stage startups including Twitter, Tumblr, Stack Exchange and Foursquare into successful corporations, has stated that Blockchain technology is overhyped and isn’t quite applicable to a wide range of applications.
Over the past three years, multi-billion dollar banks and financial institutions have focused on building Blockchain-based platforms and networks. However, not a single bank has successfully demonstrated the applicability of the Blockchain in large-scale commercial operations.
Banks are outdated and aren’t compatible with innovative technologies
One of the issues banks and financial institutions have found with Blockchain technology is that it only operates securely and efficiently with its counterpart. If Bitcoin is considered as an example, Blockchain within the Bitcoin protocol and network operates as a database and it is one of many technologies which underpin Bitcoin.
Replicating the structure of Bitcoin’s Blockchain technology and utilizing it to process transactions without Bitcoin and its other technologies is like taking out an engine from a car and expecting it to travel across a distance without the presence of other components such as wheels and external frames.
Blockchain technology hasn’t been utilized to its full potential because banks haven’t found a method of applying one of Bitcoin’s underlying technologies to their existing infrastructure. It could be because the existing infrastructure of banks and financial institutions are outdated and simply aren’t compatible with innovative technologies. However, the major reason is that banks underestimated the trade off between functionality and security.
When flexibility is prioritized ahead of security, Blockchain networks can’t be immune to hacking attacks or external threats, unlike Bitcoin or other public Blockchain-based networks such as Monero.
As Jerry Cuomo, IBM's vice president of Blockchain technology, stated in a recent interview, companies like IBM that are focusing on the production of private Blockchains can’t guarantee full immutability.
Why Parker believes Blockchain is overhyped
Parker noted that Blockchain is essentially a solution in search of a problem and this particular model isn’t appreciated in the realm of venture capital and early-stage investment.
If developers and startups start to develop technologies like Blockchain technology without a clear business model or a vision to secure an actual user or consumer base, for investors, it is difficult to allocate their funds for financial support.
In an interview with Digiday, Parker stated:
“But the trend that I find overhyped is using the Blockchain to solve problems that don’t fit this general use case of a group of untrusting counterparties. The trend that has passed its prime is using the Blockchain to solve problems that are more easily and efficiently solved using boring old open-source database software (often run and owned by a single party).”
His perception of Blockchain as a database technology is technically accurate and conceptually appropriate as its purpose within Bitcoin is to act as a database which stores transactions.
The reality is that for banks and financial institutions, centralized Blockchain networks will function more efficiently and with necessary safeguards, they will have some level of immunity towards external attacks.