Remember back in the 2000s, when cloud computing was dangerous, confusing and intriguing — but not really ready to catch on in a big way? That is where blockchain is today.
So, where will blockchain be in a decade or so? If the technology follows cloud’s growth path, blockchain will be on everyone’s agenda, in practically every company’s IT infrastructure. Projections call for 83 percent of enterprise workloads to be in the cloud by 2020 – with half of those workloads running on public cloud platforms. Few expect blockchain to be that ubiquitous. Many believe it could take off, but as of now, blockchain’s usage is minimal, and forecasts for its adoption are guesses at best.
Why has blockchain not gained more traction? What needs to happen to get this technology involved in the conversation? And, will blockchain eventually go mainstream?
The answers to these questions could have profound effects not just on our economy, but on our way of life. Blockchain has the potential to be a transformational technology. It could also be a dud. At the moment, good arguments are being made in favor of both outcomes.
Before we dig any deeper, what exactly is blockchain? Here is what it is not. Mention blockchain, and most people immediately think it is synonymous with bitcoin, the controversial cryptocurrency that a few million users trade, on a peer-to-peer network, without help from a central bank or administrator. There is a link between bitcoin and blockchain, but they are not synonymous. Bitcoin needs a platform such as blockchain to operate, but blockchain platforms can drive many applications other than cryptocurrencies.
Blockchain, in short, is a unique mechanism to move and track records. It is a digital ledger that a peer network participates in, without a central authority. Transactions are marked by timestamps, creating transparency in the process. Because records cannot be altered without affecting subsequent blocks, the process is considered secure by design.
In short, blockchain is a secure, efficient transactional medium that cuts out middle men. And if such a transactional medium can be built, why is not everyone building it?
There are entrepreneurs who would like to. But, like cloud in its early days, the technology is disruptive, it is hard to get everybody on the same page, and there are many other obstacles in blockchain’s path.
Start with the disruptive aspect. People resisted cloud at first because it fundamentally changes the way they work – the way they build, deploy, manage and use applications. Managers worried about the security of putting information into the cloud. Central IT had to get comfortable with giving up control over the resources workers were using.
Blockchain is getting the same kind of cultural pushback. Buying into a distributed system changes the way companies have been running their IT for decades. There is no central authority – no so-called “gold copy” of information. There is no individually identifiable master; the system is the master. This is hard for people to get their heads around, much less accept.
Establishing a System of Trust
Blockchain also requires participation from multiple stakeholders willing to agree on a “system of trust.” In a supply chain, this would require agreement from vendors, buyers, transport companies, government agencies and countless other entities. Different entities have different priorities. Getting everybody to agree on a complex new system of record keeping would be harder than herding a pack of squirrels on an open field.
There is another challenge: talent. Blockchain is a new technology with new rules and new issues, so the talent pool of people with skills in this area is shallow. This was the case with cloud early on. Today, cloud skills are abundant, though demand for sharp, cloud-focused professionals keeps growing, so companies find themselves paying a premium for talent.
That will be the case for a while with blockchain. For it to grow into a functioning ecosystem, companies will need to hire developers who not only know how to code but also understand how blockchain works. Companies will also need legal people who understand software and blockchain. And they will need versatile administrators and technical workers who can adjust to a new mode of operation.
What has to happen to nudge blockchain into the mainstream? At the moment, the technology faces a chicken-and-egg problem involving payment situations. Until we can get the masses to participate on a broad scale, there will not be much change in value. And until there is activity on the value front, we will not be able to get the masses to participate.
So, there needs to be a successful blockchain implementation that shows real value to make the general public take it seriously. Right now, there are companies doing proofs of concept and scoping out pilot projects. But there are no large projects generating real results. The only tested, validated use is bitcoin. Bitcoin has generated plenty of news, but it has been so volatile, the general public still classifies the whole movement as hype.
Prospects for Success
There are, however, a couple of use cases being worked on that might light a spark. One is a project Walmart and IBM have been working on for a year to digitize the food supply chain process, based on blockchain technology. The fact that a couple of heavyweights are involved gives this undertaking a better than average chance of succeeding. IBM has earned its spurs in the development of forward-thinking enterprise applications such as Watson. Walmart has the size to strong-arm third parties into joining a new network based on a whole new technology and a new way of conducting business.
A second blockchain project is in development in the recorded music business. If there were ever an industry that could benefit from an efficient, transparent mode of payment, it is music. Artists, composers and publishers are pushing for a new model that pays them equitably for their work, and blockchain offers a potential solution. Music distributors, not surprisingly, are pushing back, because the move would disrupt a system that made them rich.
A third area ripe for transformation is electronic health records (EHRs). This application has been the holy grail of healthcare providers, patients and insurers for decades. Until now, initiatives have been held back by privacy concerns and network connectivity issues. There are no immediate solutions ready to break through, but if stakeholders could agree on a system incorporating blockchain, it would be a game changer for many.
Do Not Pave the Cow Path
How can companies prepare for a future based on blockchain?
First, they should look at blockchain from a business perspective. They should think about applications that could benefit from the systematic transfer of information, records or logs. They should examine chains of custody and chains of events. They should come up with applications they can develop out of the box that create new processes, rather than just “pave the cow path” by putting an existing process on a blockchain platform.
Second, they should conduct education campaigns within the organization about what blockchain really is and how it can benefit the company. Explain the difference between blockchain and cryptocurrency. Separate the business prospects from the hype.
Finally, they should look into what other industries are doing to leverage blockchain technology. Your company might be the first in your industry to take a serious look at what blockchain can do, but firms in other industries will be testing it out. See how their plans are shaping up, and try to incorporate the lessons they are learning into your own projects.
It may be years before blockchain takes hold in a big way, but that time is coming. Cloud faced plenty of obstacles early in its history before emerging as an essential technology for the future. Blockchain likely will, too, and earlier rather than later. The interest is there, the energy is there and key companies are exploring ways to make it work.