The overhype around blockchains has somewhat subsided in recent years, and they’re no longer perceived as a panacea to support all transactions, databases, and applications. Nevertheless, blockchains have become a valuable and essential tool for business—and a technology that companies should ignore at their peril.
So, what is blockchain? It’s a distributed ledger that eliminates the need for a trusted central party to facilitate digital transactions. It has the following key features:
- Consensus: All parties in a blockchain transaction must agree to the same rules.
- Provenance: All transactions are traceable.
- Immutability: Once a transaction has been recorded to a blockchain, it can’t be changed.
- Scale: A blockchain can be open (public), private (limited to a specific company or group) , or can serve a consortium (semi-private and available across organizations).
- Finality: There is only one ledger for the whole network.
The best way to think about using a blockchain is as a “platform” that can power business systems and solutions. In situations where information or assets are exchanged, the question to ask is, “Does it offer advantages over a traditional database or other platforms?” The answer, in many cases, is yes.
Soon blockchain will be a part of many larger enterprise applications, and we are likely to be using dozens of blockchains every day without realizing it.
Blockchain applications now exist—and are thriving—for transactions, contracts, insurance, supply chain, and even music. Ethereum, one of the largest blockchain-based networks, powers smart contracts that facilitate agreements between two or more parties. Parts Pedigree is tracking airplane parts to make flying safer. Hyperledger is a blockchain engine already used to help track products on many supply chains. Ripple streamlines international payments, while Civic verifies people’s digital identities when purchasing airplane tickets or checking in at hotels.
Soon, blockchain will be a part of many larger enterprise applications, and we are likely to be using dozens of blockchains every day without realizing it. Still, there are a lot of myths about the viability of blockchain for business. Here are seven common myths:
1. Blockchain’s success is directly tied to cryptocurrencies
More than a decade after blockchain’s first successful implementation, people often confuse it with bitcoin and other cryptocurrencies.
That’s understandable, since early blockchains were invented to support digital currency. What’s more, blockchain platforms like Ethereum are fueled by proprietary cryptocurrencies. Yet the role of a cryptocurrency as “money” on a blockchain often disguises the value of its underlying technology. REP token, for example, was used to raise capital for the development of the Augur prediction marketplace, an innovative technology that allows anyone to create markets and make bets on the outcome of those markets. It’s all done on a blockchain, but the token has little to do with many of the functions that take place in the marketplace. Also, many popular enterprise blockchain platforms, like Hyperledger, aren’t tied to cryptocurrencies at all.
2. There are no successful blockchain projects
If you only look at the success rate of Initial Coin Offerings (ICOs), which are often used to raise money for companies and projects that utilize blockchains, it’s easy to conclude that blockchain has been a failure. Many of those offerings have stumbled financially. But regardless of that, there have been many successful blockchain implementations for business. Big enterprise technology companies like IBM, Microsoft, Deloitte, and SAP each have many live and successful projects.
One recent business-to-business blockchain success story is the TradeLens global supply chain solution. This blockchain-powered solution already encompasses almost half of the world’s container shipments, and has processed over 500 million transactions. Another recent example comes from investment firm Vanguard, which since February has been using blockchain technology to manage data for $1.3 trillion worth of funds. That’s one-quarter of its total assets under management.
A few consumer apps like Cryptokitties and gambling-related distributed applications (DApps) have caught on, at least among some groups, but generally blockchain has not yet played much of a role in the consumer marketplace.
3. Blockchain is slow
Cryptocurrency protocols like Ethereum’s ETH network and bitcoin’s BTC network are often decried as frustratingly slow—and at times they are. However, speeds are improving every month, and new blockchains like Tron, which is closing in on 10,000 transactions in less than a second, are starting to resolve the speed problem. (By comparison, Visa claims that its credit card payment processing system can handle 24,000 transactions per second, though in reality, it processes around 1,700 transactions per second.)
In addition, off-chain transactions—which aren’t synchronized across an entire distributed ledger immediately—can also greatly increase speed.
4. Blockchains get hacked all the time
Blockchain technology is not immune to attack. But no major blockchain has been hacked—though exchanges and apps that sit on top of blockchains have been. (That’s what happened in the infamous Mt. Gox case, for example.) In the next three to eight years, quantum computing could upend that calculus as it moves from promise to reality. However, all encrypted internet transactions would also be threatened by such technology. And unlike ordinary databases, applications, and the internet at large, blockchains have the flexibility to upgrade through what are called “soft and hard forks” to stay ahead of security risks.
5. Blockchain tech is the solution to everything
Like many new technologies, blockchain is often applied to problems that are better served by non-blockchain solutions. Chances are, the technology is just one of many potential solutions to the business problem you’re facing. As you evaluate the problem, ask yourself whether a centralized database or simple application could do the same job just as well—and take an honest look of whether it’s worth the effort of bringing in new technology as opposed to using existing platforms and products.
You shouldn’t use blockchain to track a few assets inside your company. A simple spreadsheet or database can usually do that more simply and effectively. If, on the other hand, you need to track large sets of assets across many companies and maintain a detailed history for each asset, consider using blockchain.
6. It’s easy to find a blockchain expert
There are thousands of blockchain “experts” who talk glibly about the technology yet have neither designed nor implemented blockchain systems. Skilled blockchain experts are hard to find, and very expensive. By my estimation, there are fewer than 50 very good, experienced enterprise blockchain architects currently in the U.S. Over time, blockchain expertise will be more commonplace, but until then, many blockchain implementations are running into problems, facing delays, and are often poorly designed for no other reason than this resource shortage.
7. Big businesses are rooting for blockchain
Given how many big companies have launched blockchain applications, you might assume that all but a handful of naysayers are on board with the technology. However, many industries do not want blockchain to succeed any faster than they can get ahead of it. That goes for banking and financial services as well as database providers and large tech platforms.
JP Morgan Chase is the poster child here: in 2017, CEO Jamie Dimon called bitcoin a “fraud.” At the same time, the company had a dedicated team working on creating blockchain payment technologies. The following year, JP Morgan Chase launched Quorum, a bitcoin-like payment and supply chain system for business that was built on top of Ethereum and is now supported by Microsoft’s Azure cloud platform.
Another example is Facebook. For many years, Facebook has banned ICO and Crypto ads on its network. Then, in 2019, Facebook announced plans for its own cryptocurrency, Libra.
The U.S. government, meanwhile, has fallen behind other countries on issuing clear blockchain guidance, which is forcing the industry to navigate many different—and often contradictory—laws and regulations for this new technology on its own. As things stand in the U.S., you can’t technically issue, send, or exchange a token or coin without breaking a regulation and/or having to report the transaction to the federal government.
Right now, most blockchain tech is proprietary, but momentum is growing towards aligning around common platforms, development languages, and tools. Ultimately, this will accelerate the use of blockchain-based solutions across business. In the long-term, blockchains are likely to have a huge impact on all of our lives.
Peter Wokwicz, a former Deloitte consultant, currently serves as a technology advisor, investor, and as interim Chief Information Officer and Chief Executive Officer for companies going through changes, including mergers and acquisitions, and initial public offerings.