Why has there been limited adoption of DLT technology within UK enterprises?
On 27th November, Coinweb attended a workshop focused around discussing current regulatory and financial conditions that surround the UK’s Distributed Ledger Technology (DLT) space, and what barriers and limitations are preventing the adoption and integration of DLT into existing businesses.
The event was organised by Outlier Ventures (OV), a VC passionate about building towards the Digital Economy through investing in projects that share this goal. Through their ‘Convergence Ecosystem’ they present how they loosely envisage data moving through this digital economy. OV see the integral role and value that data marketplaces will have in the future, with trends pointing towards exponential growth in the collection and transfer of data due to increased adoption in IoT and AI devices.
A surprising number of DLT projects are based in the UK
Digital Catapult, a government-funded technology research arm, presented their findings following an extensive 3-month deep-dive into the UK’s DLT space. Their findings were published in a report titled “Blockchain in Action: State of the UK Market”. The entire report can be found here.
The first finding of interest was the level of engagement from founders and developers here in the United Kingdom with DLT. This was underlined by the fact that at least 260 companies building around this tech exist, with the majority based out of London. When staring at lists of tokens and cryptocurrencies on sites such as CoinMarketCap, it is easy to forget that there are (mostly) offices and teams behind the majority of these projects. Without intending to set a bad tone, the sheer number of baseless promises and ‘vapourware’ that has been seen in the past 16 months or so, has resulted in significant scepticism from parties both within and outside of the industry. Visualising the number of blockchain and DLT projects that are based in the UK is not only impressive but surprising.
Shifting focus to value-added tech, not tokens
According to the report, these companies fit into 4 distinct categories: Centralised Applications, Distributed Ledgers (layer 1), Service Providers and Distributed Applications.
The variety in their offerings means that not each of them will be tokenising their business model, or conducting an ICO. Interestingly, only a slim minority of the projects sampled were building their own blockchain, with the majority opting to build upon existing infrastructure or provide services such as advisory and consultancy for parties interested in incorporating the technology into their existing offering.
Common understandings by the public are that Blockchain and cryptocurrencies are inextricably linked. With current market conditions, less attention will be given to prices of tokens, and more focus shifted to the value that the underlying technology can bring to traditional and new industries within the UK.
With such a varied sample of projects existing in the UK, it is interesting to understand where they see the technology benefitting UK companies.
How DLT can benefit corporations
- Streamlining Processes: Through the use of DLT, financial systems could adopt a more transparent, frictionless approach whereby allowing payment disputes to be resolved far more quickly, and remittance fees to be reduced when transacting internationally.
- Supply Chain Transparency: Provenance is becoming an increasingly hot-topic as the world becomes more automated. Transparency and quality assurance are key concepts for consumers worldwide, regardless of what it is they are consuming. From fish to fashion, and drinks to diamonds, there are numerous projects working on solutions that will enable a more open manufacturing and production ecosystem globally.
- Rethinking Relationships with Government: Establishing a more open and accessible system between central bodies such as governments and banks, with the general population will enable a more democratic outcome for all parties in the long run. Removing the need for trusted third parties, and replacing them with a distributed peer-to-peer system can revolutionise the relationship between people and the state.
“If distributed consensus systems can be established between key parties, then there is an opportunity to create a more democratic system for smaller participants in the economy.” Pg.24
Whilst all of these applications are impressive in theory, today there remains a large number of obstacles to overcome prior to implementation and adoption on a wider scale.
ICO’s account for a small proportion of fundraising
When it came to fundraising, the results are again interesting. Of the 15% of companies that were interviewed further, only 5% of those had raised money through an Initial Coin Offering, or an ICO. The majority raised capital through a traditional equity raise, and 41% of capital arriving at the Seed stage. According to the report;
Many of the companies interviewed claim to have ‘struggled’ to bring along old investors when choosing to do a token sale. Pg.24
Interestingly, fewer than 16% had even pursued an ICO as a means to raise, potentially signalling market maturity and desire to focus on delivering solutions, instead of fixating on raising large amounts of cash, as seen in the more recent market cycle. Aside from market maturity, this could also demonstrate regulatory concern.
Without clearly defined regulatory procedure, it is hugely difficult for a project to fundraise with confidence, with founders expressing concern that retrospective actions could be taken following the completion of an ICO, resulting in procedural difficulties, as demonstrated below with the example of bank accounts.
Regulatory confusion is slowing progress
Further to issues with banks, there are significant direct regulatory roadblocks. In April 2018, the FCA offered a statement on the regulation of crypto assets which left many projects left awaiting guidance as to how they move forward, and this lack of regulatory clarity is stifling innovation, and disincentivizing adoption by larger corporations.
What does the industry believe is stopping DLT adoption?
Following Digital Catapult’s presentation, expert attendees discussed what they perceived as the 10 most prevalent reasons behind DLT technology not being implemented into wider markets and industries. The crowd in the room consisted of a healthy mix of investors, founders/employees of DLT ventures and regulators, which resulted in a balanced industry overview.
The five unanimous reasons DLT wasn’t being implemented were as follows:
- Value of DLT is not clear to existing businesses.
- Perception and reputation of the industry
- Regulatory inconsistencies globally
- Technology is not ready to scale
- Unable to access talent with skills relevant to the industry.
As seen above, all of the current limitations are due to social or non-technical reasons, bar point 4, scalability. Many within the wider community are confident that scaleable solutions will be delivered, through or alongside interoperability. Whilst the arrival of these advancements should not be taken for granted, there are evidently, as seen above, many non-technical fronts on which the blockchain and DLT need to improve.
A recent survey by Deloitte of over 1000 participants in 7 countries explored conceptions of blockchain technology. “When asked if they believed that blockchain was just “a database for money” with little application outside of financial services, just 18 per cent of US respondents agreed with that statement versus 61 per cent of respondents in France and the United Kingdom,” the report stated.
Further to this, Deloitte found “one-third [of respondents]saying they believe their current return on investment (ROI) in blockchain technology remains ‘uncertain.’”
What these pieces of research by Deloitte and Digital Catapult demonstrate is that large corporations are struggling to understand how investing in this technology adds value to their existing proposition, or that they are dissuaded by its reputation.
10 years after the inception of Bitcoin, there has yet to be a universal commercial use case for the underlying technology, and this alone becomes a self-perpetuating issue. Without being able to point to a concrete pilot or existing project that successfully utilises the technology, it will be difficult to convince the more sceptical corporations of its true value.
With multiple separate pieces of research unveiling similar findings, it would appear that a clear narrative is beginning to form. As previously outlined, there is hesitance amongst large corporates to begin the implementation of DLT technology for a whole host of reasons.
In my personal opinion, public perception in relation to this space will begin to change following the persistence of a bear market. A mass exodus of hobbyists and speculators has already begun, and mainly those who truly believe in the fundamental value of DLT will remain, forming a stronger more informed community and industry.
Does this leave us feeling pessimistic about the future for DLT in the UK?
Not at all. Whilst there are many reasons companies are not ready to integrate the technology today, many of them are waiting for others to take the proverbial leap, and see how it benefits them first.
As the existence of Blockchain and Distributed Ledger Technology prevails, some of the barriers, as seen above, will begin to dissolve. As long as we are able to understand and address the concerns of larger organisations when discussing these technologies, then we will be far better equipped in order to deliver the true value and functionality.
Overall, the limited amount of adoption of the technology is to be expected. A misunderstood, unproven and unregulated technology is understandably undesirable for companies, and until they can see the wood from the trees or the value from the noise, these barriers will remain.
All that can be done by the wider community is to focus on building useful, valuable solutions, and continue trying to apply them to the correct use cases and industries. Square pegs in round holes will never help overcome this, as it will continue to confuse, mislead and stifle progress.
Written by Oliver Kicks.
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