Beyond the blockchain hype

Finally. The moment is here which we have been expecting for years. The highly praised blockchain revolution dives into what market researcher Gartner calls the 'trough of disillusionment’. This moment confuses people about the true value of blockchain and DLT technologies, leading to doubts whether blockchain will ever reach Gartners ‘slope of enlightment’. In this article I try to give a holistic view of the blockchain industry and point out that having patience and enabling a nuanced discussion is necessary to harvest the fruits of the ultimate blockchain potential.

I myself have been involved with blockchain technology since late 2014, and I was not a lover at first sight. Honestly, I just didn't get it. It was just too complex, and it literally took months for the technology to sink in. But after these months, I was convinced. Blockchain is essentially ‘just’ a shared administration – but then secure – and the technology has the ultimate benefit to let companies or individuals work better together. They can trust everything they'd digitally agree on, such as transactions, signatures or contracts, and therefore the trust threshold for doing business together is lower. This enables more efficiency in administrative collaboration, leading to costs savings, the removal of unnecessary third parties and even new business models.

A year later, late 2015, the hype started. All of a sudden everyone in the financial banking industry was talking about blockchain, like it would solve everything. Sky-high ambitions were presented and loads of blockchain initiatives started. This helped the industry kick-start, but would also appear detrimental for its expectations. And that’s exactly where we are now. These sky-high ambitions sketched in 2015-2016 will probably not be met for the coming 5-10 years, and the average consumer of daily-life administrations will hardly see new benefits. That's because there are three main challenges regarding blockchain innovation.

Three challenges

The first challenge is that companies need to work together. The higher the number of companies in need for a shared administration, the higher the need for a blockchain. But also the more challenging it is to get everyone in one room and decide on the functionality, technology, rule books, processes and governance. Not only need companies – often competitors – to work together closely, they also need to adopt a different collaboration fashion. Instead of thinking just about yourself, you will need to make the blockchain platform suitable and desired by all your competitors. Because if your competitors won’t join, you will probably never reach sufficient adoption and create market disruption. The second challenge is, that the technology needs to mature. A limited number of transactions per second, partial confidentiality of transactions and not-proved consensus mechanisms are still limiting us to gain the ultimate blockchain benefits. Though, for each of these merely ‘technical’ challenges, there are already tens of potential solutions. It’s absolutely probable that everything related to technical impossibilities will be solved midterm. The third challenge is to correctly understand the technology. Blockchain in all its details and possibilities is overwhelming, often leading to faulty conclusions or wrong expectations. It’s an abstract technology and various categories of blockchain types are inherently different. Public blockchains (open-to-all administrations, using cryptocurrencies) and consortium blockchains (shared administration only accessible for few companies) are completely different and can hardly be compared. It's comparing apples and pears. Public blockchains are challenged by mainly technical impossibilities and industries have trouble adopting them due to the open nature of the ecosystem. As it's open, people use it the way they want to use it, which is not always legitimate. Consortium blockchains are challenged by mainly collaboration and governance issues, and innovate relatively slow because of that.

Many authors writing about blockchain pick a few advantages or disadvantages from both categories to build their story, but hardly create a balanced story. After years and years of positive stories, the sentiment seems to have changed. In Holland a few articles came to light. The Correspondent wrote a piece about blockchain, which was surprisingly one-sided. Arguments from both blockchain categories were mixed and one negative case study was highlighted, leading to premature conclusions. The Dutch newsletter De Volkskrant recently wrote an article, which was fairly balanced, had a great overview of many pilots, but scoped only to the Netherlands and missed many current innovations. I think there was some confusion about the two categories as well. Another article appeared at notable IT news site Computable. It makes excellent points in weaknesses in the IT setup of blockchain applications and wrong reasons to choose for blockchain technology, but the conclusion that 'blockchain is a tragedy' comes as a surprise and is hardly supported with arguments.

 What are the valid arguments?

To give a schematic and nuanced overview of all pros and cons of blockchain technology, I urge to start with a clear separation between consortium blockchains (CBs) and public blockchains (PBs). I’ve therefore listed the most common arguments in two separate tables, as you can see below. Next to each argument I've stated whether these arguments are also arguments for the future state of blockchain.

Arguments regarding Consortium Blockchains (CBs)

Arguments regarding Public Blockchains (PBs)

The commonly named reasons that pushed blockchain over the ‘Peak of inflated expectations’ down into the trough of disillusionment, are twofold. The first is that adoption is lacking, the second is that the technology is not good enough. The point I'm making is that both categories arguments will be probably be solved in the future. To give a few examples. State channels is an innovation in pilot-form in which an unlimited number of transactions are enabled for some public blockchains, while maintaining security. The European Commission is investigating a European Blockchain Network, which can take away many ‘governance’ issues. Stable coins are proliferating on public blockchains, which may create a non-volatile payment method. We should not despise technology if it’s not clear if the current challenges will also be our future challenges.

If we want to assess blockchain technology, it’s important to choose if we want to describe the current situation or if we are presenting boundaries for the future. No matter your opinion, critical is that the discussion will be pure. Hailing blockchain because some blockchain projects are still alive and kicking is just as bad as despising blockchain due to the bad energy consumption. Let’s be honest. The hype enabled us to start many initiatives, but due a lack of knowledge many of these alternatives were not (yet) a great fit in the early days of blockchain. The low fruits are hanging quite high, actually.

Towards consolidation

As blockchain was massively hyped, the expectation of the crowd was sky-high and many organizations and governments kick-started their blockchain journey. At this moment most of these projects have been cancelled. This could have several reasons, but one important one is that blockchain does not solve everything. Next to many projects being cancelled, also quite some projects have 'seen the light' and embraced sky-high investments in order to build a new piece of our future. Example for the public blockchain industry is that crypto wallet provider Coinbase is already listed on a market value of 8 billion USD. Example for the consortium blockchain industry is the go live of the we.trade project Rabobank participates in together with 12 other banks, helping out customers on a daily basis regarding their trade finance activities. It's absolutely not certain that these examples will break-through and stay, but chances are high that (iterations of) these examples make their mark. In the end it’s a very healthy step to validate our expectations and reassess our projects and pilots.

During my innovation journey, there were times I got impatient and tried to think what it would have been without blockchain technology. These thoughts sucked me back into the world’s most inefficient paper systems, giant databases that got hacked, centralized actors with way too much power, corruption systems, and tons of examples of fraud. I just couldn’t go back. The promises blockchain still gives to solve many of these items is too near, too real and absolutely possible. Even though blockchain is still years away from its disruptive impact, we can see today already the first sparks of the technology being used in a good sense. Let’s have patience and work slowly upwards to positive disruption.

* A few colleagues provided useful feedback on this blog. Thanks a lot guys!