There have been many claims made about the potential of blockchain. Some of these have been realistic, some not so much. Hype has been unlike that seen around other technologies since the internet was first developed, which has made pinning down real-world applications incredibly difficult. It seems, however, that we could finally be leaving the noise behind and clearing space for the first shoots of reality to come through.
The World Economic Forum has estimated that more than 25 countries are investing in blockchain technology, filing more than 2,500 patents and investing $1.3bn. The financial services industry, in particular, has shown little hesitation when it comes to diving in with both feet. In a survey by the IBM Institute for Business Value and the Economist Intelligence Unit, one in seven companies it calls ‘trailblazers’ said they expect to have blockchains in production and at commercial scale this year. IBM further estimates that 65% of banks will have models running in three years time.
Blockchain first made its name as the technology behind Bitcoin. It is a cryptographically secure public ledger of transactions operated by a decentralized peer-to-peer network with no central database of records. The ledger book is secure and complete because all changes are verified by the blockchain community. Nobody can insert, modify, or delete a transaction without affecting the entire chain and knocking the serial number hashes assigned to each block out of sync, which would immediately flag up foul play. Its core benefit is the trust it provides as a result of this - essentially, it offers automated authentication. In areas where once intermediaries would have been required to provide this trust, they are no longer needed, saving companies significant amounts of both time and money.
The implications of such a technology are profound for a range of industries. Banking is the most obvious of these, but every field from healthcare to music has been touted as a potential target in the blockchain revolution. Even companies like Uber and Spotify, themselves recent insurgents that have disrupted entire industries, could be next up for the guillotine.
However, rumblings that blockchain is not all its cracked up to be are starting to grow in volume. Sceptics argue that the hype is unwarranted, that the blockchain revolution is, for now at least, mostly just marketing spin. Among these is Nerushka Bowan, a technology lawyer at Norton Rose Fulbright. She has claimed the blockchain ‘hype cycle’ is likely to burst this year, as businesses which have invested heavily in researching the technology start to demand practical applications that are not going to be there. Gartner’s senior VP for technology, Peter Sondergaard, agrees, telling news outlet Fin24 that ‘it’s a fascinating area to keep an eye out for but I think it’s being over-hyped right now. I think it’s being over-hyped from the aspect of its short-term impact because there are still technical things that you need to solve and scale and there are still counter-aspects – business model wise – that aren’t necessarily fully clear.’ Even those working in blockchain seem dubious. Adam Ludwin, CEO of blockchain company Chain, has said ‘Blockchain is a database for money. I don’t understand why people talk about it in terms of health records and home deeds and voting systems.’
None of this is to suggest that blockchain is useless. It is, almost certainly, a game-changing technology. However, such scepticism is undoubtedly well founded. The enthusiasm of investors at the moment greatly outstrips the development of the technology, and many less scrupulous vendors are claiming to offer new and revolutionary products that are in fact essentially just databases being marketed as blockchains in the hope that they catch a bit of stardust. These databases often lack the central component of blockchain, the lack of middlemen, and this is causing a great deal of disillusionment and limiting understanding from corporates’ perspectives.
The blockchain landscape today is too confused. Incumbent financial institutions are making minor improvements while new startups are offering the world. The involvement of major tech firms such as IBM and Microsoft doesn’t appear to be helping things much either. Both are attempting to convert Blockchain into centralized services that they can sell, but this removes the fundament premise behind Blockchain's value - that it is a decentralized ledger. Their offerings are, of course, cryptographically protected, of course, but it is still facilitated by a single trusted part.
The hype slowing down could actually be hugely beneficial for blockchain, for a number of reasons. Firstly, it gives everyone a chance to properly identify where it will be useful. Nerushka Bowan notes that, ‘The potential uses of blockchain go as far as the imagination can stretch. It’s like the internet in the 1990s – we’re just starting to understand the technology and we can take its principles and apply it to any industry. The real use cases will emerge when the bubble bursts, that’s when we’ll see technology with true business cases and plans for potential widespread adoption.’ This will focus investment properly and allow developers time to identify problems without coming under pressure to rush out technology while it’s in vogue.
Slowing down blockchain development also gives regulators a chance to catch up. Regulators have struggled to respond to developments in blockchain because, firstly, as yet there are no commercial products for them to oversee, and secondly because it is evolving so quickly. Bowan argues that, ‘From a regulatory standpoint, it doesn’t make sense to try to adopt rules and standards to just to facilitate use cases. Sometimes, technology moves too fast for the regulators. There are cases, globally, where regulation was drafted without seeing the technology in practice and the law became difficult to implement practically. We need to give staff a chance to understand the technology, track developments and continuously engage with developers in the industry.’
At a summit I attended recently, one blockchain evangelist complained that the blockchain discussion has started to sound like an apology from the industry about everything blockchain hasn’t done. They were backtracking on promises made of all the ways blockchain could save the world. I agreed, but not in that it is a bad thing for the technology. Ultimately, hype around any new technology is like a forest. You have to cut some of the dead wood down so new trees can grow and flourish. Blockchain needs time and space, and it may finally be that we are giving it some.