What’s preventing the adoption of Blockchain among Organizations?
Several factors are preventing the widespread adoption of blockchain among businesses and organizations. Some of the common issues that we might have come across via popular media are,
- A lack of understanding and awareness of the technology and its potential uses
- A lack of standardization and regulation in the industry makes it difficult for businesses to know how to implement and use blockchain technology effectively
- High cost of implementing and maintaining a blockchain system
- Concerns about security and the potential for hacking or fraud, as well as scalability issues with current blockchain technology
Let’s take a look at each of these points in detail.
Issue #1: Understanding and Awareness of Blockchain
The understanding and awareness of blockchain technology in businesses vary widely. Some businesses have a deep understanding of blockchain and its potential use cases, while others have only a cursory understanding or no understanding at all.
According to a survey by the Cambridge Centre for Alternative Finance, in 2020, 46% of the surveyed firms said that they were “not familiar” or “slightly familiar” with blockchain technology. This shows there is still a long way to go for organizations to develop a detailed understanding of blockchain technologies, realize its potential and integrate it as a part of their business.
In general, businesses that operate in industries such as finance, supply chain management, and logistics have been early adopters of blockchain technology. These industries have recognized the potential of blockchain to improve transparency, security, and efficiency in their operations. For example, in supply chain management, blockchain technology can be used to track goods as they move through the supply chain, providing greater transparency and accountability. In finance, blockchain technology is being used to improve the speed and security of financial transactions and to develop new financial products and services.
On the other hand, many small and medium-sized businesses may not have enough knowledge or resources to invest in blockchain technology. They may not see the immediate benefits that blockchain can offer their operations and therefore, may not be motivated to invest in it.
Possible Solutions
Developing a deep understanding of blockchain and adopting its business applications will require consistent efforts from business leaders and experts. The priority should be to create a clear and simple narrative about blockchain and its potential benefits. This can help to demystify the technology and make it more accessible to those who are not familiar with it. However, organizations should be careful to not force-fit blockchain concepts into their business if there is no sound financial and operational benefit of doing the same.
Issue #2: Standardization and Regulations in Blockchain
One of the main challenges of using a crypto wallet for transactions at an organizational level is the lack of clear regulation surrounding the use of cryptocurrencies. In many countries, the legal status of cryptocurrencies is still uncertain, and it is not always clear how they should be taxed or accounted for. This lack of clarity can make it difficult for organizations to know how to comply with the law and can create risks if the regulatory environment changes. However, blockchain technology is not limited to that of cryptocurrencies and businesses will need to think bigger in terms of the adoption of blockchain.
Standardization is important for ensuring that different blockchain systems can work together seamlessly, which is necessary for the widespread adoption of blockchain technology. Without standardization, businesses may struggle to integrate blockchain systems with their existing infrastructure, which can make it difficult for them to adopt blockchain technology.
Possible Solutions
- Collaboration between industry and government to establish standards and regulations that are both effective and practical or self-regulation models that allow businesses to set their standards and regulations
- A phased approach to regulation, where initial regulations are focused on high-risk areas, such as anti-money laundering and countering the financing of terrorism, while allowing more flexibility in other areas.
Issue #3: Cost of Implementing Blockchain
A public blockchain is a decentralized network that allows anyone to participate in and validate transactions. Anyone can view the transaction history and participate in the network by running a full node. Examples of public blockchains include Bitcoin and Ethereum.
A private blockchain, on the other hand, is a network that is restricted to a certain group of participants. This means that only authorized users can validate transactions and view the transaction history. Private blockchains are often used by businesses and organizations that want to keep their transactions private and secure.
Adopting a private blockchain can make sense for businesses, depending on their specific use case and goals. Private blockchains offer several benefits that can be valuable for businesses, including:
- Security: Private blockchains are typically more secure than public blockchains because they are restricted to a smaller group of participants. This means that there is less chance of a malicious actor attempting to compromise the network.
- Control: Private blockchains allow businesses to have more control over their network. For example, businesses can set their own rules and policies for the network and can also decide who is allowed to participate.
- Privacy: Private blockchains can offer a greater degree of privacy than public blockchains, as transactions are visible only to authorized participants.
- Compliance: Some industries have strict regulatory requirements and a private blockchain can be a compliant way to store and share information.
However, all the stated benefits have been built into the systems and processes in an organization over years of accrued digital transformation. Pivoting to a private blockchain solution just for the above-stated benefits might not make business sense for an organization, given the high cost.
Private blockchains also come with some costs and drawbacks. For example, the cost of setting up and maintaining a private blockchain can be high, especially for small and medium-sized businesses. Additionally, private blockchains may not be able to benefit from the same network effects as public blockchains.
Possible Solutions: Hybrid Blockchains / Consortium level blockchains
It’s worth noting that private blockchains can also be used to create consortium blockchains, which are a hybrid of public and private blockchains. These networks are often used by groups of companies or organizations that want to collaborate and share information, but still want to keep some level of control over the network. Gartner predicts that by 2025, at least 80% of all enterprise blockchain initiatives will involve collaboration with other companies as a consortium-wide blockchain provides a sweet middle ground between the low-cost, low-effort public blockchain that leaves no room for confidentiality and high-cost, a high-effort private blockchain that addresses very little of the organization’s problems
Issue #4: Security Concerns & Account control
In a blockchain, an account is controlled by whoever holds the private key associated with it. The private key is a unique, encrypted code that is used to access and manage the assets stored in the corresponding account. Without the private key, no one else can access or make changes to the assets in that account, even if they know the public key or account address. This provides a high level of security and ensures that only the rightful owner of the assets can access and manage them.
This feature also presents a challenge for businesses that are not familiar with blockchain technology. The private key must be kept secure and if it’s lost or stolen, the assets in the corresponding account will be lost as well, making it difficult for businesses to recover lost assets. Additionally, businesses need to ensure that private keys are kept secure to protect their assets from being stolen by hackers.
This can be a significant barrier to adoption in the case of large businesses with multiple stakeholders involved in decision-making, as the possession of private key grants complete power over the account. (concentration of power)
Transactions done are final and can’t be reversed
One of the key features of blockchains is that transactions are final and can’t be reversed. This is because once a transaction is added to a block and added to the blockchain, it is considered to be permanent and cannot be altered or deleted. This is known as the immutability of the blockchain.
This feature is a double-edged sword, as it ensures that once a transaction is confirmed and added to the blockchain, it cannot be tampered with or altered. However, it also means that if a mistake is made or a mistake is found in the transaction, it cannot be corrected. This is one of the reasons why it is important to double-check transactions before they are confirmed.
Possible Solutions
Organizations need to be prudent about maintaining their wallets and who is granted access to the respective wallets. Organizations will need to take steps such as implementing strong security protocols and regularly updating their operating procedures
There are some options to reverse transactions or undo a mistake. One option is to use a smart contract that allows for the transaction to be cancelled or reversed under certain conditions. Another option is to create a new transaction that offsets the original one. For example, if the mistake is that too many tokens were sent to an address, a new transaction can be created by sending the correct amount of tokens to the correct address.
There is also an intervention by a higher power in case of a technical glitch or a bug in the code, but it’s a rare scenario, and it’s highly dependent on the governance model of the specific blockchain. For example, if the blockchain is public, the intervention can come from the community of developers and users in the form of a hard fork (which is complex and resource-consuming), while in a private blockchain, it can come from the organization that controls the blockchain.
Overall, it’s important to be aware of the immutability of blockchain transactions and to take the necessary precautions to prevent mistakes from happening.
That summarizes the key issues plaguing blockchain at the moment and how organizations should approach them if they are considering adopting blockchain solutions as a part of their business. It is also important to bear in mind that blockchain technologies will only be an enabler for an organization’s business functions and that adopting blockchain alone is not going to guarantee success in an organization’s operations.
