Sia Partners Digital Series: Why have we not yet witnessed a large scale implementation of blockchain technology?
It is commonly accepted that blockchain technology has a huge potential to transform current economic and financial systems by removing chains of intermediaries and administrative bureaucracies.
However, to date we have not yet witnessed any successful implementation of blockchain technology on a truly large scale. Apart from cryptocurrencies and Smart Contracts platforms, the current landscape of blockchain innovations is limited to simple databases and do not exploit the major opportunities that blockchain technology has to offer.
That begs the question: Why do we still not witness any change in how large businesses operate globally given the potential of blockchain technology?
We believe there are three main reasons:
Firstly, The Blockchain is a complex, and relatively new technology that is still in its infancy and people often misunderstand core aspects of it. In particular:
- Blockchain technology is not intuitive.
Technology should either be invisible or beautifulJohn Sculley Former CEO of Apple
Blockchain is a complex technology that cannot be easily explained. Not only does a typical consumer struggle to understand how blockchain works and what value it brings but also professionals with a strong tech background. In its current form blockchain is too complex to be used by an average consumer.
- It is not the golden goose. Some industry players struggle to differentiate blockchain from a typical shared database and try to implement this complex technology in a field where other simpler and cheaper solutions already exist and function perfectly well. In cases like this blockchain is redundant and too costly to experiment with.
- It isn’t a tool to get rich. Almost every aspect of blockchain connected to the concept of money is overhyped in our opinion. A majority of consumers confuse blockchain with Bitcoin and think of it as a way to get rich fast. The sooner that this desperate gold rush scheme settles down and people understand that the value of blockchain is not in making everyone rich but rather enabling easy, safe and cross-border transactions, then the technology can become a part of the infrastructure in a more significant way.
The second reason why we believe blockchain hasn’t really taken off yet is that people are afraid to give up control. Blockchain transformation requires a significant cultural change by replacing authority of centralised institutions to a decentralised digital network. If people misunderstand the blockchain and its value they won’t trust this technology alone. Also giving up control can backfire by creating complex and inflexible contracts not accounting for all real life scenarios. Hence there must be some degree of flexibility to intervene, in cases where some complicated circumstances were not incorporated into the code, to avoid chaos.
Finally, we would argue that the core feature of blockchain is in allowing trust without a third party that is fundamentally changing how people exchange value. But is there a need to make this change now? The lack of trust is not the major concern especially in the developed world. There are certainly many markets which currently don’t operate efficiently due to a lack of trust. Most transactions and trading in the capital markets goes through established, respected and crucially, trusted platforms, such as recognised stock exchanges, clearing houses and MTFs. Especially so since MiFID II and EMIR. There is overall not a lack of trust in the capital markets which hamper its capability to trade and execute. Yet that is exactly the kind of scenario that blockchain majors in.
Major Blockchain transformations are still years away in our opinion, simply because of the current societal, institutional and technological barriers. It is important to realise that blockchain is not a panacea to combat all problems at once and is certainly not a tool to get everyone rich. We should aim to understand the key features of the blockchain and the types of problems it can help solve.