Catch the Blockchain Bounce Back: Record Funding in 2021

During the early days of the pandemic, global investments rapidly declined as enterprises hunkered down, conserved cash, and prepared for the worst. In response, HFS wrote this piece, instructing enterprises to “print this, put it in an envelope, and open it again in six months.” We implored enterprises not to completely forget about blockchain, as they couldn’t afford to dismiss the technology at such a pivotal moment in its journey. Now, we may have been slightly wrong on the timeline (who knew a pandemic would last longer than six months?!), but we do have the pleasure of saying, “I told you so.” If you look at Exhibit 1, you will see that blockchain funding reached a record high in the first half of 2021—and we’re keen to understand why.

Exhibit 1: Blockchain funding has reached a record high in H1’21

*2021 full year data is based on a run rate as of 06/30/21
Source: cbinsights.com

The proof-of-concept game is dead; long live the production environment!

If you’re an avid reader of our research, specifically in the blockchain space, you’ll know that historically, the number of blockchain engagements reaching the production environment is minimal—typically less than 10%. It’s easy to see why; blockchain experienced unprecedented hype, and purveyors touted it as a solution to almost every business challenge. This promise encouraged many enterprises to dive headfirst into countless proofs-of-concept that bore no fruit and ultimately never reached production. However, in recent years, we have reported a steady increase in the number of projects finally moving beyond the proof-of-concept stage and delivering noticeable business value. But all of that is set to change yet again, as we can officially declare the proof-of-concept game dead.

The pandemic meant we witnessed a surge in digital investments. It forced enterprises to close their physical doors and communicate with their customers entirely through digital channels, and they realized that digital transformation is no longer optional. However, thanks to the continued pandemic-related cost pressures, it became more important than ever for enterprises to identify and invest only in projects that could deliver genuine business value. For blockchain, service providers confirmed that it brought an end to the proof-of-concept game, with enterprises instead focusing on production-grade initiatives. In reference interviews, enterprise clients even confirmed this observation; they are ditching hopeful proofs-of-concepts in favor of engagements that can deliver results.

Leading enterprise blockchain service providers report unprecedented demand

As a part of our upcoming 2021 enterprise blockchain services Top 10 report, we connected with the leadership teams of countless leading service providers in the space to understand their perception of the market. Every single provider, big and small, told us about the rapid acceleration of demand for their blockchain services. One global leading IT services provider explained

“We are well beyond the proof-of-concept stage—we’ve moved into the industry-shaping stage. We’re driving more material outcomes, and we can deliberately select leaders of ecosystems and work with them. Our average deal size has more than tripled over the last year.”
—A blockchain leader from a global IT services provider

And this provider wasn’t the only one to experience such growth throughout the pandemic year. One provider advised that its blockchain business was growing at a rate exceeding 100% year-over-year, while another couldn’t find staff quickly enough to satisfy mounting demand. But as we previously mentioned, the increased demand isn’t for more lottery proofs-of-concept; it’s for viable blockchain projects that businesses believe will yield substantial value. From our conversations with leaders in the space, we have already published research outlining three interesting real-world blockchain use cases:

• The Telecom Regulatory Authority in India developed a regulation mandating a blockchain solution to combat spam calls in India’s telecoms sector.
• The state of New York collaborated with IBM to develop a blockchain-based “health pass” that allows citizens to demonstrate negative COVID-19 tests or their vaccination status.
• KPMG developed a holistic sustainability offering, its blockchain-based Climate Accounting Infrastructure that allows clients to measure, monitor, and report their sustainability efforts.

When we examined the data from our Pulse survey, it was easy to see why service providers were experiencing such a sharp rise in demand—and the data suggests it’s set to continue. Exhibit 2 shows that only 5% of enterprises predict a decrease in their blockchain spending over the next 12 to 18 months, while 76% of respondents predict an increase.

Exhibit 2: 76% of enterprises believe blockchain investments will increase over the next 12 to 18 months

Sample: 801 of the Global 2000 enterprises
Source: HFS Pulse, 2021

The Bottom Line: Enterprises can’t afford to miss the blockchain blast. Investment has reached record levels, and you could fall behind your competition

Blockchain funding reached a record high in the first half of 2021, and the majority of capital is flowing into projects nearing the production phase. If you’re a budget holder at your business, and you haven’t already, you must at least investigate blockchain and identify any potential value it could unlock in your organization. When you look beyond the endless stream of useless proof-of-concepts—the “white elephants“—the underlying technology has the potential to deliver genuine value for your business. And the recent growth in funding proves it.