Successful blockchain projects require CIOs to be aware of the technology’s capabilities and limitations, according to Gartner.
The hype around blockchain technology is finally fading, and while interest in the distributed ledger technology remains high, few companies are actually deploying it, according to recent research from Gartner. Only 11% of CIOs have deployed or are in short-term planning with blockchain , Gartner found, in part because the majority of these projects fail to go beyond the initial experimentation phase.
“Blockchain is currently sliding down toward the Trough of Disillusionment in Gartner’s latest ‘Hype Cycle for Emerging Technologies,’” Adrian Leow, senior research director at Gartner, said in a Wednesday press release. “The blockchain platforms and technologies market is still nascent and there is no industry consensus on key components such as product concept, feature set and core application requirements. We do not expect that there will be a single dominant platform within the next five years.”
To launch a successful blockchain project, CIOs must understand the most common points of failure. Here are the seven most common mistakes companies make in blockchain projects, and how to avoid them.
Misunderstanding or misusing blockchain
The majority of blockchain projects are used for recording data on blockchain platforms via decentralized ledger technology (DLT). While this is one function of the blockchain, it ignores its other critical features, including decentralized consensus, tokenization, and smart contracts.
“DLT is a component of blockchain, not the whole blockchain. The fact that organizations are so infrequently using the complete set of blockchain features prompts the question of whether they even need blockchain,” Leow said in the release. “It is fine to start with DLT, but the priority for CIOs should be to clarify the use cases for blockchain as a whole and move into projects that also utilize other blockchain components.”
Assuming the technology is ready for production use
The emerging blockchain platform market is increasingly large and fragmented, Gartner noted. Vendors focus on everything from confidentiality to tokenization to universal computing in an attempt to differentiate themselves to customers. However, most remain too immature for large-scale production work, the research found. CIOs must keep an eye on the market to monitor these platforms as they evolve in the coming years, and change their blockchain project timelines accordingly, Gartner recommended.
Confusing a protocol with a business solution
Blockchain is a foundation-level technology — while it can be used across industries for different situations, it is not a complete application, the research said. For example, it must also include features such as user interface, business logic, data persistence, and interoperability mechanisms.
“When it comes to blockchain, there is the implicit assumption that the foundation-level technology is not far removed from a complete application solution. This is not the case,” Leow said. “It helps to view blockchain as a protocol to perform a certain task within a full application. No one would assume a protocol can be the sole base for a whole e-commerce system or a social network.”
Viewing blockchain purely as a database or storage mechanism
Blockchain technology is designed to provide an immutable, trusted record among a number of untrusted parties, not as a database manager, Gartner noted. Currently, blockchain does not implement the “create, read update, delete” model used in conventional database managers — only “create” and “read” are supported.
“CIOs should assess the data management requirement of their blockchain project,” Leow said in the release. “A conventional data management solution might be the better option in some cases.”
Assuming that interoperability standards exist
Because most blockchain platforms are still being developed, interoperability with other blockchains is not yet fully possible, the research found. CIOs should approach vendors who discuss interoperability with caution at this point in time.
“Never select a blockchain platform with the expectation that it will interoperate with next year’s technology from a different vendor,” Leow said in the release.
Assuming smart contract technology is a solved problem
Smart contracts are one of the most powerful features enabled by the blockchain. However, many challenges in terms of scalability and manageability of these contracts still exist, Gartner noted. CIOs should run small experiments with smart contract technology to start, as it will change significantly in the coming two to three years, the research said.
Ignoring governance issues
Public blockchains require governance from CIOs, the report noted, while governance for private and permissioned blockchains is typically handled by the owner of the blockchain.
“Governance in public blockchains such as Ethereum and Bitcoin is mostly aimed at technical issues. Human behaviors or motivation are rarely addressed,” Leow said in the release. “CIOs must be aware of the risk that blockchain governance issues might pose for the success of their project. Especially larger organizations should think about joining or forming consortia to help define governance models for the public blockchain.”
By Alison DeNisco Rayome