In the technology space, buzz goes a long way. Investment driven by paranoia of disruption or loss of market share; marketing to drive search engine optimization (SEO) in buzz-worthy areas; and the ensuing internet echo chambers all foster a bandwagon effect. Having seen the internet, social media, and other recent disruptions destroy slow-moving brands, many companies are jumping on the blockchain bandwagon without a clear sense of precisely where, when, and why to focus.
These dynamics make for a frenetic market environment, clouded by myths formulated to satisfy investors and board members, yet one in which a wide range of constituencies must collaborate. Tractica’s research finds that a number of myths characterizing the early days of blockchain need to be dispelled.
Myth #1: Blockchain Is the Next Big Technology Panacea
Blockchain technology is not a panacea or a solution to all information technology (IT) inefficiency. Businesses should instead view blockchain as a series of technological modules and concepts to selectively choose, apply, and/or complement other emerging technology trends. Tractica identified an emerging trend within the broader blockchain space in which singular functions or characteristics of distributed ledger technology are “unbundling” to meet specific requirements, wherein some features fit the business case and others do not. Core “modules” of blockchain may be applied as singular functions and include, but are not limited to:
- Transaction Distribution
- Rules of Validity & Linkage
- Identity Authentication & Private Keys
- Supervisory/Regulatory Nodes
- Anti-Double Spend
- Built-in Assets
There are a variety of approaches within each of these that abstract characteristics of blockchain for different applications. In “consensus” approaches, for example, proof-of-work and proof-of-state enable very different modes of records verification; one is about proving computational work, and the other is about proving ownership or storing the existence of the record or activity associated with the record.
The right approach is to treat these as a menu from which to select and customize; different combinations, in different flavors, for different business problems. As the space matures and vertical-specific use cases take form, vendors will advance specific functions to differentiate themselves.
Myth #2: Blockchain Is Something We Plan to Pilot Internally
Unlike signing up for a corporate Twitter account, deploying a private cloud, or even testing a new mobile app with a select group of customers, companies cannot pilot blockchain applications alone. The inherently decentralized nature of distributed ledger technologies means that the interactions and the database architecture that captures them must be shared across multiple parties. Although many pilots taking place today involve between 3 and 7 companies, the broader vision for the technology demands participation across the network. This “network effect” (and imperative) basically refers to the fact that, in a distributed ledger architecture, the broader the set of constituencies that participate, the more valuable the system becomes. The level of multidisciplinary collaboration, not to mention unprecedented alignment around governance processes, liability framework, integration with incumbent systems, security and permissions testing, etc., is at once the greatest challenge and enabler for commercial blockchain adoption.
Myth #3: Blockchain Is for the Financial Sector
Although blockchain is associated with the financial sector, wherein use cases typically center around participants recording, verifying, and rendering indelible transactions as they occur, the reality is that this simple capability is lacking in virtually every industry. Tractica’s research on blockchain identified more than 30 use categories applicable across every sector, from agriculture to healthcare to retail. In fact, when multiple (all?) parties can see interactions taking place in real time, and can leverage the transparency and immutability of a shared “truth” to streamline processes and efficiencies and ensure compliance and integrity, industry silos themselves begin to erode. This is why many industries are seeing the rapid coalescence of industry consortia to drive blockchain development. Catalyzing development in one industry—advertising, for example—will involve participants across retail, manufacturing, consumer packaged goods (CPG), telecom, content producers, technology vendors, etc.
Keep an Eye on the 7 to 10-Year Timeframe
Tractica anticipates that adoption will move very slowly over the next 2 to 5 years, with limited market adoption in 5 to 7 years, and significant uptick occurring in approximately 7 to 10 years. Blockchain will not replace existing structures and infrastructure overnight; rather, it will evolve alongside incumbent systems and existing standards, complementing, then supporting, and then making certain workflows irrelevant. Chief information officers (CIOs) and strategists should be actively pursuing multidisciplinary collaboration and experimentation with innovators, incumbents, and regulators to explore the economic benefits of blockchain, as well as the risks, lessons learned, and unintended consequences.