Blockchain: Obstacles to Mass Industry Adoption
Vienna, Austria, 9 April 2019 — Director of Vertech Capital, Sheryl Foo, was invited as a panelist at the 4GameChangers conference to share her expertise on blockchain’s potential in different industries. The event was held in Vienna, Austria, from 9th-11th April, 2019.
4Gamechangers is an annual 3-day conference powered by A1 Telekom Austria Group, Erste Group Bank AG, and Austrian integrated oil and gas company OMV. This year’s conference was themed ‘Europe Meets Asia’, and served as an international digital festival to connect entrepreneurs from Europe and Asia. It brought together leaders from various industries including utilities, telecommunications, and fintech to discuss critical topics on digital innovation and promote cross-border collaboration.
Analyzing Blockchain’s Impact on Industries
As part of a panel session titled “Blockchain Technology. Disrupting Money & Paper — A Threat of Thrill for Us?”, Foo discussed how the technology is particularly useful for certain sectors and the breadth of impact that can be expected. The panel highlighted the opportunities and risks of this emerging technology and the role it plays and which areas it can revolutionize beyond the financial sector.
Blockchain enables trust in data-driven applications as entering and modifying data is determined by code rather than a central authority. This ability to alter data only if majority of nodes in the blockchain agree enhances security and transparency. Blockchain can therefore be used to track the ownership and transactions of assets in any application where data is being collected. Real-world examples of the technology from different industries include:
- Energy — Peer-to-peer (P2P) energy trading, such as Brooklyn Microgrid in New York and the T77 Precinct in Thailand; renewable energy certificate trading by SP Group in Singapore;
- Supply Chain — A joint venture by IBM and Maersk to track and enhance transparency in the movement of goods across borders and trading zones;
- Healthcare — MedicalChain provides a decentralized platform for clinical data exchange for interoperability between laboratories, clinics and hospitals;
- Insurance — Allianz Global Corporate & Speciality (AGCS) has launched a blockchain-based captive insurance program that accelerates and simplifies international insurance transactions;
- Development Aid — UN Food Program has piloted the Blockchain for Zero Hunger initiative in Pakistan and Jordan to make cash transfers for food donations more transparent and efficient.
Despite its value add to transparency and efficiency in transactions, blockchain’s impact will depend on certain prerequisites. These include availability and accuracy of data processed on the blockchain, regulations on data collection and transfer, and industry-specific structures and attitudes. In light of these preconditions, blockchain needs to be positioned as a tool for increased collaboration rather than a silver bullet to prevent fraud.
There are three key factors that will influence blockchain’s impact and potential rate of adoption across different industries:
The output of data processed on the blockchain is only as reliable as the data inputted and stored The authenticity and accuracy of hardware collecting data, therefore, is imperative for blockchain-based applications to provide reliable outcomes.
This is particularly relevant in heavy industries that involve large and heavy equipment and facilities or complex processes. Processes in these sectors generally involve higher capital intensity and expenditure; examples include the energy, mobility, and manufacturing industries. Blockchain can have several applications in these industries, such as automating settlements across the value chain and enhance trust for a shared economy of hardware assets. Hardware such as meters and sensors collect and store data on blockchain platforms to realize these applications. The mass adoption of blockchain’s applications in these industries, therefore, will depend on the security, accuracy, and authenticity of the data collected by hardware prerequisites.
The availability of hardware and infrastructure can also hinder the commercialization of blockchain applications. In the mobility sector for instance, there is a huge push towards a decentralized charging station economy that allows EV drivers to use public as well as privately owned charging stations. Swiss-based MotionWerk has launched a pilot connecting public and private charging stations across Europe for direct, cross-country charging. In APAC, however, the nascent stage of the EV charging market and lack of privately-owned charging stations limits the expansion of such solutions.
A survey of 83 senior professionals from various industries by Ernst & Young (EY) indicated that 61% of respondents believe complex regulations surrounding blockchain is a hindrance for mass adoption. Regulations, or lack therefore, on data collection and privacy can limit the use of blockchain in specific industries. This is particularly true for public blockchain platforms that allow anyone to access the network as well as participating in the reading and writing of stored data.
While cryptography and encryption enhance data security, big organizations are generally not comfortable storing and processing data on public nodes. This has resulted in several enterprise pilots being launched on private blockchain platforms — this can limit the level of collaboration between industry stakeholders using different platforms and therefore the adoption rate of many blockchain applications. Blockchain adoption also faces several challenges in highly regulated industries such as energy and finance, where new stakeholders and applications must comply with regulatory standards to commercialize.
There is currently a knowledge gap between technology innovation and policymakers, which is more contrasting when it comes to new technologies that are largely in the pilot phase such as blockchain. Pilot projects and public-private sector partnerships are one solution to help governments accelerate the creation of regulations and standards that will enhance the commercialization ability of blockchain applications.
3. Technology Readiness
Blockchain is a relatively new technology and faces several technological bottlenecks resulting in underperformed functionality. For example, increasing the load on public blockchains often increases the transaction cost and decreases transaction speed. Given the rise of private blockchain platforms to tackle issues surrounding data privacy and security, interoperability between blockchain platforms is another technical challenge — there is currently high cost associated with switching to another platform, which can deter adoption or involvement of a firm in different pilots involving various platforms. Rising protocols such as PolkaDot and Cosmos aim to tackle this challenge of platform interaction, however have yet to be commercially deployed as well.
Integrating blockchain with existing infrastructure and technology can be a costly endeavor for companies still using legacy systems. For these firms, the financial benefit of blockchain must far exceed the cost of modernizing their existing platforms and technologies. However there is minimal quantitative data on the financial benefits of blockchain in several industries, and the lack of business models for different stakeholders in a blockchain-based model present challenges for the argument to adopt blockchain.
Finally, the complexity of the technology, coupled with the hype created by cryptocurrencies, has limited mass industry adoption. Almost 49% of respondents in EY’s survey indicated lack of general understanding of the technology as a challenge to adoption. This is also partly due to the view that the technology is still immature for full-scale adoption and there is a lack of a universal use-case.
Despite the launch of several pilot projects, blockchain’s feasibility and commercial success is disparate across industries and markets. Enterprise adoption is gaining momentum, however meeting prerequisites will be crucial for the technology to scale.
Watch the panel session here.
Vertech Capital partners with innovative companies to help them scale in new markets. We curate and manage a global portfolio of cutting-edge technologies and investments, with traditional expertise in the energy sector.
Based in Singapore, our advisory arm focuses on the commercial translation of innovation, including disruptive technologies like blockchain and artificial intelligence. We are committed to building a global innovation ecosystem to accelerate access to the 4th Industrial Revolution.