With the rise in the value of Bitcoin in recent months and Facebook’s Libra announcement, we see renewed interest in cryptocurrencies and blockchain as a major disruption in the area of finance. But how are their implementation and Distributed Ledger Technologies (DLT) progressing, and where are these technologies really going? Despite huge investments, there are still few success stories. When will we see the real impact solutions we were promised?
Despite all the expectations about different applications of blockchain technologies based on visions of the future, such as the ‘internet of value’ and ‘decentralized autonomous organizations, there are only two really proven successful applications. One is to create digital stores of value reliable enough to invest in (Bitcoin-like). The other is to raise funds using these crypto-assets/cryptocurrencies through Initial Coin Offerings (ICOs). Other promising projects (payments, authentication and data verification, tokenization and marketing of assets other than cryptocurrencies, traceability in supply chains, etc.) are not yet mature enough.
This immaturity is also seen in the startups that are creating applications based on these technologies. Despite major advances in scalability and increasingly concrete business models, most of them are still at an early stage. That said, there are some very promising applications outside the cryptocurrency area, such as Tardigrade, the distributed cloud storage solution recently launched by Storj, or Arcade City, which functions as a blockchain ecosystem for ride-sharing, i.e., like a decentralized Uber or essay writer online service Bonobos.
Reasons for lack of adoption
With the high expectations for this technology and the many dollars, euros, ETH, and bitcoins invested, why are there so few proven success stories, especially in the enterprise arena, and possibly none profitable? Should we still believe in this technology? The main reason for the lack of blockchain adoption is the mismatch between this technology’s capabilities and the need for most business applications. Bitcoin shows us that we can build a stable and reliable public digital network for value transactions that can reach large sums of money. But besides cryptocurrencies, what other applications need such a high level of trust? For most possible public blockchain solutions, the level of trust provided goes beyond what is needed.
This is the reason for the emergence of private and permissioned networks (mainly DLT), which do not necessarily eliminate intermediaries but give them a new role with different and less resource-intensive consensus mechanisms. Even here, we are still looking for killer applications where DLT would generate added value compared to a centralized database.
A second reason is that, in most cases where blockchain can provide real value for business uses, it must replace legacy systems and processes from different companies that may participate in a private blockchain network. In some ways, blockchain adoption has similarities to our experiences in implementing Cloud technology: despite the relative maturity of this technology, many traditional companies still resist its widespread adoption.
These companies’ management, IT departments, and digital transformation professionals encounter major barriers, especially organizational and cultural, in the transition from legacy systems to the Cloud. And if a mature technology like Cloud has these problems, imagine the difficulty of transitioning to blockchain technologies that are much less mature, especially for their typical transactional applications that, by definition, would need collaboration with other companies.
What company would replace a critical legacy system with a relatively new and unproven technology with both technological and business risks? Unsurprisingly, actual adoption is slow, even with big drivers of blockchain solutions.