Blockchain will solve [Insert Business Problem Here]

Blockchain may be entering the trough of disillusionment but that’s no bad thing. Now companies can properly examine the nature of their business problem and consider the appropriate technological solution – of which blockchain or DLT may (or may not) be suitable.

• Blockchain Is Not Going to Change The World – Forbes Jun16
• Has the Blockchain hype finally peaked? – FT Nov16
• Blockchain: not fit for financial markets – The Conversation Dec16
• The revolution will (not) be decentralised: blockchains – Commons Transactions Jun16
• R3’s Corda Abandons Blockchain (2017 Cointelegraph)

Undoubtedly blockchain and DLT is still a popular choice amongst many businesses and certainly within the banking sector. PoCs continue to flow out of incubator labs, the media is always churning out related stories – albeit mostly focused around the recent bitcoin forking debate-  and banks continue work in their respective consortiums. However the rhetoric surrounding the technology is beginning to move from ‘over exaggerated hype’ to a more pragmatic tone, and I for one am pleased to finally see this happening.

They hear the potential for near real time processing and expect the profits to come in just as fast.

Gartner’s Ray Vales neatly sums up by describing 2016 as the year of “’blockchain tourism’, or as the cynics would call it, the year of pointless blockchain projects.” I wouldn’t go so far as to fall under Vales’ ‘cynic’ category, however I would subscribe to his notion that 2016 was a year filled with dubious use cases and unsuitable applications for the technologies. This was in part driven by the media hype due to bitcoin’s soring price, controversial DAO exploit and a deep misunderstanding of the technology from basement to boardroom. Consequently senior management, who were swept up in the hype tsunami, contributed large budgets and significant headcount to blockchain based projects. Whilst this move to explore new technologies is to be applauded, especially in some of the more traditional and typically slower to innovate banks, this was paired with an expectation that blockchain could (and would) solve all technological issues and provide short to medium term benefits.

Here is where my issue lies – although I see huge potential within these nascent technologies, the goal of profit for the banks is pushing them to put blockchain as the solution into problems for which it isn’t. As such, instead of exploring the technology to understand its boundaries and opportunities, newly set up blockchain departments and innovation labs are being pressured to apply the technology and provide quick to market solutions. This is due to senior management hearing about the potential for near real time processing and expect the profits to come in just as fast. Unsurprisingly this is not the case and although 2016 had a number of potential use cases (see below), the lack of income driving solutions is leading to a waning of interest and disillusionment with the technology.

• Credit Suisse, Synaps Loans and Symbiont carry out successful demonstration of blockchain based syndicated loans platform  
• BoE and PwC partner on distributed ledger PoC
• Royal mint offers gold trading on a blockchain

In addition, this need for speed is resulting in many potentially suitable applications being missed due to the length of time required to bring the solution to market or the requirement for large scale system overhauls which (understandably) many bank bosses don’t find appealing. Two examples of such as the under/unbanked market and streamlining the on-boarding process with information sharing between bankers. Either of these would be an ambitious project; involving cross industry collaboration, a tight working relationship with regulators (especially with GDPR on the horizon) and extensive work trying to detangle legacy infrastructure. The potential benefits for the customer and cost saving opportunities for the bank are surely an attracting proposition however with project timelines likely to spread out over several years, the bank would need to commit to the project with no income insight for a significant proportion of time. With margins in the investment banking division already thin, fines for unsavoury behaviour still filtering through the industry and continued pressure from challenger banks, such as commitment would require high up support from a true blockchain enthusiast.

And it’s not just the media hype which is wavering, the stats within the private market show a similar trend; with both number of deals and total funding decreased from 2015 to 2016 (2015: 161 $524m vs 2016: 132 $550m) with angel/incubator and VC funding following a similar trend (2015: 191 vs 2016: 131).

However all is not doom and gloom as series D fund raising increased from 0% of rounds in 2015 to 8% in 2016, showing that appetite for more developed and tested solutions is still attractive to VCs and backers. The heavily saturated market is therefore beginning to refine itself and we will hopefully see the emergence of fewer companies, offering more high quality solutions – maybe even a unicorn or two in a few years!

This can be helped by blockchain’s gradual reduction of celebrity status within the tech buzzword world. As Clay Shirky write for the Daily Fintech, “[blockchain] may still fade into the sunset of overhyped technologies … [and its promise] won’t be fulfilled until it becomes technologically boring.” As such, allowing blockchain and DLT to head back to the labs/ accepting that the technologies need further time to mature may allow for more meaningful applications. An increased focus on the core technologies and greater understanding could also lead to more pragmatic business decisions where previous technologies such DLTs or distributed database technologies are instead chosen. Therefore this added time to explore, and reduction of pressure for immediate results, will allow technology and business teams to find the right solution even though it may not necessarily be the most glamorous solution.

Therefore the end of the media hype and the rhetoric ‘Blockchain will solve [insert business problem here]’ could be good for blockchain and DLTs as companies mature their exploration into technological improvements, now looking at technologies which fit rather than trying to fit the problem into a blockchain solution. I for one am happy to enter the trough of disillusionment or what should more aptly be called … the dip of reality.