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By Khizar A. Sheikh, Esq.

According to CoinDesk, there has been a decrease in venture money flowing into startups working on crypto-currencies or the technical principles underpinning them, generally known as blockchain technology. But this may have more to do with the lack of investment promise in the many public infrastructure proof-of-concept models floating around than the actual technology itself.

For example, in the financial world, efforts to adapt blockchain to replace legacy financial systems by the world’s biggest banks appear to be slowing down after seeing the departures of Goldman Sachs and Santander from the R3CEV consortium. But these departures had more to do with the financial structure of R3CEV than the promise of blockchain, as they and other banks continue to invest in other blockchain consortia and opportunities. IBM believes 65% of major banks will be using blockchain by 2019.

The enterprise, hybrid, and private blockchain markets are moving forward. IBM has started offering blockchain-as-a-service (BaaS) for businesses, particularly ones involving logistics, such as those in food supply. In October, Walmart teamed up with IBM and Tsinghua University in Beijing to track pork in China as it moves from the farm to the shelves. Walmart is also tracking packaged produce in the U.S. using blockchain. If anything goes wrong, such as the meat ships with contamination or spoils during delivery, affected batches can be quickly identified, tracked, and pulled from the reach of consumers. In effect, Walmart is using blockchain as a private de-centralized audit trail that will make it easier for Walmart to track its products and manage its suppliers, and also easier for regulators to protect consumers if anything goes wrong.

The de-centralized audit trail also has applications outside of supply chain, one of the most interesting for me when it comes to Internet of Things (IoT). (Arguably, supply chain is one aspect of the IoT challenge.) According to Gartner, by 2020, there will be more than 20 billion connected things across the globe, powering a market that will be worth north of $3 trillion. The challenge includes identifying, connecting, securing, and managing so many devices. Blockchain may enable IoT ecosystems to break from the centralized, brokered communication models, otherwise known as the server/client paradigm, where all devices are identified, authenticated and connected through cloud servers that spend huge processing and storage capacities, and connection between devices must exclusively go through the internet, even if they are next to each other. Several companies are already putting blockchain to use to power IoT networks. See here and here.

But blockchain is one piece of the puzzle for investors and enterprises that are re-framing and re-inventing legacy financial networks, supply chain management, and new technologies such as IoT. While blockchain would enable better management of some challenges (e.g., data integrity, DDoS attacks, single-node failures), other challenges would remain (e.g., computational costs, data consensus, privacy and disclosure issues). While venture money may be backing away from specific challenges that exist in today's blockchain environment, a full appreciation of the entire ecosystem, risks, and opportunities will be important to put the right money behind the right investments.

Khizar A. Sheikh, Esq.
Member and Chair, Privacy & Cybersecurity
Mandelbaum Salsburg, PC
3 Becker Farm Road
Roseland, New Jersey 07068
(973) 243-7980