| 23-09-2020 | Carlo de Meijer | treasuryXL

Early July I wrote my blog Blockchain and Interoperability: key to mass adoption. There I concluded that “we may say that blockchain seems to be at the threshold of widespread acceptance and adoption”.

This conclusion was confirmed by Deloitte’s Third ‘Global Blockchain Survey 2020’ studying the investment and development trends in blockchain technology. This Survey showed that attitudes toward blockchain have obviously, and measurably, shifted in a positive way. It showed progress in the adoption and implementation of real-world blockchain solutions across a variety of businesses and sectors. Organizations have increased their investments, demonstrating their commitment to blockchain technology. But what about COVID-19?

Deloitte 2020 Global Blockchain Survey

Deloitte’s 2020 Global Blockchain Survey shows the results of a poll amongst almost 1500 senior executives and practitioners from 14 countries that was conducted between February 6 and March 3 this year. Those interviewed had at least a “broad understanding of blockchain, digital assets, and distributed ledger technology (DLT)”.

Main findings

The Survey observed a change in attitudes towards blockchain, with more positive feedback. One of the main conclusions was that blockchain is “solidly entrenched in the strategic thinking of organisations”.

According to the Survey “organizations appear to be more committed than ever” to blockchain. Compared to Deloitte’s 2019 Global Blockchain Survey, there was a significant increase in the interest and implementation of blockchain across businesses. This is further confirming blockchain’s maturity as a valid solution for many institutions and enterprises.

Blockchain already is an integral and vital tool upon which—and with which—new, innovative solutions are being created, and the Survey shows confidence amongst respondents that blockchain solutions will gain even greater traction within the global business community over the next 12 to 24 months.

General consensus, as a key takeaway from the report, was around acceptance of blockchain’s scalability, which continues to increase. 88% believe blockchain is highly scalable and will eventually become mainstream.

Strategic priority for organisations

But let’s look somewhat deeper into the various results. One of the main conclusions is that blockchain technology is increasingly becoming a true strategic priority for organisations. This was affirmed by 55% (2019: 53%) of respondents saying blockchain is critical and in their top-five strategic priorities, with 66% of executives forecasting investments of $1million or more in the next 12 months.

More than four in five respondents (83%) in the Deloitte Survey believe they will lose competitive advantage if they don’t adopt blockchain (2019: 77%). 63% said it was vital to move forward in the blockchain space.

Blockchain initiatives: real-world use cases

In terms of applications, increased advances of large-scale blockchain initiatives are occurring, such as blockchain-based financial infrastructure to simplify global money movement and commerce, as well as distributed ledger technology (DLT) for trade finance and blockchain track-and-trace platforms, among others.

The Survey also revealed increased blockchain initiatives in daily processes. These smaller-scale examples of blockchain adoption, such as title transfer and protection, patient data storage and retrieval, and more efficient voting or food sourcing tracking are “proving to be just as transformational in the way people live and the way work gets done”, according to the Survey.

Adoption of blockchain-based solutions

Adoption of blockchain-based solutions is increasing across organisations, with technology, media and telecommunications (TMT), financial services and non-food manufacturing industries leading the trend.

The number of companies around the globe now driving to intensify their blockchain (and digital asset) integration is speeding up according to the recent Survey. As to what drove them to innovation, 86% of respondents cited their executive teams saying that there are compelling business cases for the use of this technology.

This year, almost twice as many firms surveyed have integrated blockchain solutions compared to 2019. The Survey discovered that 39% of respondents had already implemented blockchain into their operations (2019: 23%), clearly showing this technology is gaining traction. The production figure was even higher at 46% for organizations with more than $1 billion in revenues.

When it comes to preparations for a blockchain-based future, 82% of respondents said they are already hiring new staff with blockchain expertise or plan to do so within the next 12 months (2019: 73%).

Where are corporations using blockchain?

According to the Survey, the top five use-cases for blockchain mentioned by the respondents include digital currencies (33%), data access and sharing (32%), data reconciliation (31%), identity protection (31%), and payments (30%), while track- and trace and asset protection, were adopted by between 27% and 33% of respondents.

Proliferation of digital assets

An interesting part of the Survey is the growing acceptance of digital assets. The Survey unveils the growing role and evolution of digital assets in the near future. 70% of respondents consider the pace of regulatory changes for blockchain and digital asset solutions as very or somewhat fast.

“Digital assets are now enabling enhanced commercialisation models across industries and geographies.” Deloitte Survey

Nearly 89 per cent of those surveyed believe that digital assets will be very or somewhat important to their industries in the next three years.

“Our survey confirms what we see in the marketplace — a proliferation of digital assets used as a means of exchange, a store of value, digital representations of specific assets, or equity in a company,” Rob Massey, partner, global and US tax leader for blockchain and digital assets, Deloitte Tax LLP

Digital assets can be used for a variety of purposes. Respondents who considered digital assets in their business models were most focused on enterprise controlled (64%) followed by general asset-backed (63%), while cryptocurrency comes at number three, with 59%.

A majority of respondents from each country, 83% of the respondents (and even 94% in China) said they strongly (or somewhat) believe digital assets will serve as an alternative to, or even replacement for, fiat currencies in the next five to ten years.

“While our survey revealed great faith in digital assets’ future importance, it shows no clear or specific consensus about exactly how those assets will be used or the specific role they will play—a kind of incoherence that we have seen in blockchain use cases in the past and today,” Survey

A vast majority of respondents expressed confidence that they will meet their regulatory burdens. Some 80% claimed to be very or somewhat prepared to deal with the regulatory aspects of digital assets (KYC, Tax, GAAP/FAS, etc.).

Other areas

The Survey also deep-dived into the issues of global digital identity and consortia and governances.

The Survey explored the use of global digital identity. 90 % of respondents believe global identity will be very or somewhat important in their future blockchain and digital assets strategies. Among the applications of digital identity, global financial transactions (29%) and data privacy (27%) stand to benefit the most.

The 2020 Survey studied the issues faced by enterprises when joining a consortium. It revealed leadership perspectives around joining consortia and an increased understanding of the benefits of consortia to help address regulatory and other complexities of implementing blockchain.

These same leaders thereby shared concerns about how consortia are run, how decisions are made, and how profits are shared across memberships. The most prominent challenges for 41% of the respondents of joining a consortium were the inability or incompetence  to create fair and balanced governance rules and poorly defined roles and responsibilities of members.

These concerns can be exacerbated further based on geographic, namely cross border, and industry-specific governance.  I described that in detail in one of my earlier blogs “Blockchain consortia need good governance: but how?”.

Blockchain and the regions

While global adoption has increased, blockchain adoption proved to be uneven in different countries. Countries’ averages are varying wildly whereby China turned out to be one of the biggest supporters of blockchain and digital assets.

While in China 59% of the respondents stated that their companies have already incorporated blockchain into production, this figure is almost twice as small (31%) in the US. The APAC region stood at 53%. Other countries are also outpacing America in terms of blockchain integration. Throughout the European Union including the United Kingdom, blockchain is witnessed as a matter of priority with multiple approaches.

Countries worldwide also follow multiple approaches. Asia Pacific responses revealed a widespread recognition of blockchain’s strategic value, while China expressed concerns over cross-border implications. Germany exhibited substantial activity around crypto regulation.

The UK market is seeing ongoing and increasingly mature activity across key sectors with several substantial projects now live, typically among industries reliant on complex, multiparty, and international supply chains. UAE is evolving as a digital assets hub with a consistently growing ecosystem. While Israel is emerging as a leader in blockchain innovation.

Sceptics

However, sceptics about blockchain remain. It is important to note that 54% of respondents said that blockchain is overhyped, compared to last year’s 43%. This has all to do with remaining barriers. The respondents claim there are still a number of organisation or project barriers that prevent them from adopting and implementing blockchain.

According to the Survey the top barriers of blockchain adoption include: implementation: replacing or adapting an existing legacy system (35%), concerns over sensitivity of proprietary information (34%), potential security threats (34%) an lack of regulatory clarity.

As companies develop use cases and adopt digital assets, the most significant problem areas are new tax and regulatory compliance structures. A patchwork approach, different regulatory treatments, or improperly defined parameters could threaten the underlying advantages of these blockchain solutions. But companies are not impressed by this, and some 80% claimed they were prepared to deal with regulatory aspects of digital assets.

Along with regulatory uncertainty, 58% of respondents said cybersecurity was also impacting their blockchain and digital asset strategy. Meanwhile, 21% said cybersecurity was the only hindrance to advancing their strategy.

But what about the impact of COVID-19?

According to the KPMG COVID-19 Survey that was published in August, blockchain investments fell by 63% because of COVID-19. The report compiled by KMPG International and HFS Research, is drawing on a survey of 900 technology executives from different organizations on the Forbes Global 2000 list of the largest companies in the public that have more than $1 billion in annual revenue.

According to the report roughly 40% of the executives indicated that they had moved to entirely cease investment into the emerging technology initiatives. Distributed ledger technologies (DLT) slid from the largest emerging technology sector with an average investment of $18 million in March/April,  to the second smallest with $6.5 million in May/June.

7% of the executives said COVID-19 had significantly changed strategic priorities for emerging technologies. In the earlier survey, the priorities were cost reduction and improved brand value. Since May/June, emerging technologies are now assessed based on survival.

The report also found that 59% of the executives believe that the pandemic created an impetus to accelerate digitization initiatives. After the heavy funding cuts for blockchain that occurred in 2020, global companies are looking forward to the technology as a way to regain a competitive advantage in the business landscape after the Corona crisis. They predicted that blockchain will be one of the five emerging technology sectors that will see increased investments from enterprises over the next 12 months.

Blockchain won’t be cut across the board. Projects that are close to production or already live are less likely to be put on hold if they can show reasonably quick returns. Blockchain tools that can help improve a company’s visibility into its own supply chain are the sorts of candidates that could attract budget. Applications that combine blockchain with other more “survival oriented” emerging technologies could also do better.

Blockchain is a reality already!

The Corona-crisis will undoubtedly have negative impact on blockchain for some time. Companies will turn their interest towards less ambitious, more targeted projects.

But the substantial portion of respondents of the Deloitte Survey who already have blockchain in production in their organization highlights the growing maturity. There is however still substantial work to be done. The report does note that “it remains an iterative process, with bumps remaining in the road”.

“As companies adopt and implement blockchain solutions, and as leaders increasingly accept blockchain as a fact rather than a future breakthrough, there remains an underlying level of uncertainty about current and future applications of blockchain technologies.” “We don’t expect that organisations will sort this all out right away – this process will continue to take time, depending on industry, maturity, risk tolerance, and budgets.” Deloitte Survey

But the sentiment at companies towards blockchain has definitely changed. This technology is increasingly becoming a reality for many of them, not just in the future but already!

 

 

Carlo de Meijer

Economist and researcher

 

 

 

 

Source

| 31-03-2020 | Carlo de Meijer | treasuryXL

The sudden emergence and rapid but uncontrolled worldwide spread of the Corona virus shows us the failure of existing healthcare surveillance systems to timely handle public health emergencies.

Though improvements in healthcare surveillance have been realised, these still fall short in preventing pandemonium. Lack of necessary steps taken to ensure containment and tracking of the virus have aggravated the situation.

Blockchain technology is increasingly been mentioned as a tool to assist with various aspects of containing the outbreak. Could the use of blockchain in the health care industry help to prevent future pandemics?

Outdated health surveillance systems

Preventing, and controlling diseases that have epidemic potential is a major public health activity. Many surveillance systems are used to track potential new diseases and control existing diseases. Though governments are doing everything in their power to contain the spread of the Corona virus, their fight is hampered by difficulties in the timely sharing of information with local and international health enforcement agencies on the ground.

Unfortunately, many of these systems are outdated, hard to access, or inaccurate. China’s current disease surveillance system for instance is an updated version of a system that is five decades old. And there is the privacy and security issue when using centralised healthcare surveillance systems. Time however is of the essence when dealing with outbreaks of this sort of deadly diseases.

Main issues

Epidemiologists who study how diseases spread, are being faced with the task of gathering, verifying and cleaning data in an efficient manner.

Privacy and security issues, language barriers, the sheer distance between the geographical location of an outbreak, cultural differences, and many other factors are issues that slow the transmission and exchange of necessary information.

Non-optimal data management
There is the data management issue. Containing the Corona virus could come down to a question of data management. Gathering data, verifying that data, and then cleaning up that data however is far from optimal. Epidemiologists need high-quality data to model viruses; with models, they can provide governments with recommendations about how to contain the disease. But that data is hard to get or its integrity cannot be verified, thus of no use to epidemiologists.

Underreporting
As a result of that the current infection and death statistics are speculated to be much higher than reported. The coronavirus outbreak has raised concerns over the Chinese government underreporting the number of infected and deceased. This underreporting can be caused by many disruptions in the system, such as the lack of data transparency.

But also a shortage of testing kits reduces the number of confirmed cases, and deaths can be attributed to other causes. Unfortunately, it is impossible to know just how serious this outbreak really is without access to a secure, decentralized surveillance system.

Political Complications
And there is the issue of national centralised surveillance systems not talking cross-border. Diseases can spread quickly across political borders. Traditional systems run by governments can miss outbreaks because they happen across physical borders. A decentralized system is the fastest way to report outbreaks.

Lack of innovation in healthcare systems
In many countries healthcare surveillance systems lack innovations, caused by low investments in new technologies leading to less effective healthcare systems. This notwithstanding the upcoming of new technologies including artificial intelligence, big data management and blockchain.

Blockchain could be of help

The time to build borderless solutions based on decentralized technologies has come. Highlighting the need for numerous improvements in the health care sector, the U.S. Department of Health and Human Services’ Office of the National Coordinator for Health Information Technology issued a Shared Nationwide Interoperability Roadmap requesting ubiquitous, secure network infrastructure; verifiable identity and authentication of all participants; and consistent representation of authorization to access electronic health information.

Hereblockchain could offer ways to improve many public health activities associated with preventing and controlling diseases. Blockchain powered solutions could address and tackle various aspects of the issue. Blockchain technology has the ability to improve health, access to information, supply chains and many more.

These expectations are based on the key aspects of blockchain technology, such as decentralized management, immutable audit trails, data provenance, and robustness. Additionally, multiple nodes in a permissioned blockchain have the ability to share and report vital data instantly, while complying with data privacy and security regulation

Blockchain use cases

Blockchain could be used to improve a variety of health care-related processes, including record management, healthcare surveillance, tracking disease outbreaks, management crisis situations and many more.

Record management: single source of information
Containing virus should be looked at as a data management issue. The biggest opportunity for blockchain in the healthcare industry is as a single source of truth for the data provenance, as the whole world is fighting against this outbreak. It could be used for record management purposes, to manage real-time data and importantly, to ensure its integrity, while identifying and eliminate misinformation about the Corona virus.

In emergencies like these, there are high numbers of incoming data, “with not many hands on deck to manage the same”. With the use of blockchain, data collection will become automated and immutability of the ledger makes it impossible to alter any of the records.

By using blockchain technology one could be able to securely manage health records, ensuring interoperability without compromising patient privacy and security. Those records could include patients’ data, treatments given, and any progress detected. Blockchain will also make sure that data are archived and protected by any unauthorised access, but still keeping it available for the whole healthcare system.

It will enable users to see all the data and trends on the virus in real-time including all information about confirmed cases of infected, death toll, recoveries, etc. The exponential growth of connectivity and the access to the wealth of data it offers  would allow health officials to quickly track the spread of disease, giving vulnerable populations vital information. All this information can be used by research labs working on a vaccine.

Blockchain healthcare surveillance system
Blockchain can also be used for surveillance purposes. A blockchain healthcare surveillance system can provide the means to prevent and control future outbreaks. A permissioned blockchain surveillance system would allow local and national health agencies to access the surveillance data.

A global blockchain surveillance system could easily reach areas where connectivity is poor, and costs must be kept low. Local practitioners can receive real-time information on surrounding areas, regardless of governmental or political barriers. In addition, global organizations like the World Health Organization could access the data. Because the system is decentralized and secured through blockchain, data remains secure and multiple organizations can report the data.

Tracking infectious disease outbreaks
Blockchain could be used for tracking public health data surveillance, particularly for infectious disease outbreaks. Increasing transparency will result in more accurate reporting and more efficient responses. They would allow for rapid processing of data, enabling early detection of infections before they spread to the level of epidemics.

Blockchain can help develop treatments swiftly, and help with management when pandemics do occur. This could enable government agencies keep track the virus activity, of patients, suspected new cases, and more.

They could also use the blockchain to track down where the virus originated, probably It could enable doctors to review patients’ symptoms and monitor diagnostic data in real time, integrating patient history information. Information can be collected in a distributed way and have that information available to different parties, including authorities such as the WHO.

Management crisis situations
Blockchain technology can not only help in keeping track of the virus and outbreak activity. Blockchain could also be used to better manage pandemic situations and the dissemination of treatment. It could instantly alert the public about the Corona virus by global institutes like the World Health Organization.

It could instantly recommend a course of activity should an outbreak be detected. Using blockchain could enable to provide governments with recommendations about how to contain the virus. It would offer a platform where governments, medical professionals, health organizations, media, and all the concerned parties can update each other of the situation and prevent worsening of the same.

Securing medical supply chains
The blockchain could also be used for “track and tracing” of medical supply chains. Blockchain has already proven its success as a supply chain management tool in other industries. Blockchain-based platforms could be used to enable the review, recording and tracking of demand, supplies and logistics of epidemic prevention materials. As supply chains involve multiple parties (from donors and recipients, to warehousing and delivery logistics), the entire process of record and verification by each party is tamper-proof, while also allowing anyone to track the process.

It could help streamline medical supply-chains, ensuring that doctors and patients have access to the tools when they need them and preventing contaminated items from reaching stores. A blockchain-based system could ensure vaccines, testing equipment, and other relief efforts are sent to the right places at the right times and in the quantities needed, and have that recorded. Securing the supply chains of these valuable resources could have life-saving effects. Combined with a surveillance system, a blockchain supply management system could change the way the world responds to epidemics.

Prevent zoonotic diseases
Zoonotic diseases like Corona could be caught in animals before they make the jump to humans if veterinary field records were kept on a blockchain surveillance system. Because many animals are migratory – so not staying in the same area – a decentralized blockchain system would allow for greater collaboration and transparency across the world. Diseases could be “flagged” and eliminated in animal populations before they make the jump to humans.

China and blockchain

Chinese organizations are trying to implement blockchain-based solutions to combat the Corona virus and reduce its economic impact on the country. They have rolled out a number of applications for immediate and emergency use, to fight the spread of the corona virus in public institutions, hospitals, universities and the financial sector. These are touted as performing a variety of different functions.

These blockchain solutions are already being used by local authorities to manage identity information and donation platforms. Additionally, multiple countries world-wide are employing blockchain-based tools to track patients diagnosed with coronavirus and identify the people who might have been infected. The apps are designed to ensure people’s privacy, identity, and medical records using the blockchain against Corona virus and other medical conditions.

HashLog
One of the interesting applications is HashLog, a solution launched by Acoer, a developer of blockchain-enabled applications for public health and global health organizations, to fight against the deadly coronavirus.

The HashLog visualisation engine interacts in real-time with Hedera Hashgraph’s distributed ledger technology to ensure real-time logging and data visualization of the spread of the disease. With the help of public data from the US Centres for Disease Control (CDC) and the World Health Organization (WHO), Acoer’s Hashlog Dashboard is capable of providing real-time information for tracking this epidemic. For example, this application is tracing people traveling to and from the country, to pinpoint patients and prevent further infections.

“HashLog allows for the real-time visualization of coronavirus data and trends. This includes the overall number of cases globally, rates of deaths and recovery per infections (where we have reliable data), cases filtered by country, as well as Google trends by interest and region on Corona virus.” Acoer’s CEO, Jim Nasr

This should help epidemiologists verify the integrity of records that have been uploaded to their analytics systems. Each transaction is recorded through a verified hash reference on Hedera’s ledger, meaning epidemiologists can trust data to be legitimate. This allows researchers, scientists and journalists to understand the spread of the coronavirus and its trends over time through visuals presented on Acoer’s HashLog dashboard.

IBM Food Trust
This is not the first time blockchain is being applied to track diseases. There have already been a number of initiatives using blockchain and distributed ledger technology to track the origins of food, for example. The IBM Food Trust has been using blockchain to help improve food safety by managing and conducting food tracings in order to identify sources of contamination for occurrences of Salmonella. By being able to identify the cause quickly and effectively, it is much easier to contain the problem and treat it at the source.

Blockchain preventing pandemics: not yet?

Presently, the authorities all over the world are trying their best to contain the Corona virus as it has shown the potential of turning into a pandemic. And that is where blockchain can help. We have seen that disease outbreaks can happen at any time, anywhere on the planet, with little or no warning. These are natural events that have occurred in the past and will re-occur in the future.

Blockchain will not prevent the emergence of new viruses itself. But what blockchain can do is create the first line of rapid defense through a network of connected devices whose only purpose is to remain alert about disease outbreaks. The use of blockchain can help prevent pandemics by enabling early detection of epidemics, fast-tracking drug trials, and impact management of outbreaks and treatment.

With easy access to such data, the containment of an outbreak becomes manageable and is of great help to the health authorities as well. This instant response capability can represent the difference between quick containment and global contagion.

While blockchain holds promise for the health industry, analyst warn a number of issues, including data standardisation, costs of operation and regulatory considerations, still need to be addressed before this technology is suitable for wide adoption. But with this serious Corona virus pandemic a number of these considerations could be solved rather quickly.

 

 

 

Carlo de Meijer

Economist and researcher

 

| 06-03-2020 | Carlo de Meijer | treasuryXL

A growing number of companies have expressed their will to enter the blockchain arena. But after some number of years in which their focus was mainly on the benefits of blockchain in various areas, in terms of speed, costs, streamline operations and increased efficiency, their attention is now turned to the various challenges and bottlenecks that are preventing widespread adoption. In this blog I will go into more detail in these bottlenecks and how the industry is trying to tackle these.

Main challenges

First of all there is a reputation challenge. Blockchain is still very much connected to the crypto world in the mind of many. And that is seen as a world of bad actors, hackers, frauds and speculators.

But more important are the technical ones such as immaturity (still slow and cumbersome), lack of scalability, lack of interoperability, stand-alone projects, difficult integration with legacy systems, complexity and lack of blockchain talent.

What to think about the organisational challenges at corporates like lack of good governance, lack of awareness and understanding, lack of user experience and education, the attitude of incumbents, or the security and privacy challenges, including lack of regulation. And there is the productivity paradox.

And finally, but not unimportant other challenges such as culture, energy consumption/environmental cost.

Blockchain has an image problem

Blockchain has an image problem. Blockchain is too much linked with cryptocurrencies in the mind of many. Especially crypto has a negative image that is surrounded by fraudsters, hackers that are using he technology for criminal activities. This bad name is reflecting on the blockchain technology system as whole and is making people seriously think twice before adopting it.

Before the general adoption is possible, members of the public must understand the difference between bitcoins, other crypto-currencies, and blockchain. One should understand that cryptocurrencies are only one application of blockchain technology amongst many others. This will help to eliminate the sometimes negative implications and may result in an increased willingness to use the technology. In the meantime a growing number of collaborative initiatives in the blockchain world in various industries have come up to bring wider change. This sort of interdependence may be the key to moving forward.

Corporates are afraid of the disruptive character of blockchain

There are organisations that do not like the idea of blockchain and its disruptive character. For some it is a nightmare thinking they will lose market share or will even become obsolete.

Blockchain is about 80 per cent business process change and 20 per cent technology implementation. It represents a total shift away from the traditional ways of doing things. This even goes for industries that have already seen significant transformation from digital technologies.

It places trust and authority in a decentralised network rather than in a powerful central institution. And for most, this loss of control can be deeply unsettling.

It is still uncertain who will be most affected by blockchain implementations and which areas of the business are likely to be most disrupted. So, a more ‘imaginative’ approach is needed to understand opportunities and also how things will change.

And there are the vested interest of incumbent parties

Existing regulation represents by far the most significant hurdle for blockchain innovators, as ‘existing regulations favour incumbents and their vested interest over disruptors’. The digitisation (of information) process is taking place in a so-called regulatory “heavy” zone. That is not that strange given the long-established authority of governments to protect consumer and property rights.

Blockchain presents new challenges to regulators looking to protect consumers and markets, but the rigidity with which regulators in the world’s major economies have approached blockchain has served to stifle innovation and growth.

But that view is also changing and as soon as also governments and other public organisations are seeing the benefits of this technology and develop a regulatory model that encourages innovation while protecting consumers that might be an eye opener for others.

Blockchain is still an immature technology

Beyond the above described challenges, blockchain faces a number of implementation challenges, that has all to do with the still immature technology.

• Lack of scalability

One major technology challenge of blockchain is related to the technical scalability of the network which can put a strain on the adoption process, especially for public blockchains.

Legacy transaction networks are known for their ability to process thousands of transactions per second. Visa, for example, is capable of processing more than 2000 transactions per second. The two largest blockchain networks, Bitcoin and Ethereum however are far behind when it comes to transaction speeds. While the Bitcoin blockchain can process three to seven transactions per second, Ethereum can handle approximately 20 transactions in a second.

This lack of scalability is not such an issue for private blockchain networks, since the nodes in the network are purposely designed to process transactions in an environment of trusted parties, which makes sense business-wise.

There are some interesting solutions upcoming to tackle the scalability issue. Such as s the Lightning Network, which consists of adding a second layer to the main blockchain network in order to facilitate faster transactions. Another interesting solution is Sharding that groups subsets of nodes into smaller networks or ‘shards’ which are then responsible for the transactions specific to their shard. When offered in conjunction with the proof-of-stake consensus mechanism, has the potential to scale up the application.

• Lack of standardisation: limited interoperability

Another main challenge is the lack of interoperability between the large number of blockchain networks. Over 6,500 projects are leveraging a variety of – mostly standalone – blockchain platforms and solutions with different protocols, coding languages, consensus mechanisms, and privacy measures.

The problem is that with so many different networks, the blockchain space is in a ‘state of disarray’ due to a lack of universal standards that would allow different networks to communicate with each other.

The lack of such uniformity across blockchain protocols also takes away consistency from basic processes like security, making mass adoption an almost impossible task.

The establishment of industry-wide standards with regard to various blockchain protocols could help enterprises collaborate on application development, validate proofs of concept, and share blockchain solutions as well as making it easier to integrate with existing systems.

There are now various projects that offer interoperability among different blockchain networks, such as Ark which uses SmartBridges architecture to address this challenge, and claims to provide universal interoperability, plus cross-blockchain communication and transfers. Another example is Cosmos, which uses the Interblockchain Communication (IBC) protocol to enable blockchain economies to operate outside silos, and transfer files between each other.

• Integration with legacy systems

And there is the challenge for corporates of how to integrate blockchain with their legacy system(s). In most cases, if they decide to use blockchain, organization are required to completely restructure their previous system, or design a way to successfully integrate the two technologies.

One problem is that due to the lack of skilled developers, organizations do not have access to the necessary pool of blockchain talent  to engage in this process. Reliance on an external party can soften this problem. But most solutions present on the market require the organization to invest a significant amount of time and resources to complete the transition.

And there are the high incidences of data loss and breach that are discouraging most companies from transitioning to blockchain. Every enterprise is reserved and unwilling to make changes to its database, and for good reasons, as data loss or data corruption constitute major risks.

Recently, new solutions emerged which enable legacy systems to connect to a blockchain backend. One such solution is Modex Blockchain Database, a product designed to help people without a background in technology, access the benefits of blockchain technology and remove the dangers posed by the loss of sensitive data.

• Lack of blockchain developers

While the demand for qualified blockchain staff is increasing dramatically, the blockchain landscape suffers an acute  shortage of an adequately trained and skilled /qualified people  for developing and managing the complexity of peer-to-peer networks. Blockchain technology however demands additional qualification and know-how.

According to some, the demand for blockchain-related jobs has increased by almost 2000% between 2017 and 2020. Having a sufficient pool of qualified developers is a top industry concern.

Blockchain technology is still in its infancy and is still evolving. It requires time for the developer community to adopt it, and for educational institutions to introduce relevant blockchain-related courses. Though this will alleviate the market demand, the results however will become palpable only after students will finish their training and that will take some time. .

• Blockchains can be slow and cumbersome

Due to their complexity and their encrypted, distributed nature, blockchain blockchains can be slow and cumbersome. Transactions can take a while to process, certainly compared to “traditional” payment systems such as cash or debit cards.

When the user number increase on the network, the transitions take longer to process. It can take even days to process the whole transaction. As a result, the transactions cost is higher than usual, and this also restricts more users on the network.

In theory the principle extends to blockchain networks which are used for something other than as a store of value (for example logging transactions or interactions in and IoT environment). This is a problem which could be solved with advances in engineering and processing speeds, but that will take some time.

Organisational challenges

And there are various organisational challenges that are limiting the use of blockchain technology by corporates.

• Lack of awareness and understanding

The main challenge for corporates associated with blockchain, especially the small and medium ones, is a lack of awareness of the technology and a widespread lack of understanding of how it works. Many companies do not understand what blockchain is or what they can do. This has a lot to do with the dominance of technicians in the blockchain area and their too much technology approach.

This is hampering investment and the exploration of ideas. Instead a much more business oriented approach is very much needed. This asks for improving the user experience for those not as technically minded. Organisations really must educate themselves about this emerging technology. They should increase their level  of understanding at all levels. This asks for better educational campaigns to make all this knowledge more accessible.

• Productivity paradox

And there is the so-called blockchain paradox. The speed and effectiveness with which blockchain networks can execute peer-to-peer transactions comes at a high aggregate cost, which is greater for some types of blockchain than others. This inefficiency arises because each node performs the same tasks as every other node on its own copy of the data in an attempt to be the first to find a solution.

Therefore, decisions of corporates about implementing blockchain applications need to be carefully thought through. The returns to individual processing may diminish as the network grows in size. This means that blockchain applications must harness network effects to deliver value to consumers or to sectors at large.

• Lack of cooperation

The blockchain creates most value for organisations when they work together on areas of ‘shared pain or shared opportunity’. The problem with many current approaches, though, is that they stand alone: organisations are developing their own blockchains and applications to run on top of them.

In any one industry sector, many different chains are therefore being developed by many different organisations to many different standards. This defeats the purpose of distributed ledgers, fails to harness network effects and can be less efficient than current approaches.

A positive developments is however the rise of so called blockchain consortia, aimed to tackle industry wide issues, including standards, critical mass etc.

• Security and privacy challenges

And what to think about the various security and privacy challenges. While cryptocurrencies offer pseudonymity, many potential applications of the blockchain require smart transactions and contracts to be indisputably linked to known identities, and thus raise important questions about privacy and of the security of the data stored and accessible on the shared ledger.

Many companies nowadays work with privacy rules governed by regulation. Their consumers trust them with sensitive information. But if this information is all stored in a public ledger it won’t actually be private anymore. Private or consortia blockchain could work here. You would get limited access, and all your sensitive information would stay private as it should.

Security is another crucial topic here. However, only a handful of scenarios have good protocols that can cope with this. While blockchains are more secure than traditional computer systems, hackers can still breach apps, systems, and businesses built on blockchains.

The solution is not just government protection of privacy. Self-sovereign identities on blockchain will enable us to capture and control our own data. While there is a lot of work on several privacy protocols such as proof of zero knowledge to overcome these obstacles and good identity initiatives are underway (Sovrin), we are still a long way from a radically new identity framework.

• Lack of regulatory clarity and good governance

There is also the lack of regulatory clarity regarding the underlying blockchain technology, which is a significant roadblock for mass adoption. Regulations have always struggled to keep up with advances in technology. This is also the case with blockchain. One of the challenges of the blockchain approach (which was also one of its original motivations) is that it reduces oversight.

Many organizations are making blockchain technology as a means of transaction. But even now there aren’t any specific regulations about it. So, no one follows any specific rules when it comes to the blockchain, so there is still no security.

There are certain areas that require regulatory support, such as the earlier mentioned smart contracts. If the regulations do not cover smart contracts, it inhibits adoption as well as investment in the blockchain industry.

Centralised systems, particularly in financial services, also “act as shock absorbers in times of crisis” despite their challenges and bottlenecks. Decentralised networks can be much less resilient to shocks, which can impact participants directly, unless careful thought is given to their design.

There is thus a strong argument for blockchain applications to work within existing regulatory structures not outside of them. To get over this challenges, Government and extremely controlled sectors may need to create regulations for blockchain. But this means that regulators in all industries have to understand the technology and its impact on the businesses and consumers in their sector.

Other challenges

• Blockchain has an environmental cost

And finally but not least important the huge energy consumption is another blockchain adoption challenge. The majority of blockchains present in the market consume a high amount of energy.

Most of the blockchain technology follow bitcoins infrastructure and use Proof of Proof-of-work (PoW) as consensus mechanism for validating transactions. These protocols require users to solve complex mathematical puzzles, and require tremendous computing power to verify and process transactions and to secure the network.

In the meantime the amount of energy consumed by computers that compete to solve the mathematical puzzle has reached an all-time high. Some estimate that Bitcoin transaction energy consumption could soar as high as the yearly electricity usage of Denmark in 2020. Add to this the energy needed to cool down the computers, and the costs increase exponentially.

To overcome this issue, many blockchain proponents are developing more efficient consensus algorithms, that are less energy taxing. So-called proof-of-stake (PoS) protocols were introduced, that involve a combination of a participant’s stake in the network and an algorithm to randomly assign the task of validation to a node. Given that the participants are not required to solve complex puzzles, these mechanisms significantly reduce energy consumption.

Furthermore, from a business perspective, private blockchains are more suitable to serve company interests, as they provide restricted access, an additional layer of privacy to protect trade secrets, and are more energy-efficient.

Forward looking

In general, technological advancements take a long time to mature and reach a stable form that can be introduced into the market. Like any technological innovation, blockchain will follow the same, slow trajectory of adoption over the coming years. Although there are many possibilities, it will still take some time to get rid of all the challenges and use it to get all the benefits of it.

The list of Blockchain adoption challenges mentioned above clearly underlines the need for technological improvements. And the industry is very busy solving them. If we can fix these and remove the various bottlenecks, things will surely become more comfortable and trigger mass adoption.

 

 

Carlo de Meijer

Economist and researcher