What are the obstacles to blockchain adoption?
It has been years now since pundits began talking about the commercial applications of blockchains and smart contracts. The technology was going to revolutionize everything from banking to supply chains, and make tasks like identifying and authenticating people a breeze. We’ve seen some successful case studies, but many use cases are still crying out for real-world implementations.
Take banking, for example. The banks were the first to jump on blockchain technology, amid lofty predictions of millions in savings. Financial institutions own one in five blockchain patents, yet IBM anticipated just 15% of them using the technology in 2017. Given that lots more were still testing the waters with pilot projects, it isn’t a terrible figure, but it’s hardly boiling the ocean, either.
What are the hurdles stopping a faster roll-out of blockchain technology?
One of the first obstacles is disillusionment. The initial blush of enthusiasm for blockchain tech is inverting, in a narrative common to all new technology concepts.
Gartner’s famous hype cycle defines this narrative well. It begins with rapt enthusiasm as people discover the concept and speculate about what it can do (“why is everyone creating such a fuss about blockchain?”. Then, expectations ramp up to the point where they’re completely unrealistic (“blockchains will change the world!!”). Then, people realise the technology’s shortcomings, and become disappointed (“blockchains are good for nothing!”) This third stage is what Gartner calls the trough of disillusionment, and this summer, blockchain technology officially entered it.
“It’ll stay there permanently if promoters can’t go back to first principles and figure out what a blockchain is good for and how organizations can try to use one,” says blockchain industry veteran Tim Swanson, director of research at technology advisory firm Post Oak Labs, and author of Great Chain of Numbers: A Guide to Smart Contracts, Smart Property and Trustless Asset Management.
One of the biggest obstacles in Swanson’s opinion is a simple lack of understanding among C-suite execs. That isn’t surprising, he says, arguing that the industry can’t even agree on a common definition. With terms such as distributed ledger, shared ledger, private, public and consortium blockchain muddying the waters, no wonder the decision makers are having a problem getting a handle on it.
Crypto and blockchain players aren’t helping the situation, he warns, citing the 200 ongoing regulatory investigations into ICOs, and religious wars between various blockchain maximalists on social media.
“There has been so much noise and inflated expectations that anyone new trying to figure out what is going on will likely be scammed and/or [so] personally insulted by the various warring coin tribes that they just throw their hands up and give up,” he warns.
Finding the value
Alan Peltz-Sharpe, founder of analyst firm Deep Analysis, argues that organizations aren’t identifying the right use cases for blockchain technology. “All too often we see blockchain projects where it really brings little added value centered around an already centralized business,” he says.
Blockchains are well suited to applications that require distributed trust, he explains. Their natural habitat is the loosely-coupled community with participants that must trust each other. That means industries with complex ecosystems: logistics and supply chain management, healthcare, legal, and intellectual property production, distribution and compensation. These are the places where productivity, efficiency and accountability fall between the cracks – and there are lots of cracks.
This is where blockchain projects can deliver the most value, but it’s also the most difficult to pull off. Participants with different agendas in a decentralized ecosystem will find it harder to co-operate than those in a centralized environment, or with common incentives and a strong existing base of trust in each other.
“Much of the work is getting other key players, who may be competitors, to also embrace blockchain as a way forward,” says Pelz-Sharpe. “There needs to be an upside in it for everyone. This is why there are so many active consortiums around but this is by far the biggest brake to fast deployment.”
Coping with change
Even if organizations can build networks of partners willing to share control of distributed data, success comes with its own challenges. Implemented properly, decentralized transactions and documentation can disrupt existing business models, shifting commercial relationships and incentives. That will be threatening to many stakeholders, who may have enjoyed entrenched positions for years.
“You need to plan and manage for that change or the project will either stall in its tracks or move ahead and blow up in your face,” Pelz-Sharpe continues.
Notice that none of the challenges identified thus far have been technical. Pelz-Sharpe says that the technology is not the obstacle here. “You don’t have to build a blockchain,” he points out. “You typically just plug it into something like Hyperledger.”
While the public blockchain platforms still struggle with governance, performance and scalability issues, the industry has worked hard to create technology platforms that can support private, consortium blockchain-based models. Hyperledger’s executive director Brian Behlendorf doesn’t see technology as a sticking point, either. It’s the ecosystem around the tech that needs evolving, he argues.
“The three biggest obstacles I see are finding and retaining developer talent for building distributed ledger systems, being able to actually see and learn about examples of blockchain tech running in production, and having commercial options for support, hosting (like ‘blockchain-as-a-service’), and development or integration,” he says.
All of this points to a slow burn for blockchain tech. It takes time to build an ecosystem, just as it takes time to build understanding. This is why after the violent rollercoaster of expectations and disappointments, Gartner’s hype cycle invariably has a long, gentle incline.
This gradual recovery from the trough of disillusionment spans what the analyst company calls the ‘slope of enlightenment’ and the ‘plateau of productivity’. During these phases, stable ecosystems evolve around a technology, and attitudes to the concept mature. People realise what it can’t do, adjust their expectations, and move in. It transitions from a world-changing idea that somehow never gets implemented to simply another tool that can bring incremental improvements.
Blockchain, too, will get there in the end. We’ll see these case studies leak slowly into the public domain over time as the obstacles to adoption turn into mere speed bumps.