Blockchain is often hyped as the next big thing in emerging technologies. But the reality is the majority of proofs of concept fail to get beyond the initial experimentation phase.
The good news is that CIOs can learn from early failures and avoid common mistakes. As the technology slides into the Trough of Disillusionment on the Gartner Hype Cycle, it’s vital that CIOs avoid pitfalls that can lead to disappointment and failure in enterprise blockchain projects.
“Every region and industry has developed an intense interest in how blockchain can be used to improve market efficiencies and reduce costs and latency. But there’s still a significant gap between the hype and market reality,” says Adrian Leow, Senior Director Analyst at Gartner. “Challenges exist in terms of business case viability, governance maturity, technology maturity, availability of skills and even an underlying willingness to alter the way the core enterprise and industry works.”
However, simply knowing where the frequent points of blockchain failure exist can help enterprises avoid falling into the same traps.
- Misunderstanding or misusing blockchain technology
For a project to utilize blockchain technology effectively, it must add trust to an untrusted environment and exploit a distributed ledger mechanism. Tokenization and decentralization are key elements for a useful blockchain. Private blockchain deployments relax the security conditions in favor of a centralized identity management system and consensus mechanism that obviates the trustless assumptions. To correct this, enterprises must create a trust model of the entire system to identify trusted areas versus not-trusted areas and apply blockchain only to untrusted parties.
- Assuming that current technology is ready for production use
The current blockchain market is a mixture of offerings from startups and open-source projects. CIOs should assume that most blockchain platforms are still maturing and continue with experimentation and proofs of concept, especially in the context of open source.
- Confusing a limited, foundation-level protocol with a complete business solution
While the term blockchain is often used in conjunction with innovative solutions in areas such as supply chain management or medical information systems, what’s currently available on the market doesn’t always match what is hyped in news stories. Given how blockchain is talked about, IT leaders might think the currently available foundational-level technology is essentially a complete application solution. But realistically, blockchain has a lot of evolving to do until it’s ready to fulfill all the potential technologies. When considering a broad-scope, ambitious blockchain project, CIOs should view the blockchain portion to be less than 10% of the total project development effort.
- Viewing blockchain technology purely as a database or storage mechanism
Some IT leaders conflate “distributed ledger” with a data persistence mechanism or distributed database management system. Currently, blockchain implements a sequential, append-only record of significant events. It offers limited data management capabilities in exchange for a decentralized service and to avoid trusting a single central organization. CIOs must be aware of and weigh the data management trade-offs to ensure that blockchain is a good enterprise solution in its current form.
- Assuming interoperability among platforms that don’t exist yet
Most blockchain technologies are still in the development stage and lack specific technology (or business) roadmaps. Fundamentally, wallets have no native fungibility, and ledgers themselves lack inherent integration capability. Critically, blockchain standards do not yet exist. This means that beyond assuming potential interoperability at the most basic level, CIOs should view any vendor discussions about interoperability with skepticism. Although there are multiple competing suppliers, the technology has not matured to a level where interoperability can be assured. Don’t expect blockchain platforms from 2018 to interoperate with blockchain platforms from a different vendor a year from now.
- Assuming that smart contract technology is a solved problem
Smart contracts, computer protocols that will facilitate and enforce contracts, are what will enable the programmable economy. However, at a technical level, smart contracts currently lack scalability, auditability, manageability and verifiability. Moreover, there is no legal framework currently in existence — locally or globally — for their application. Smart contracts will evolve in the next three to five years, but CIOs should be careful when developing them under current blockchain offerings and seek legal advice on their use.
- Ignoring governance issues for a peer-to-peer distributed network
Even given a stable, functional technical foundation, blockchain governance issues can pose significant challenges to projects. Governance is not as big an issue for private or permissioned blockchains, as the “organizer” will set standards and rules for the entire platform. For public blockchain, governance is critical. Ethereum and Bitcoin have established governance, but it only addresses technical issues, leaving human behavior and motivations ungoverned.
This article has been updated from the original, published on February 2, 2017, to reflect new events, conditions or research.