Three Questions To Ask Yourself Before Adopting Blockchain Technology
While it is fun to talk about the future of the blockchain and its potential use cases, it is foolish not to consider its early-stage red flags.
In the last post we discussed how bad data put into the blockchain can make it a liability. Today we’ll discuss three other areas of concern with the blockchain that decision makers should consider before adopting the technology.
The three areas of concern that the edX course, “Blockchain for Business — An Introduction to Hyperledger Technologies” highlights early on are a lack of standards, a lack of regulation, and a lack of know-how about distributed ledger technologies (DLT). Let’s take a closer look at each of these.
Does the lack of standards concern you?
The course minces no words in admitting that “there is no agreement on standards in the developer and business community, as of yet” (Fall 2017). What are standards? Here’s a business definition of the term:
For example, every rim in the NBA is the same height from the floor. Every goal in professional soccer is the same width, height, and in the same location on the field. And every pitcher’s mound in major league baseball (MLB) is the same distance from home plate. If someone wanted to start a new NBA franchise, create a new professional soccer team, or build a replica MLB infield, they would have to abide by these standards.
So when we learn that “there is no agreement on standards in the developer and business community, as of yet” as pertains to the blockchain this can mean a lot of things. First and foremost, it means until there is a standard there is no one way to build, maintain, or operate a blockchain. On the one hand this can provide the freedom to build blockchain products tailored to one’s needs. On the other hand, it can lead to problems.
For example, if there were no standards in the NBA the Golden State Warriors could play with a 20 second shot clock at home which wouldn’t slow them down, but would make life more difficult for teams that aren’t as adept on offense. Conversely, poorer offensive teams could institute a 45 second shot clock and hold the ball thereby slowing down fast teams like the Warriors. Without standards each participant builds, maintains, and operates the system they work in — whether that’s an NBA shot clock or how they run their blockchain — in a way that is an advantage to them and, conversely, a disadvantage to most others.
More specifically, the course notes,
“Standards are critical not just for the distributed ledger itself, but also for supporting services, like identity, privacy, and data governance. Furthermore, the management of keys, as well as protocols and standards around key loss and theft, will be critical (Deshpande, Stewart, Lepetit, & Gunashekar, 2017).”
In other words, aside from standards pertaining to the blockchain there are other standards such as a way to prove one’s identity, to protect one’s privacy, or to take care of one’s data that do not exist yet in the blockchain ecosystem.
To keep an eye on progress made regarding the blockchain community’s standards, check in with the community’s efforts to create standards here.
Does the lack of regulation concern you?
The edX course also notes that there is a lack of regulation around the blockchain. What is regulation? The business dictionary defines regulation as:
Specifically, the course reports that “Highly regulated industries like financial services are treading carefully in the DLT space. The Securities and Exchange Commission of the United States has recently clarified its stance (sec.gov) on Initial Coin Offerings (ICOs). The Chinese government has, in fact, banned all ICOs, while 60 major ICO platforms are being investigated (Saheli Roy Choudhury, 2017).”
The course also adds that,
“Similarly, there are no regulatory guidelines governing smart contracts, causing much anxiety among various players like lawyers, regulators, programmers, and businesses.”
If unfamiliar with smart contract, they are self-executing contracts that are on the blockchain. For example, if a landlord and a tenant have their lease on the blockchain that is a smart contract between the two parties. The tenant could include banking information so that they pay their rent automatically through the blockchain or, if rent is late by a predetermined date, the contract can withdraw a predetermined late fee. The advantage of smart contracts is supposed to be the ability to avoid legal fees from disputes or mediation as all parties clearly agree on terms in advance. Unfortunately, if there are no regulatory guidelines governing smart contracts the courts may have a difficult time judging them due to a lack of precedents or understanding of how the technology works.
The lack of standards and regulation, as you can imagine, slow down the rapid and widespread adoption of the blockchain as people don’t want to enter such a risky environment.
Does the lack of blockchain technology expertise concern you?
The last hurdle that the course sees for the blockchain is a lack of know-how, in other words, there’s a human resource problem. There just aren’t a lot of people currently qualified to fill the needs to develop the technology. This is, to a certain extent, a product of the blockchain’s youth. As use cases become more popular, standards and regulations are established, and organizations continue to adopt the technology and look to hire people, this problem should ease over time.
General Thoughts, Questions To Ask Yourself
Issues of lack of standards, regulation, and know-how are not new. They are typical to what happens when new technology comes along or new markets are created. In this case, we have both: A new technology — the blockchain — that can create new markets for transactions, for supply chains, and other uses we haven’t even thought of yet.
Question is, what is your tolerance for risk that a lack of standards, regulation, and know-how pose? How great a relief will blockchain technology provide you in light of the pain you currently feel from a murky supply chain or a lack of trust in transactions? What is the biggest, most expensive, and time-consuming thing that could go wrong for your organization if you adopt the blockchain and its lack of standards, regulation, or know-how end up biting you in the ass? Conversely, how long can you wait before your competitors take advantage of what the blockchain can do for your industry? These are all important questions to consider before adopting blockchain technology.
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