Should we believe the hype?
Some say blockchain is the most significant technological breakthrough since the invention of the internet; others say it’s over-hyped. One thing is for sure; it’s probably the most emotive subject in the tech world today, with the most diverse opinions.
For those not familiar with blockchain technology here’s a quick description:
It surfaced in 2009, developed by an unidentified person or group known as Satoshi Nakamoto and was the technology underpinning the creation of bitcoin digital currency.
One of the best descriptions of what it actually does belongs to Marco Iansiti writing in the Harvard Business Review:
“The technology at the heart of bitcoin and other virtual currencies, blockchain is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.”
What are the opportunities for organisations?
In simple terms, because blockchain removes the need for trusted third parties or middlemen, such as banks, to administrate processes, it lowers operating costs and removes systemic risk and the risk of financial fraud.
While the financial sector is where the disruptive technology first appeared and where much of the nascent development is happening, its massive potential to be applied to other sectors is what is generating the column inches.
Blockchain could be applied, for example to the creative industries to provide artists transparency of royalty payments for rights owners. In fact, IBM has already developed blockchain partnerships in this area. Kodak has also recently announced plans to launch a similar digital token system for photographs.
In the art world, the potential of blockchain to attribute digital work, prove ownership, provenance and remuneration is the inspiration behind the launch later this year of Maecenas’s ‘The Decentralised Art Gallery’ – where individuals can buy a share in fine art, effectively ‘democratising’ access to a market previously out of reach to most.
It’s also being researched by governments for use alongside national currencies and land registration and some even talk of a future where there is one world currency underpinned by it. The opportunity it presents was validated by the amount of discussion it generated at the World Economic Forum in Davos last month.
What’s stopping it?
As with any potentially game changing new technology, there are a lot of hurdles to overcome before it becomes mainstream, not least of which is the slow pace of market adoption. Significant hurdles include:
- CEOs need to become aware of its potential for their business. They may well see it as much as a threat to their organisation as an opportunity, especially when in some quarters they say blockchain will do away with the need for hierarchical company structures.
- The computing power required to scale public blockchain is enormous. Take bitcoin, each individual bitcoin transaction uses almost 300 KWh of electricity – enough to boil around 36,000 kettles full of water!
- If it were rolled out on a public application that became popular for example, it could quickly become overrun and users could be forced to wait longer for transactions to be completed or pay higher fees to have transactions mined. You can’t control it in the public domain.
- In the private/permissioned blockchain, banking interests will want to control it – after all, they are the middlemen this tech promises to do away with.
- Concerns about a lack of regulation in the crypto-currency market is already leading to measures that restrict adoption – such as the additional charges credit card companies are now making on purchases of crypto-currency.
When is it coming?
Whilst there are a lot of innovative companies developing platforms and strategies for blockchain, the roll out of a practical technology to new sectors is still a long way off. Marco Iansiti says that while the impact could be enormous; “It will take decades for blockchain to seep into our economic and social infrastructure.” The journey has already started.