Why Blockchain Adoption Is Slow, and Why That’s Nothing to Worry About
- Technological limitations, ideologies and lack of standardization are to blame.
- It took the internet some three decades to move from ARPANET to the World Wide Web.
Talk of 'the blockchain' is inescapable. It's mentioned on an almost daily basis by newspapers, by politicians, and even by comedians. But despite the overwhelming buzz that surrounds distributed ledger technology (DLT), the adoption of blockchain-based platforms by institutions and businesses isn't anywhere near as overwhelming.
For example, IBM estimated that only 15% of the top commercial banks in the world planned to launch full-scale commercial blockchains in 2017. Similarly, in comparison to the hundreds of ICOs being launched every month, there are few examples of companies actually using blockchain services for day-to-day purposes, with January's delivery of soybeans using the Easy Trading Connect blockachain being a rare highlight.
So what's the problem? What's preventing blockchain adoption from keeping pace with blockchain hype, and from blockchain patents? Well, there are two main obstacles: the current limitations of blockchain technology, and the resistance of traditional institutions to decentralized blockchains (which often forces them to spend extra time building their own ledgers from the ground up, if not to leave blockchain alone altogether).
However, while these challenges mean that adoption isn't at the level blockchain prophets would like, many companies and organisations have every intention of adopting some kind of distributed ledger technology in the years ahead.
As Cryptonews.com has written before, scalability is a big problem facing the most well-known blockchains. For instance, the Ethereum blockchain has experienced serious transaction backlogs under heavy usage, with some firms (e.g. Kik) abandoning plans to use it as a result. Writing in a December blog post, blockchain engineer Preethi Kasireddy cited scalability as her first explanation as to why "blockchains have several major technical barriers that make them impractical for mainstream use today."
There are other key technical barriers to mainstream adoption Kasireddy mentions, including “unsustainable” consensus mechanisms, data storage issues, and the absence of formal contract verification protocols. However, one obstacle in particular is of special significance: the lack of privacy.
"Privacy remains a fundamental hindrance for individuals, organizations, and industries that care about privacy and individual sovereignty," she states.
The fact that popular ledgers such as the Bitcoin and Ethereum blockchain make every single transaction open to the public has received plenty of (negative) attention in the financial world. "The privacy requirements for blockchain won’t be any different to current regulations applied to any other technology in financial markets,” warned the former chief digital officer of global transaction banking at Deutsche Bank, Edward Budd, last year.
Given the current lack of privacy, it's little wonder that many financial institutions have shied away from public blockchains, and are instead turning to private distributed ledgers Corda, a blockchain platform designed specifically for businesses, developed by a New York-based company/consortium R3, for certain tasks. However, it's not only the current technological limitations of blockchains that are turning off potential adopters, but also 'ideological' ones.
“At its heart,” stated the Bank of Canada in May 2017 (upon ending a blockchain trial), “there exists a fundamental inconsistency or tension between a centralized wholesale interbank payment system […] and the decentralization inherent in DLT.”
In other words, adoption has been hampered simply because banks, businesses and institutions are wary in principle of decentralized blockchains, which are perceived as a threat to their business practices and to their economic influence.
As an investment bank JPMorgan wrote in its 2017 annual report to the Securities and Exchange Commission, "both financial institutions and their non-banking competitors face the risk that payment processing and other services could be disrupted by technologies, such as cryptocurrencies, that require no intermediation."
This is why such banks have turned to more made-to-measure, private ledgers such as Corda, which arguably aren't even blockchains. Of course, definitions of 'the blockchain' are highly debatable, and this in fact points to another major reason as to why blockchain adoption has been comparatively slow.
That is, the crypto and blockchain space is currently defined by a high degree of variability and uncertainty. At the same time, there are numerous organisations competing against each other in offering blockchain solutions, from the aforementioned R3 to the Ethereum Enterprise Alliance and IBM.
As a result, there’s a lack of common standards and interoperability, something which RAND Europe, a research organization, highlighted as playing a potentially "important role […] in supporting the growth of DLT/Blockchain" in a May 2017 report.
Because multiple blockchain developers are working at cross purposes to each other – and because different ledgers are serving different needs – no distributed ledger has really attained the kind of network effects for adoption to really take off.
However, just because this all paints a dim picture of blockchain adoption doesn't mean things won't accelerate in the coming years.
The same IBM survey cited at the beginning of this article also found that 65% of banks planned to launch blockchain projects within three years of the start of 2017, while organisations and national governments (e.g. in China and the EU) have begun attempts to foster the technical standardization necessary for greater adoption.
This is very encouraging progress, and given that it took the internet some three decades to move from ARPANET to the World Wide Web, there's no reason to think that the non-instantaneous adoption of blockchains is proof they won’t be adopted en masse in the future.