You would have a hard time reading the pitch deck of any company software manufacturer without seeing a passing reference to the blockchain. Venture money is pouring into this technology segment and marketing evangelists are driving their content engines, ads and PR stacks crazy to understand that blockchain is really the equivalent of solving world peace.
But just as many fanatical fans and rabid girls are, there are many reasons to be skeptical about the real long-term utility of this nascent technology. This skepticism, sometimes healthy but sometimes banal, leads to what I am calling the Blockchain Paradox.
Blockchain's paradox – by numbers
A good starting point for understanding the Blockchain paradox is a recent research paper published by PwC entitled Blockchain is here. What's your next move? PwC's Global Blockchain Survey 2018. Immediately under this clickbaity title, we have a perfect illustration of the Blockchain paradox:
The details are a little bit better. difficult to read, so I will set them out:
- 84% of respondents are actively involved in the blockchain
- 45% believe that trust could delay adoption
- 30% see China as a growing blockchain leader
- 28% say that systems interoperability is a key to success
How can a large majority pour money into blockchain technology while significant percentages see major problems now that in the future? Do not calculate? Or is it true?
It is in the details in which we begin to see what is really happening:
The astute observers will note that the numbers amount to 98% and that the active group amounts to 79% or 86% if you include those that are on a break. Apart from the mathematical oddities, the stanteut number is 15% live. This suggests that progress is far more advanced than most commentators have suggested, at least until now. The numbers I see are constantly talking about POCs and failure rates of up to 92% which would suggest a much lower success rate than suggested by the PwC survey. Another indicator comes from a recent HfS report that has placed "no or little attention to investments" in blockchain at 27% but "significant investment" at 33%.
This disparity deserves consideration and, I suggest, is a clear indicator of the volatility that exists within the blockchain market as a whole, excluding the trade in cryptocurrencies that are everywhere on the map.
PwC does not provide a demographic breakdown of the sample of the survey but the general leadership trends reported by the respondents adapt to the volume of the announcements, the round of financing and the successes reported on the market.
The Blockchain Paradox – barriers
As might be expected, PwC uses these numbers as a starting point to gently suggest that now is the time to move forward but to be aware of the difficulties. It is here where I see the most interesting results:
The detailed analysis of PwC is useful but it is possible to aggregate the answers into three main blocks: trust, compliance and technical problems. PwC attributes the problem of trust to two main causes:
- Blockchain is difficult to explain
- Confidence in the network
The first problem is readily understood (sic). You really need to work through a series of primers before the blockchain concepts are clarified. The second is a little confused. PwC says this way:
It is perhaps ironic that a technology intended to ensure that consensus affects an obstacle to the initial need to design rules and standards. Take payment systems and mechanisms in the banking sector. Although everyone today respects the rules of existing systems, they do not necessarily agree on how an alternative model based on blockchain should be designed and managed.
What PwC does not mention is that while the "rules" may be clear, implementing them on a bank basis by bank is often left to the banks to understand it. In other words, there is no current consensus at the operational level. My opinion is that financial institutions would be crazy to perpetuate that modus operandi at a time when basic technology provides a clear framework to wipe out the arcane differences that exist, for example, between ATM systems. Much better to compete on the level of the application service and see the blockchain as a basis for those services.
Next, PwC says:
A company that creates a blockchain by itself will undoubtedly face challenges related to internal buy-in, data harmonization and scale. However, this company can set and enforce the rules of the blockchain, just as it does today with its ERP. But in general, do not realize the maximum return on investment in blockchain if you are building it only for yourself. The advantages of Blockchain are best achieved when the different participants in the sector come together to create a shared platform. Obviously, when you start inviting third parties to participate, you can not write the rules yourself.
This is a fascinating version of the reality that is annulled. We have seen that shared services in the public sector have had limited and sporadic success. Among the industries, it is often the master of the channel that dictates the terms of the network for services such as EDI, which is the high-speed backbone for the exchange of documents. In terms of blockchain, EDI becomes "smart contracts".
PwC finds common ground in some sectors, citing aerospace where the provenance of parts over the 30-year life cycle of an aircraft can be usefully distributed among all market participants using blockchain technology. Another example is in food security, where provenance concerns can be solved with smart contracts.
The Blockchain Paradox – Challenges
In the world of ERP and CRM, we know that SAP, Oracle, IBM, Microsoft and Salesforce are all delighted with blockchain technology. But as pointed out at Oracle OpenWorld 2017, the obstacles to adoption are incredibly high. Check this chart from the specific presentation of the blockchain:
Oracle is part of the Hyperledger consortium of more than 20 salespeople whose declared mission is:
a. create an enterprise-wide enterprise code and open source accounting framework, on which users can create and execute robust, industry-specific applications, platforms and hardware systems to support commercial transactions.
b. create an open source technical community for the benefit of the HLP and user solutions ecosystem, focused on blockchain and shared book use cases that will work on a variety of industrial solutions;
c. promote participation of key ecosystem members, including developers, service providers and solutions and end users; and
d. hosting the infrastructure for HLP, establishing a neutral home for community infrastructure, meetings, events and collaborative discussions and providing a structure around the business and technical governance of HLP.
But even here, the group has undergone its mixtures. A December 2017 Reuters story found that:
The weakened support of Hyperledger by some large members highlights how large companies have become more selective with their blockchain efforts as technology matures. At the start of this year, JP Morgan Chase & Co. left the R3, following the departure of Goldman Sachs Group Inc, Banco Santander and others.
I am not suggesting for a minute that there should be only one "standard blockchain" but I suspect what we see is the mistake of believing that the infrastructure is a differentiation capability. This may be true if you are a telco but between banks? Really?
The problems that Oracle notes are real and are at the heart of why the Blockchain Paradox exists. Corporate buyers may want to see quick wins – and there are certainly a lot of things to go – but it's hard to see how major software vendors will try again soon when today, they can barely keep their game on the cloud together.
For its part, Oracle is testing the waters with its Blockchain Cloud Service. The service has an aggressive price and claims enterprise resilience, extensibility from existing apps that rely on a pre-assembled PaaS that is future-proof. As a prime example of "the art of the possible", you must give Oracle credit for retro-adaptive blockchain services to existing processes.
Note: the video of the show provides a good demonstration of how complex processes of ordering, shipping, billing and delivery can be managed through an intelligent contract. It is worth following the whole route.
One of the other elements of the Blockchain paradox that I see is the form of decentralization with respect to decentralization. I explored these topics in my recent review of Life After Google, but I think Jon Reed has summed up his story well. Now there is – the customer has no control. On Google, Amazon and the algorithmic situation of the super-user in which he concluded that:
I assume instead of power, I will have to be content with hyper-convenience.
In terms of business, we see an intense debate about which of AWS, Google and Microsoft represent the future of cloud computing. The sudden emerging competition among these three mega-companies is promising an easier ramp for cloud services.
In short, everyone offers the convenience of a relatively simple low-cost cloud infrastructure consumption, but then they are buying into a centralized service where attack surfaces get bigger and bigger. Conversely, the decentralized blockchain claims to eliminate or substantially reduce this threat. However, as we can see from the statistics, there is a significant uncertainty about whether the statements are real or imagined.
Blockchain offer ample space for a robust and sometimes visceral debate. Check this from a correspondent of my LinkedIn group:
I'll read it, but the technological fundamentals of most blockchain implementations are so extraordinarily shitty that I'm skeptical about timing and scope. "It seems" more like a "feature", not a big break. The claimed transformative changes of blockchain are usually, on further analysis, made to be human and social changes. And unlike the Internet, it does not seem significant enough to create or push the alleged tectonic changes that the hypothetical ones claim. We'll see.
In response, another person said:
Rick, to you on current implementations … There is an extraordinary amount of mindshare and capital that now focus on resolving these technical challenges. Mature solutions will emerge. Yes, there is a hyperbole in the market, but I can not think of a past technological trend that has not been accompanied by a crazy sharing of marketing claims. The trick, I think, is to ignore all this and find ways to exploit a new tool.
See the Blockchain paradox in action? See how the marketing hype is blinding someone to think deeply about potential? A recent Deloitte report that somewhat reflects the PwC survey found that:
… almost 39% of the large global champion claimed to believe that the blockchain is "overhyped". In the United States, meanwhile, this number is higher: 44% of respondents see the blockchain as overhyped, from 34 percent in a 2016 survey conducted by Deloitte.
This must be alarming. Although I would be sorry to see the interest in the blockchain collapsing into a pit of despair, it could serve to bring people back to quiet.
Based on over 45 years involved in the technology industry I think the blockchain is the most I've ever seen a technology change even less understood. (Noye my choice of words.) The technological changes of the past have been relatively easy to understand but this is problematic for all the reasons that PwC exposes.
This makes the blockchain a breeding ground for misinformation, wasted budgets but also potential for discoveries of a kind that are barely imaginable today. Hence the Blockchain paradox.
Image Credit – Illustrations via PwC, Oracle and Public Images
Disclosure – SAP, Oracle and Salesforce are all the best partners at the time of writing