Beyond the Hype — the Professionalisation of Blockchain & Crypto
The blockchain sector is becoming increasingly professional. Adoption is gathering pace globally, despite the fact that the technology remains immature. This is reflected by the fact that some of the biggest technology players — like IBM and Alibaba Group — consistently invest millions in blockchain every year.
IBM, for example, set aside $200 million for development in 2016 and is one of the leading investors in the technology, with an outlay of around $160 million each year. Over 1,500 staff work at the firm’s blockchain division, which participates in more than 500 blockchain projects.
Another giant is the Chinese e-commerce conglomerate Alibaba, which is a leader in deploying blockchain in China and beyond. According to a survey in September 2018, the e-commerce giant has filed for over 90 blockchain patents, which equates to 10% of total global applications, followed by IBM with 89, Mastercard with 80, and Bank of America with 53.
Given these trends, what short and long-term consequences are we likely to see and what hurdles to blockchain adoption remain?
Disruptive potential as a long term impact
In the case of Alibaba Group, supply chain management is at the center. The company has built several utilities powered by blockchain technology to improve its logistics division. This has been used to improve traceability and combat counterfeiting. In addition, the group has partnered with the Chinese government to secure healthcare data on a blockchain.
On the other side of the Pacific, IBM has also developed several blockchain-based initiatives for its food supply-chain division, “IBM Food Trust”: This platform will improve food safety by making the supply chain traceable and transparent.
These cases show that the core features of blockchain, such as traceability, transparency and immutability are among the main reasons why businesses are adopting the technology. In this light, the logistics industry can be viewed as the “low hanging fruit” for blockchain. Thus, it is the sector most likely to be disrupted by the technology in the medium term. But why aren’t we there yet?
What are the obstacles for wider adoption?
One of the main stumbling blocks to wider industrial adoption is technical. Blockchain needs to increase transaction speeds to be viable in many business settings. This issue has been raised by Deloitte, which stated that due to its “relatively poor performance, many observers do not consider blockchain technology to be viable for large-scale applications”. Another technical issue concerns interoperability: there has been a rapid proliferation of many different types of networks, coding languages, protocols etc. which don’t always talk to each other.
Besides the technical hurdles, regulatory issues and highly publicized potential security threats remain an obstacle to larger investments. Unfortunately, as a result of bad actors operating in the crypto and ICO sector, blockchain technology in general has suffered reputational damage.
What can we expect in the short term?
In the short term, increased regulation will provide a more stable legal foundation for the industry. Many firms are now moving from the pilot phase to the deployment phase of their blockchain strategy, meaning that we will begin to see many more practical applications of the technology this year. Deloitte contends that while blockchain may not be “ready for prime time, it is getting closer to its breakout moment every day”.
However, wider blockchain adoption can only be achieved in an environment underpinned by a sound regulatory framework. There are also promising signs of progress on this front. Malta is planning to issue the first “blockchain license” for operators in the second quarter of 2019 and to incorporate the technology in the public sector. Other European countries have committed to promoting blockchain by signing a joint declaration with the aim of enhancing cooperation in the sector.
Some countries seek first-mover advantage, while others lie in wait while regulatory and legal hurdles are resolved. Nevertheless, more and more countries are now taking an incremental approach to improving blockchain regulation and we’re likely to see wider adoption in the medium term.
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