Barely a month goes by without the announcement of a high-profile corporate project that’s seeking to harness and exploit the power of blockchain technology.
The Treasurer should know – we’ve reported on a fair few of these announcements ourselves. Just see our recent news story on the ambitious Forcefield initiative.
Typically, these projects take the form of joint ventures between financial and non-financial entities that are looking to develop blockchain solutions with highly specific purposes, for long-term mutual or collective advantage.
Indeed, Forcefield is designed to make it easier for parties in commodities trades to track the progress of goods in transit, with the aim of mitigating “systemic industry risks”. Its partners include Anglo American from the mining industry, CMST International from logistics, plus ING Bank and Macquarie from the world of elite finance.
According to recent estimates from advisory group Greenwich Associates, in 2018 the capital markets and banking sectors ploughed some $1.7bn into such blue-chip mega-projects.
But there are worries that the technological bomb that these ventures were thought to represent has yet to go off.
Last month, Reuters published its findings from a review of 33, large-scale corporate blockchain projects – an exercise in which the news agency had interviewed more than a dozen executives involved with some of the ventures it had put under the microscope.
Its blunt assessment: that the underlying technology “has yet to deliver on its promise”.
Reuters noted: “At least a dozen of these projects, which involve major banks, exchanges and technology firms, have not gone beyond the testing phase… Those that have made it past that stage are yet to see extensive usage.”
In particular, the report cited three examples:
The NASDAQ/Citigroup system worked in testing, but was never taken forward because the costs of full adoption would have outweighed the benefits. IBM’s project with the LSE failed to clear the testing phase, and the UBS coin is unlikely to be commercialised until next year at the earliest – following five years of R&D.
Reuters spoke to Rhomaios Ram, head of a special business unit created to work on the UBS project. Ram noted that, in order for the coin to have the intended transformational effect, a whole series of related market processes would have to shift over to blockchain, too.
“There is a recognition now that it is a journey,” Ram said, “rather than something with a short time frame.”
Importantly, blue-chip corporate projects are just one part of a much wider commercial ecosystem that has grown up around blockchain. All sorts of other companies are trying to get in on the action – including a host of start-ups providing a range of different services, from e-wallet facilities to cryptocurrency exchanges and anti-counterfeiting tools.
But figures show that, even on that broader, macro level, confidence in the field is wobbling. According to a new report from CBI Insights, venture capital investment into the blockchain space has “seriously declined” in 2019.
Going by current run rates, the analytics firm predicts that there will only be $1.6bn invested across 454 deals this year – a significant drop from the $4.1bn that blockchain businesses attracted last year.
In addition, the research indicates that a growing share of equity deals is heading towards early-stage start-ups, suggesting that the space is far from mature.
So, what sort of message should corporate, financial and technology stakeholders in large-scale blockchain projects glean from the Reuters and CBI Insights research?
Essentially, that blockchain technology is – for the time being – snagged at some point along the evolutionary path that market intelligence firm Gartner defined as the ‘Hype Cycle’. Based upon Gartner’s experience of tracking the progress of numerous game-changing technologies, the Hype Cycle plays out across five stages:
From this, we can infer that blue-chip, corporate blockchain projects – and indeed the bustling community of start-ups in the field – are currently stuck somewhere between the second and third stages.
For leaders who are thinking about adopting blockchain tools for use in their businesses in the hope of gaining some competitive advantage, this is a decidedly unhelpful scenario.
When a dozen large-scale corporate projects are failing to make it out of limbo, and waning investment into the start-ups end of the field hints at diminished confidence, how is it possible to assess which offerings are of tangible use – or even, at the most basic level, trustworthy?
Thankfully, one organisation has leaders’ backs. Over the past couple of years, the World Economic Forum (WEF) has been carefully monitoring the development and emergence of blockchain solutions. It is keenly aware of both the high level of curiosity among CEOs about what these technologies can do, and the misleading crackle of hype that has interfered with the formation of objective judgements on their ultimate usefulness.
In a recent, global survey, the WEF found that 51% of senior figures in private and public organisations either agree, or strongly agree, that they should adopt blockchain systems to remain competitive. The problem with that sense of urgency is the risk that leaders could rush themselves into making impulsive choices that end up working against their organisations, rather than for them.
On that point, the WEF is well ahead of the game. In April last year, it published the powerful white paper Blockchain Beyond the Hype, a document that didn’t mince its words when it came to highlighting the potentially severe downsides of both misguided blockchain adoption and the heady, cross-industry buzz that could be nudging leaders towards that very error.
Describing the torrent of hype as “overwhelming”, the white paper noted: “One of the most unique aspects of blockchain is its high number of evangelists – people who believe blockchain can solve everything from global financial inequality to access to financing for start-ups [and] the provision of ID for refugees, [as well as] solving supply chain problems and enabling people to sell their houses without needing an estate agent.
“It has started to seem that the most intractable of the world’s problems have merely been waiting for blockchain to arrive. This is not only misleading and untrue, but also becomes a barrier to decision-makers in taking a balanced perspective on the technology.”
The paper stressed that “a knee-jerk pivot to blockchain, when other existing technologies could suffice, not only consumes resources in pointless experimentation but also slows the development of sustainable solutions for the problems at hand – and can even lead to the absorption of unrecoverable costs.”
In July, the WEF followed up Blockchain Beyond the Hype with the equally clear-headed and forthright Building Value with Blockchain Technology.
While the earlier white paper had sought to help leaders distinguish between hype and viable use cases, the new one provided them with a fully fledged ‘Value Framework’, an objective lens through which CEOs can assess the solutions they are presented with, enabling them to work out how – or even whether – they will tangibly benefit their organisations.
Covering three, primary dimensions of usefulness, a range of technical capabilities and a set of key drivers, the Value Framework was boiled down into a handy graphic, or – as the authors put it – ‘Cheat Sheet’: see page eight of Building Value with Blockchain Technology.
Accompanying that graphic was a four-point plan for how leaders should put the Value Framework into action:
Firstly, assess each use case on your radar for the pain points it addresses, and/or the opportunities it creates. Once you have listed those pain points and opportunities, prioritise them. That assessment of the organisation’s current demands captures an honest picture of the status quo, and what matters most, without even thinking about how to solve those issues – or which technology to use.
What are your pain points and areas for opportunity? What matters most to your organisation?
Blockchain use cases have the potential to transform the business across three, main dimensions: i) improving productivity and quality; ii) increasing transparency among relevant parties; and iii) reinventing products and processes. Bucketing the pain points and opportunities into those three dimensions will simplify the next two steps.
Are there characteristics of blockchain that can help with the identified pain points and/or areas of opportunity? How so – in specific terms? Are there other technologies that could cure the same pain points and/or capture the cited areas of opportunity more effectively or efficiently? Consider cost, risk and speed of implementation.
Each dimension of the Value Framework Cheat Sheet includes a series of blockchain-enabling capabilities that – sometimes singlehandedly, but often in conjunction with each other – provide a solution to pain points or capture areas of opportunity. Use the Cheat Sheet to evaluate whether or not blockchain is: a) the correct means for solving your current-state priorities; and b) a first step to focus on for future development.
How do the characteristics of the tool(s) you are assessing map on to the enabling capabilities outlined on the Cheat Sheet? Are those capabilities priority areas for your organisation, and are they specific to blockchain when considered holistically?
Lined up along the bottom of the Cheat Sheet, the value drivers are the areas where you will find your cost savings, increased revenue and improved customer experience. Each driver touches upon important components of the business that are powered by technology. When the time comes, those value drivers will form the foundations of any business case.
What are the value drivers that map to your primary pain points or areas of opportunity? How can we think about measuring or capturing this type of impact? Have we made a strong case for adoption – both at organisational level and ecosystem level?
With that Framework, the WEF is aiming to take the wind out of the hype’s sails and encourage leaders to really slow down in their approach to thinking about blockchain.
And for good reason: in a global poll of decision-makers across 13 industries, the organisation found that 59% of respondents had no confidence that the blockchain projects they had embarked on would deliver a positive return on investment. Only 38% of those who had implemented the technology had developed a business case prior to investing.
The white paper noted: “Many of those interviewed had doubts as to whether the technology was production-ready – ‘limitations on blockchain technology’ and ‘scalability issues’ were selected as the biggest challenges in [the adoption phase].”
So, perhaps there’s a dual lesson here: while leaders are ill-advised to rush into adopting blockchain just for the sake of it, vendors must also ensure that their offerings truly answer pressing business needs – and are coded to the highest technical standards. Only then will blockchain solutions conquer the fabled Slope of Enlightenment and Plateau of Productivity.
Matt Packer is a freelance business, finance and leadership journalist