There are many resources that explain the basic concepts of a blockchain and how it works, but there are still important obstacles that prevent organizations from identifying benefits and building reliable solutions to achieve them.
The hype surrounding the blockchain technology has reached fever levels. Many eminent financiers, technologists and entrepreneurs have challenged their reputation and their fortune. Investments in blockchain startups since 2015 are close to $ 2.5 billion according to some estimates. If you include Initial Coin Offerings (ICOs) in that number it is closer to $ 20 billion, an astonishing $ 9 billion of which occurred in the first half of 2018. The Middle East is a major player in some respects with clear strategies governmental, regulatory effort and technology accelerators all have a part.
Yet, in the midst of the fray, it is difficult to identify many cases of use that have given a significant benefit, apart from those individuals who have made a fortune by speculating on the cryptocurrency markets. The challenge remains that it is difficult to separate the hype from tangible benefits to the business and create trust in the use cases that can generate them.
Even the leaders of the organizations investing in blockchain strive to explain what it is that blockchain will improve in their companies or why. This is a worrying trend, invariably the successful adoption of the new technology is driven by the high. Without a clear understanding of what the organization seeks to achieve, the leadership of senior leaders and the focus on building trust, blockchain projects could be doomed to fail. We need to go beyond the hype to make sure that the investments made by the organizations are properly implemented and that the technology meets its potential.
Education is probably the most significant barrier to obtain tangible benefits from the use of blockchain technology. The problem is twofold.
First, for business leaders and regulators, the general level of understanding of technology, where it can be used more effectively, the associated risks and how to integrate it into an organization is poor. In large part this is due to the confusion resulting from the clamor, which has compromised the normal cycle of questions and learning.
In other words, entrepreneurs seem to be less willing to ask questions about something they feel they're supposed to know why it's been talked about. The nature of the revolution also meant that better knowledge is often only available in unconventional forums, such as open source communities where business leaders are not familiar with access.
The second half of the problem concerns technical skills. It is widely believed 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 might come to ask ourselves why society has 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 starting to offer both technical and commercial training for blockchain systems. It is now up to people to invest in their own development and tackle this problem.
Collaboration And Decentralization
Another significant obstacle to the proliferation of blockchain technology is the extent to which organizations are able to collaborate in the development and scaling of projects. The real benefits will probably only come true when this happens and there are several reasons for this.
The benefits of trust, transparency and efficiency can only be achieved on a large scale and through an ecosystem. For example, a decentralized payment system will not be very useful if only a handful of banks and payment service providers use it. Or for organizations that seek to improve the traceability of food products from the farm to the store, there is little benefit without all farmers or distributors being part of the system.
Collaboration between different organizations and stakeholders is needed to be able to design, implement and govern these blockchain systems properly. The collaboration also allows the sharing of skills and resources and can reduce the risks for a specific company.
But there are inherent obstacles to collaboration, particularly in a decentralized environment. Human beings have a predisposition to operate in centralized structures, so naturally they will find it difficult to operate with blockchain systems of an opposite nature. To go further, organizations and consortia must establish a collaborative structure from the beginning, which outlines, addresses and answers the difficult questions that the project will certainly have to face. Questions such as:
- What happens if an organization refuses to carry out the project?
- Who pays when a new organization joins the consortium?
- What data can be shared and who owns the data on the blockchain if an & # 39; organization leaves?
- Who will govern the blockchain when he is alive and what controls are needed to ensure his resilient operation?
The key to meeting these challenges is to establish a suitable distributed governance mechanism. This must have characteristics of open dialogue and transparency between the parties, which may require independent facilitation. Smart Dubai is a good example of this type of incentive and positive collaboration of the government with the company.
Cryptocurrency is just one type of blockchain use case, but it is useful for illustrating the settlement problem. There are currently around 1,600 existing cryptocurrencies, whose current market capitalization is $ 280 billion, not bad for a financial market with near-zero regulation. Most of these have appeared in the last 18 months as a result of ICOs, which are essentially a means of raising capital for a company by issuing cryptocurrency coins or tokens.
There is a lack of consent from regulatory bodies on how to deal with these currencies, particularly if they are to be subject to the same regulations as the supply of securities. Some regulators have banned the ICO and the use of cryptocurrencies altogether, some are adopting a "look and see" approach. Many, if not most, of the cryptocurrencies in question currently have a minimum intrinsic value, that is to say they have been designed with a future use case that will create demand and stabilize its price on the secondary market. Unfortunately, this means that many of the investments made will probably be lost.
Lack of regulation prevents investments in valuable use of blockchain because investors do not trust the legitimacy of projects and are wary of the potential of their investments to be wasted in case of regulatory change. This applies not only to cryptocurrency projects, but also to larger 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 at Abu Dhabi Global Market. These are areas of trust for companies to test and perfect innovative products, services, platforms and business models in a lively but controlled environment, giving legislators time to adapt legislation as needed.
The Time Is Now  There is no doubt that blockchain technology has the potential to change the nature of capitalism by bringing more trust, efficiency, transparency and accurate recording to daily transactions. Governments such as U.A.E. they are providing vision and leadership for this technology pioneer – business organizations must follow suit. The time is now to invest in education, identify opportunities for collaboration to drive progress and engage with regulators / standard setters to establish clarity and stability.
Matthew White is a partner and Digital Trust Leader at PwC Middle East.