While blockchain holds tremendous potential for creating new financial, supply chain and digital identity systems, it’s often erroneously seen as a panacea for business problems.
The myriad of pilots and proofs of concept by large corporations and government agencies are showing real promise, but those projects don’t always lead to obvious business cases that justify doing something differently. Sometimes a tried and true technology like a relational database can perform the task much more efficiently than a distributed ledger based on peer-to-peer technology that will require complex governance and rules.
For example, a blockchain that offers full visibility across an entire value chain may make a ton of sense, but when you weigh the costs for setting up that ecosystem and building out that blockchain, it may not make fiscal sense.
“Who is going to pay for it, and how will the benefits that make so much intuitive sense accrue to the participants? If the costs are shared, are they shared by outcomes? By return on investment? These are knotty issues that often get bigger as pilots move to production,” said James Wester, research director for IDC Worldwide Blockchain Strategies. “In other words, the pilot proved the concept works, but at scale, the costs and considerations become much bigger.”
Part of problem has to do with the way blockchain projects have been funded. Pilots and PoCs tend to come from innovation or R&D budgets, but once they go to production, the costs have to hit a business unit or company. And when blockchains involve partner companies working together on an open ledger, the partners must agree on complex rules and how the project is funded.
“Without a compelling business case, those costs may be less attractive. And given the distributed nature of blockchain, if one party decides not to participate, the whole thing can fall apart,” Wester said.