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In early 2018, Amos Meiri got the kind of windfall many startup founders only dream of. Meiri’s company, Colu, develops digital currencies for cities—coupons, essentially, that encourage people to spend their money locally. The company was having some success with pilot projects in the UK and Israel, but Meiri had an idea for something bigger. He envisioned a global network of city currencies, linked together using blockchain technology. So he turned to a then-popular way to fund his idea: the initial coin offering, or ICO. Colu raised nearly $20 million selling a digital token it called CLN.
Now, Meiri is doing something unusual: Giving the money back. After a year of regulatory and technical headaches, he stopped trying to fit blockchain into his business plan. He thinks other blockchain projects will follow suit.
It’s not unusual for startup efforts to fail or pivot when the product doesn’t work or the funding runs out. But blockchain has offered a wilder ride than most new technologies. Two years ago, ICOs like Meiri’s lured billions of dollars into blockchain companies and spawned a cottage industry of pilot projects. For a while, a blockchain seemed a salve for just about any problem: Fraudulent tuna. Unreliable health records. Homelessness. Remember WhopperCoin? Burger King’s crypto-for-burgers scheme, along with thousands of other projects, has long lost its sizzle. Many were scams from the start. But even among the more legitimate enterprises, there are relatively few winners. Enter, as a recent report from Gartner put it, “blockchain fatigue.”
Bitcoin appears to be here to stay, even if the price has recently slumped. An entire industry has been built around holding and trading digital assets like it. But attempts to build more complex applications using blockchain are hobbled by the underlying technology. Blockchains offer an immutable ledger of data without relying on a central authority—that’s core to the hype behind the technology. But the cryptographic machinery behind blockchains is notoriously slow. Early platforms, like Ethereum, which gave rise to the ICO frenzy, are far too sluggish to handle most commercial applications. For that reason, “decentralized” projects represent a tiny portion of corporate blockchain efforts, perhaps 3 percent, says Apolline Blandin, a researcher at the Cambridge Centre for Alternative Finance.
The rest take shortcuts. So-called permissioned blockchains borrow ideas and terms from Bitcoin, but cut corners in the name of speed and simplicity. They retain central entities that control the data, doing away with the central innovation of blockchains. Blandin has a name for those projects: “blockchain memes.” Hype and lavish funding fueled many such projects. But often, the same applications could be built with less-splashy technology. As the buzzwords wear off, some have begun asking, what’s the point?
Propy pitched blockchain as a more secure way to handle land records. “It didn’t take long for them to say that they were overzealous,” Kinville says. She worked with Propy for about a year as it designed its platform and recorded the city’s historical data on the Ethereum blockchain. Propy also recorded one sale for the city, for a parcel of empty land whose owners weren’t in much of a rush.
Last month, Propy pitched Kinville a nearly finished product. She was uninspired. The system lacked practical features she uses all the time, like a simple way to link documents. She liked the software she uses now. It was built by an established company that was just a call away, in case anything fritzed.
“I’m having a hard time understanding how blockchain is going to really positively affect my citizens,” Kinville says. “Is it the speed of the blockchain? The security? Between faxes and emails, things get done just as quickly.” The city’s data is backed up on three servers; Kinville keeps a print copy, just in case. “We Vermonters are cautious. We like paper; you can always go back to it.” She sent Propy notes on how to improve its product, but doesn’t expect to buy it.
Natalia Karayaneva, Propy’s founder, says the land records platform is being tested in another Vermont town that didn’t have a computer system. But she acknowledges that privacy issues, as well as local rules and legacy computer systems, mean blockchain isn’t always a good fit for government. Propy is now focusing on an automated platform for realtors. It also uses blockchain, but the company doesn’t always trumpet it.
“In 2017, it was enough to have blockchain technology and everyone reaches out to you,” says Karayaneva. “But now working with traditional investors, we actually avoid the word blockchain in many of our materials.”
For a while, blockchain was seen as a panacea, says Andrew Stevens, a Gartner analyst who coauthored the “blockchain fatigue” study. Stevens’ team focused on projects that touted blockchain as a way to identify fraudulent and tainted goods in supply chains. They predicted 90 percent of those projects would eventually stall. Blockchain evangelizers were finding that supply chains more complex than expected, and that blockchain offered no ready-made solutions. When it comes to mission-critical blockchain projects, “there are no deployments across any supply chains,” he says.
But Stevens says the concept of blockchains may yet prove useful as a way to get competitors and other distrustful parties to share data and tools. He compares it to early internet experiments, before anyone knew if the internet would catch on. Even if such projects start as a marketing ploy, they can spark corporate bureaucrats to gamble on initiatives and partnerships they otherwise wouldn’t.
Blandin, the Cambridge researcher, points to efforts at IBM, which has more than 1,000 employees working on blockchain products. There’s IBM Food Trust, tapped by Walmart to trace lettuce among other products, and TradeLens, a platform Maersk and its competitors use to share shipping data. That project has attracted four of the five biggest shipping lines.
Using blockchain simply to track and trace items is pointless on its own, says Jerry Cuomo, CTO of IBM Blockchain; there are already tools for that. But if there’s a dispute—say, between a retailer and a packer in its supply chain—companies find it useful to have a record with a common set of facts. Blockchain is, in theory, purpose-built to do just that. But it’s still early days, he says. “Try to start something with 20 companies and you’ll be in the room with 20 lawyers.” On IBM’s projects, blockchain components are often just a small part of a larger system. One popular choice is a “shadow ledger,” where a blockchain system records data alongside existing systems, allowing clients to test the cryptographic waters. “Blockchain is tracking at a reasonable rate,” he says.
One challenge is keeping those uneasy participants together. Take Libra, the Facebook-led cryptocurrency effort, which recently lost a quarter of its members. That effort has quickly become a case study in the difficulties of getting competitors to play nicely. It’s too soon to see whether those kinds of groups will survive, or whether blockchain will be the glue.
Meiri’s company, Colu, seemed like an ideal fit for blockchain. Digital currencies, perhaps the most basic blockchain application, were already at the core of its business. A user might get digital coins for volunteering for a local nonprofit and then use them to run errands at local shops. Businesses could then use the coins to pay taxes or a water bill, completing a virtuous cycle of local spending. Recently, when the Tel Aviv government wanted to build a light rail line, it worked with Colu to distribute discounts at businesses along the torn-up stretch. Belfast runs a mental health program that subsidizes yoga through its local coin.
Meiri was an early blockchain adopter, involved in projects that tried to make Bitcoin more useful. He wanted to build a tool set on Ethereum that would allow local governments to create their own tokens, which could then be traded using an intermediary token called CLN. “We decided to start the CLN at the top hype of crypto,” Meiri says. “We were so excited.” In early 2018, Colu’s initial coin offering raised $20 million from investors around the world.
The bigger problem, Meiri says, was the technology. Using Ethereum just wasn’t practical for handling day-to-day transactions from thousands of users and vendors. “It’s just too much for the technology today,” Meiri says. His desire for a decentralized ledger didn’t make up for the drawbacks. “You can make the experience work with Amazon AWS, just like any other payments or rewards platform.”
As Colu signed on more city partners, the blockchain aspects became less appealing, Meiri says. He met with his lawyers and developed a plan to offer to repurchase the issued coins. Unissued coins will be converted into equity in the company.
But Meiri, for his part, is still a believer in the decentralized future. “I have no doubt [blockchain] will reinvent the global financial system,” Meiri says. “It’s just not there yet.”