Blockchain has a trust issue.
This is ironic, considering the great hope for blockchain is often couched in terms of eliminating the need for trust intermediaries like banks and accountants.
The distributed ledger technology, famously tamperproof, is being actively courted by business. PwC’s Global Blockchain Survey 2018 canvassed 600 executives around the world and found 84% of respondents’ companies are investing in the technology, from R&D to live implementation.
Yet industries are struggling to capitalise on the promises of reduced costs, increased speed and the ability to cut out intermediaries. Why?
While blockchain itself should enable businesses to work together efficiently and with transparency, such collaboration is easier said than done. Companies that commit to building a shared platform together (where the greatest return on investment lies) often need to jointly decide on its design, data standards and access rules, among other issues. To do this, there needs to be network trust and consensus before the technology is even built.
The technology, moreover, is new and difficult to understand. It’s invisible, and for the most part, untested and therefore not best placed to assure risk-averse board members making decisions on its adoption. The regulatory environment surrounding blockchain, being unclear, also adds to executive hesitation.
Like businesses, regulators are still coming to grips with what the technology means and how industries, and consumers, will be affected by it. Unsurprisingly, 48% of survey respondents are concerned with this regulatory uncertainty being a barrier to adoption.
With 45% concerned around the lack of trust amongst users, 44% worried about the ability to bring a network together, and 41% unsure if separate blockchains will be able to work together, there are a number of barriers blockchain needs to overcome to be implemented successfully.
Survey respondents who claim little or no blockchain involvement by their business say the lack of progress is due to not knowing where to start, a lack of governance and not understanding the benefits. For these reasons, a business case as to why blockchain should be invested in is critical.
The case should be about evolution, not revolution. While using a blockchain shouldn’t recreate the way a business or industry already works, it should strategically transform them to a better position. And this can only happen with a supporting strategy that is clear on what the endgame is, and how blockchain will get the business there.
Additionally, value is a key area to highlight in the business case. Eventual economies of scale are the blockchain prize, but executives will be reassured if there is clarity over how it will fit into the business in the short term.
While business can go it alone, the real value of blockchain is in its use across networks.
Companies wanting to jump into building cross-industry blockchains are wise to start with a small network of parties, expanding as trust is built. A number of industries already have blockchain consortia, which are useful to pay attention to, but there’s no reason why other industry groups can’t combine to explore applications also.
Being the leader does have its advantages as it can give more say on how the chain will work. For instance, what data standards will be, or its interoperability with other blockchains. Starting small though will be an advantage in gaining consensus. It may also be possible (and potentially necessary) to partner with others, including competitors, than to start from scratch. For this reason, it’s important to evaluate what’s going on in the industry and across the value chain.
Not every blockchain is created equally and there are a number of decisions that need to be made on how the chain will be run. Blockchains can be available to everyone, or restricted (in viewing or editability) to those with the appropriate permissions. When working with competitors, this can be a crucial point.
It’s also critical that risk awareness is built into the blockchain project as early as possible. Cybersecurity, compliance, legal and audit specialists need to be involved, particularly if (and when) regulators enter the picture. Privacy has to be addressed. Blockchain is immutable, meaning information cannot be changed without consensus – however recent privacy laws, such as the GDPR, require personal information to be forgotten when requested.*
Regardless of the model chosen (and from our survey, 26% are choosing a hybrid approach that uses both permissioned and permissionless blockchains), a robust governance model and risk control framework is essential.
While regulatory authorities are still in the early days of understanding its implications, and it is true that centralised authorities are often no longer needed given blockchain validates its own data and transactions, business is not heading for a lawless paradise.
While cutting out banks, governments or clearinghouses makes transactions quicker, it also means that there is likely less oversight in combating fraud or ensuring market stability. For that reason, regulators will step in at some point, but that doesn’t mean business should stop their exploration.
Engaging with regulators now will help shape the discussions going on around technology and trust, and ensure that best practice will benefit all involved. This should extend beyond the use of blockchain technology, to how technology generally can be held to account, and the types of data being fed into its operation.
Above all, companies pursuing blockchain must remain agile and able to pivot when needed. With 27% of respondents believing regulatory concerns to be the number one barrier to blockchain adoption, this is a clear concern to business. It is not an insurmountable one, however, and blockchain may in fact aid reporting and regulatory requirements due to its transparent underpinnings.
Blockchain remains an exciting, and in some ways unquantifiable, technology when it comes to its ability to change the nature of how businesses, and industries, work. It offers great transparency, and traceability, and the possibility of removing silos and cluttered, time-consuming validation processes. There are almost no industries that won’t benefit, to differing degrees, from its implementation.
Execution must be thoughtful. Only through setting up solid foundations, within businesses and the greater ecosystem, buoyed by strong risk and governance, will it succeed.
If this sounds like a tall order, recall that just a few years ago the concept of blockchain itself seemed fanciful and too hard to explain. It is very possible to remove the blocks in the way of blockchain progress, but businesses should make sure it’s done with care.
*To date, this paradox has not been solved.
For all more on fostering adoption in blockchain and further insights from the survey, visit the PwC Global Blockchain Survey 2018.
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