There are plenty of resources that explain the basic concepts of a blockchain and how it works, but there are still major barriers preventing organizations from identifying the benefits and building trusted solutions to realize them.
The hype surrounding blockchain technology has reached fever pitch levels. Many prominent financiers, technologists and entrepreneurs have staked their reputations and fortunes on it. Investments in blockchain startups since 2015 are approaching $2.5 billion according to some estimates. If you include Initial Coin Offerings (ICOs) in that number it’s closer to $20 billion, a staggering $9 billion of which has occurred in the first half of 2018. The Middle East is a leading player in some respects with clear government strategies, regulatory engagement and technology accelerators all playing a part.
Yet in and amongst the melee it is difficult to identify many use cases that have yielded significant benefit, aside from for those individuals that have made fortunes speculating on cryptocurrency markets. The challenge remains that it is difficult to separate the hype from tangible business benefits and build trust in the use cases that can generate them.
Even executives at blockchain-investing organizations struggle to explain what it is that blockchain will be enhancing in their businesses or why. This is a worrying trend—invariably the successful adoption of new technology is driven from the top. Without a clear understanding of what the organization seeks to achieve, direction from senior leaders and a focus on building trust, blockchain projects may be doomed to fail. We need to move beyond the hype to make sure that investments being made by organizations are properly realized and the technology fulfils its potential.
Education is arguably the most significant barrier to achieving tangible benefits from blockchain technology use cases. The problem is twofold.
Firstly, for business leaders and regulators, the general level of understanding of the technology, where it can be used to greatest effect, associated risks and how to integrate it into an organization is poor. In a large part this is down to the confusion that has ensued from the hype, which has impaired the normal cycle of questioning and learning.
In other words, business leaders now seem to be less willing to ask questions of something they feel they are expected to know because it has been so talked about. The nature of the revolution has also meant that the best knowledge is often only available in unconventional forums, such as open source communities that business leaders are not familiar with accessing.
The second half of the problem relates to technical skills. It is widely regarded that blockchain technology is in its infancy—blockchain today could be compared to the internet in 1995 when we had no idea of Amazon, Uber, Facebook, etc. We may come to wonder how society ever lived without it, but as a consequence of the state of maturity, the availability of technical skills and training to support development is very limited. This has made it difficult for organizations to research and develop blockchain applications and will continue to hinder innovation.
Some organizations such as Hyperledger and B9lab Academy are beginning to offer both technical and business education for blockchain systems. It’s now up to individuals to invest in their own development and tackle this problem.
Collaboration And Decentralization
Another significant barrier to the proliferation of blockchain technology is the extent that organizations are able to collaborate on the development and scaling of projects. The true benefits are likely to only be realized when this happens and there are several reasons for this.
The benefits of trust, transparency and efficiency can only be achieved at scale and across an ecosystem. For instance, a decentralized payments system is not going to be of much use if only a handful of banks and payment providers are using it. Or for organizations trying to improve traceability of food produce from farm to store, there is little benefit without all farmers or distributors being part of the system.
Collaboration between diverse organizations and stakeholders is required to be able to design, implement and govern these blockchain systems properly. Collaboration also allows for the pooling of skills and resources, and it can reduce the risks to one specific enterprise.
But there are inherent barriers to collaboration, particularly in a decentralized environment. Humans have a predisposition to operate in centralized structures so naturally will find it difficult to operate with blockchain systems that are opposite in nature. To progress beyond this, organizations and consortia must establish a collaborative structure from the outset, which outlines, confronts and answers the difficult questions that the project will almost certainly face. Questions such as:
The key to addressing these challenges is establishing a suitable distributed governance mechanism. This must have attributes of open dialogue and transparency between parties, which may require independent facilitation. Smart Dubai are a good example of this type of positive government incentivization and collaboration with the enterprise.
Cryptocurrency is only one type of blockchain use case, but it is useful to illustrate the problem of regulation. There are currently around 1,600 cryptocurrencies in existence, the current market capitalization of which is $280 billion—not bad for a financial market with next to no regulation. Most of these have appeared within the last 18 months as a result of ICOs, which are essentially a means to raise capital for a venture by issuing cryptocurrency coins or tokens.
There is a lack of consensus from regulators as to how to treat these coins, in particular whether they should be subject to the same regulations as a securities offering. Some regulators have banned ICOs and the use of cryptocurrencies altogether, some are taking a “watch and see” approach. Many, if not most, of the cryptocurrencies in issue have little intrinsic value at present—which is to say they have been designed with a future use case in mind that will create demand and stabilize its price on the secondary market. Unfortunately, this means that a large number of the investments made will likely be lost.
The lack of regulation is preventing investment into valuable blockchain use cases because investors do not trust the legitimacy of projects and are wary of the potential for their investments to be wasted in the event of a change in regulation. This is not just true of cryptocurrency projects but of wider blockchain applications such as the provision of Know Your Customer or Anti Money Laundering services.
One way for regulators to move forward is to create regulatory sandboxes, such as in the Abu Dhabi Global Market. These are trusted spaces for businesses to trial and refine innovative products, services, platforms and business models in a live but controlled environment, giving regulators time to adapt legislation as needed.
The Time Is Now
There is little doubt that blockchain technology has the potential to change the nature of capitalism by bringing more trust, efficiency, transparency and accurate recording to everyday transactions. Governments such as the U.A.E. are providing vision and leadership to pioneer this technology—enterprise organizations need to follow suit. The time is now to invest in education, identify opportunities for collaboration to drive progress, and engage with regulators/standards setters to establish clarity and stability.