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Is blockchain headed for a roadblock in 2019?

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Perhaps it’s the much-discussed 2019 economic softening, or maybe it’s just that things aren’t happening fast enough in the blockchain news cycle. Whatever the case, there’s been some media chatter over the past several weeks that blockchain might be either void of value altogether, or at least might be too far ahead of its time.

Perhaps the biggest punctuation mark to the negative cycle came at the beginning of the month when a team from the U.S. Agency for International Development (USAID) examined 43 implementations of distributed ledger technology (DLT). The various DLT projects covered a wide variety of tasks, and users included non-governmental organizations (NGOs), contractors, and government agencies. For the record, many expect DLT to replace the term blockchain, perhaps in an effort to distance the technology from cryptocurrencies and the general initial coin offering (ICO) space.

Blockchain was originally designed for digital financial transactions, but over the years it has also been found to have a wide variety of applications, including land registries, humanitarian aid disbursement in refugee camps, education subsidies, as well as in the supply chain. International development actors, including government agencies, multilateral organizations, and think tanks, are looking at blockchain to improve effectiveness or efficiency in their work. So with all the energy and enthusiasm in so many areas, why the recent spate of concern?

Earlier in the year, a research group called MERL Tech wrote a collaborative piece among three authors. MERL stands for Monitoring, Evaluation, Research, and Learning, and its mission is to examine technologies in the social impact, humanitarian, and international development fields. In this case, the authors reached out to 43 “blockchain use-cases” and came away discouraged by the lack of evidence the firms provided, especially in light of the claims they made. The blog post on the MERL Tech site didn’t indicate the longitude of the study, the different kinds of blockchain companies contacted, what the expectations were of the researchers one way or the other, etc. In other words, many questions came to mind, which questioned the report’s reliability–other than the fact that it was written by a seemingly objective group of researchers with an ethics-based mission.

The study was picked up on November 30 by a UK-based media site called The Register “Biting the hand that feeds IT,” with a clickbait-style headline: “Blockchain study finds 0.00% success rate and vendors don’t call back when asked for evidence.” Part of The Register’s agenda seems to be to serve as a watchdog agency against government overspending. It likes to point out quangos (a semipublic administrative body outside the civil service but receiving financial support from the government), and they seem to see a lot of them affiliated with advanced technology, not the least of which falls into the category of blockchain. Fair enough.

Clickbait or not, the headline was effective. It made the rounds around the online blockchain news cycle. In one case, Forbes contributor Bernard Marr referred to it in his headline on December 10, “Is This The End of Blockchain?” Marr referred to the MERL study, and also how Bitcoin and other cryptocurrencies have steadily lost value in 2018, asking the question: “Is it time to admit that the great experiment with decentralized, distributed ledgers has failed?”

While such questions come across as somewhat hysterical, Marr brings up a couple of discerning points. First, blockchain has been tainted in the minds of many due to overhype, scams, and the cryptocurrency industry from where it originates. He then refers to a recent forecast done by Forresters released November 7, suggesting that blockchain will continue to evolve unless “disillusionment causes a winter.” Principal analyst Martha Bennett actually forecasts that “the visionaries will forge ahead,” while those hoping for immediate industry disruption will give up.

The term “winterization” refers to a technology that is so far ahead of its time that it doesn’t receive the widespread adoption that would be transformative to a society due to other often technological, but also cultural, barriers. Charles Babbage’s vision of an “automatic computing engine” was designed between 1833 and 1871. He was about a century ahead of his time. Artificial Intelligence was first conceived and designed by John McCarthy in his Advice Taker proposal as early as 1958. Yet another example is that of “additive manufacturing,” or 3D printing. It was invented in Japan in the early 1980s. However, it is only now that we are seeing the impact of what additive manufacturing can do through companies such as Fast Radius (a partner of UPS and UPS is a minority investor) setting up microfactories near population-dense areas. One of the reasons that 3D printing did not ramp up quickly was that other than prototyping, there were not enough companies adopting the appropriate applications.

FreightWaves reached out to John Burg, one of the MERL authors. Among other online writings, he authored, “Blockchain will impact your life…here’s how and what you can do about it,” in late April of this year. Burg is a senior international development professional with over 15 years of cross-cultural and multi-sectoral experience in managing and facilitating international work, including policy and budget formulation, in governmental and non-governmental positions. He has  extensive experience in fragile and conflict-affected environments in 16 countries across six global regions.

Due to confidentiality agreements, Burg did not want to comment on the MERL blog post other than to express some dismay in the way that it was picked up and used. He did say that he has followed blockchain closely since 2015, and that “I feel that I'm seeing a large feedback loop of smaller interrelated chicken-and-egg binary challenges for enterprise-level blockchain uptake, resulting in some of the less-than-positive headlines these days.”

Burg sees plenty of challenges for blockchain. After the initial telephone conversation, here’s what he sent by email as a macro assessment/overview of where things currently stand with blockchain.

Investment/Profit

When crypto boomed, VCs doubled down and pushed investment in the technology with the assumption that branching out into dApps would bring in a handsome ROI.

Supply/Demand

But trying to push the adoption of emerging technology doesn't do anything if there's no pull from potential users to adopt it. This results in a lack of equilibrium between the supply and demand, which can result in a solution looking for a problem.

Pilot-Scale/Value-Add

This gets to the value-add conundrum. Blockchain adds value as a macro or meta system-of-systems, which is a level nobody is going to pilot at. So there are many small-scale pilots, which is the smart way to pilot. But then the evidence doesn't translate to enterprise-level scale, so it's hard to articulate a case, based on evidence, that blockchain would add value at the enterprise scale.

Sales-Pitch/Access to Evidence

And, this gets to the evidence conundrum, which is not specific to enterprise-level applications. Even if a blockchain company did have the kind of evidence that could draw in more new clients, the general public is unlikely to have access to it because the lack of equilibrium in supply/demand means competition for new customers is fierce and the use of non-disclosure agreements is rampant (in order to protect both proprietary and intellectual property, as well as possible embarrassing failures), but we don't know because good or bad, it's just not out there.

Market-Value/Public-Perception

And, complicating these conundrums is that the public conflates the use of blockchain for crypto as opposed to its use for strictly non-financial applications. So, when the crypto markets become volatile, as they currently are, people tend to think blockchain has lost its value, albeit in a financial sense or in an enterprise platform sense – the public is not making that distinction. Of course clickbait headlines bear a great deal of the responsibility for this, as I learned all too well recently!

Reality/Potential

And so the big collective output from all of these binary problems is a larg-scale bifurcation of public messaging. On the one hand blockchain firms and proponents (including myself in the past) have publicly painted rosy pictures about the potential of blockchain, while opponents cite all manner of technological challenges the technology still faces, and the general public don't know what to think.

Individual Behavior/Organizational Culture

For blockchain to add value in an enterprise platform role, any adopting organization will need to map what it does to identify and rectify any structural process inefficiencies. This is difficult because often an organizational culture and its business processes are symbiotic, regardless of whether or not there are inefficiencies. So tinkering with processes invariably means tinkering with culture, which individuals tend not to take kindly to as most humans are naturally averse to change (especially in the workplace). Human-centered design principles would advocate for approaching organizational culture change through the iterative and gradual process of individual behavior change, which is a slow and likely expensive process. This runs afoul of what most blockchain firms are looking for in a client—i.e., a quick turnaround engagement. The rise of "blockchain as a service,” or BaaS, might be a sign that blockchain firms are warming to the idea of slower-burn longer-term engagements; however, only time will tell.

Nonetheless, there are also significant R&D projects in process. Oil giants BP and Shell have a blockchain project. Maersk and IBM’s global shipping application, and Walmart’s recent requirement for suppliers of fresh vegetables to take part in its IBM blockchain project, are also major enterprise endeavors that will measure the efficacy at scale. The growth of blockchain will see the continuation of blockchain experiments, but breakthroughs may be a little further on the horizon.

The overarching factors heading into 2019 are that blockchain is “tricky” technology that doesn’t really add value until you can pilot it at scale—and thus far the results aren’t encouraging in and of themselves because the pilots aren’t happening at scale. Also, from an organizational culture, people are inherently adverse to change. There’s always that confounding human component.