The Potential of Blockchain Technology

Stephen DeAngelis

June 06, 2018

“Potential” is an interesting word. It means something has the capacity to become or develop into something in the future; however, there are no guarantees the thing being discussed will ever achieve its potential. In discussions about blockchain technology, the word “potential” is often used. Many analysts have great expectations blockchain will achieve its potential in numerous economic areas; but, we’ll have to wait and see. Despite all the chatter about blockchain, “Only one per cent of chief information officers report any kind of blockchain adoption within their organizations, according to Gartner’s 2018 survey.”[1]

Blockchain’s Potential

Analysts from CB Insights note, “Few people understand what it is, but Wall Street banks, IT organizations, and consultants are buzzing about blockchain technology.”[2] Why all the hype? The answer can be summed up in one word: trust. CB Insight analysts explain, “Blockchain technology offers a way for untrusted parties to reach agreement (consensus) on a common digital history. A common digital history is important because digital assets and transactions are in theory easily faked and/or duplicated. Blockchain technology solves this problem without using a trusted intermediary.” They continue:

“A blockchain could be used to establish ownership over any number of physical assets – cars, art, musical instruments, and so on. Let’s think about why this makes sense. A paper record of title is prone to forgery and/or physical degradation. Centralized databases are prone to hacking, human error, and/or tampering. A blockchain means there is no single entity controlling the ledger. Therefore, recording physical assets on a blockchain is a prime example of where the technology might come in handy to track ownership with a tamper-proof, neutral, and resilient system.”

Because blockchain technology can be used to track assets, supply chain professionals are very interested in its potential. Andrew Thompson and Philip Horler, from the intellectual property firm Withers & Rogers, explain, “Blockchain technology … is rapidly gaining recognition as an important architecture for connectivity and the Internet of Things. In particular, it could be used to streamline supply chain management systems in the food and pharmaceutical sectors, whilst providing a robust assurance of traceability.”[3] They continue, “All blockchains are different and this is also part of the technology’s appeal. Depending on the nature of the supply chain, specific identifiers can be stored and protocols set up to allow access to a secure group if needed. Once established, the system can be optimized for different purposes.” Nick Holland (@nickster2407), Director of Banking & Payments at Information Security Media Group, adds, “It would appear that momentum is continuing unabated for blockchain projects … as the potential for blockchain continues to be realized.”[4] He reports a Deloitte survey found the most sought-after features of blockchain technology are greater security, lower costs, faster transactional speeds, and efficiency. Although having potential is a great thing, achieving blockchain’s potential is not going to be easy.

Challenges to Blockchain Implementation

As Thompson and Horler noted, all blockchains are different. That means anyone desiring to be a part of a specific blockchain ledger needs to agree to all standards and protocols used by that ledger. In addition, Linda Tucci (@LTucci) notes, “[Blockchain technology remains] immature, misunderstood, untested in the enterprise, [and] risk-laden.”[5] Nevertheless, she observes, “[Blockchain] needs to be on the CIO agenda.” You might be asking: Why should an immature, misunderstood and untested technology be on the agenda? The answer: Potential. Tucci explains, “Gartner believes that blockchain’s potential to make digital transactions more secure, transparent and cost-efficient — and do so in a way that bypasses traditional institutional frameworks — has profound implications for any industry that shares data and uses data from outside its own walls.” Tucci draws most of her conclusions from a presentation given by Gartner’s Nick Heudecker at a conference in March 2018. During his presentation, Heudecker discussed four challenges blockchain technology faces before it can achieve its potential. They are:

1. Creating scalable platforms. Heudecker told his audience picking a platform to participate in won’t be easy because “current technology is neither scalable nor complete.” According to Heudecker, the most promising platform is Hyperledger. “Hyperledger is the open source blockchain platform that runs in the cloud, is operated by the Linux Foundation and is being commercialized by IBM, Oracle, Microsoft and others.”

2. Getting competitors to cooperate. “Businesses will need a network to make blockchain applications viable, which might mean working with business competitors or getting supply chain partners (who compete with other) to integrate on a single platform.” According to Heudecker, “Not many companies have the clout and market to make that happen — only some of the largest retailers and manufacturers can force these competing interests to cooperate and collaborate.”

3. Achieving data interoperability. “Data interoperability and the need to agree on the structure and format of the data is another challenge of a distributed ledger technology.” Heudecker explains, “In a centralized mode, you can rely on a single entity to create a data standard. … But if I don’t trust a centralized authority, I now inherit all the overhead of creating these interoperability standards. And you have to get all of your cohorts in the network to agree on these standards — a challenge in its own right.”

4. Adapting blockchain to your business. “Building a powerful, flexible application using blockchain that is integrated with your company’s business processes and meets regulatory mandates requires enormous resources. And, according to Heudecker, what this solution should look like has yet to be defined.” Although this is a challenge, Heudecker told his audience, “That doesn’t mean you shouldn’t experiment. You have to start building some competencies and skills around what is possible, knowing that these things will change over time. We’re just getting started.”

Because of these challenges, Gartner analysts warn, “Rushing into blockchain deployments could lead organizations to significant problems of failed innovation, wasted investment, rash decisions and even rejection of a game-changing technology.”[6]

Summary

CB Insights analysts conclude, “Blockchain is still in its nascent stages. However, blockchain technology promises to entirely reshape money, middlemen, and trust. … Blockchain technology provides a new way to think about how we agree on things. For the first time, multiple untrusted parties can create and agree on a single source of truth, without the use of a middleman. The technology’s implications for traditional middlemen and corporate players are therefore potentially enormous. As the landscape evolves, the future of blockchain will likely take on forms yet to be imagined.” Gartner recommends, “Organizations should explore blockchain in a ‘structured and objective way’, seeking out the use cases that are most relevant to them.”

Footnotes
[1] Staff, “Research reveals ‘scarcity’ of blockchain deployments,” SmartCitiesWorld, 8 May 2018.
[2] Staff, “What Is Blockchain Technology?” CB Insights Research Briefs, 2 March 2018.
[3] Andrew Thompson and Philip Horler, “Comment: Unlocking the potential of blockchain technology,” Supply Chain Digital, 5 September 2017.
[4] Nick Holland, “Is blockchain a runaway train?Information Management, 22 February 2018.
[5] Linda Tucci, “Gartner on blockchain: Questions to ask and lots of caveats,” TechTarget SearchCIO, 27 April 2018.
[6] SmartCitiesWorld, op. cit.