“Blockchain, the technology underpinning bitcoin and other cryptocurrencies, for years has been viewed by some companies as a way to drive industry-transforming projects, among them the tracking of assets through complex supply chains,” according to a recent article in the Wall Street Journal, “Blockchain Fails to Gain Traction in the Enterprise.”
“So far that hasn’t happened.”
Blockchain technologies first came to light in 2008 as the architecture underpinning bitcoin, the best known, most valuable, and most widely held cryptocurrency. Over the years, blockchain has evolved in two major directions. One continues to focus on blockchain as the underlying platform for bitcoin, as well as for the large number of cryptocurrencies, digital tokens, and other crypto assets that have since been created. The other focuses on blockchain as a distributed data platform for collaborative applications involving multiple institutions, such as supply chains, financial services and healthcare systems.
Blockchain made its first appearance in Gartner’s yearly hype cycles in 2016. Despite its being at an early and immature stage, many of its proponents believed that enterprise blockchain platforms were just around the corner, and so it quickly rose to the peak of inflated expectations. But as reality set in, expectations started sliding down in 2021, and by 2022 blockchain platforms had reached the bottom of the trough of disillusionment.
As years go, 2022 was a very tough one for blockchains in general. In the crypto space, bitcoin and most other crypto assets have lost a very large chunk of their value, and numerous crypto companies have collapsed, most prominently FTX. In the enterprise, a number of ventures went belly up. we.trade, a blockchain-based trade finance, shut its operations in June after running out of cash. A few months later, the Australian Securities Exchange canceled its much-delayed blockchain-based clearing system. Most prominently, in late November TradeLens announced that it was discontinuing its blockchain-based global trade platform. Other enterprise blockchain projects, like Walmart’s food traceability application, still carry on but their uptake and progress have been slower than anticipated.
IBM and Maersk launched TradeLens in August of 2018 along with 94 collaborative organizations. Their goal was to promote more efficient and secure global trade by leveraging the digital container shipping information on its shared blockchain platform. TradeLens was one of the largest enterprise blockchain projects, whose partners included 15 major ocean carriers, 10 multinational trade finance banks, and more than 270 port terminals. According to the Maersk press release, “The platform, founded on a bold vision of achieving global industry collaboration, has yet to reach the commercial viability necessary to continue work and function as an independent business.”
Why did TradeLens and other enterprise blockchain projects fail or, like Walmart’s food tracking project, are progressing significantly slower than anticipated? The WSJ article cites three potential reasons: the difficulty of enlisting participants to collaborate on a common objective; the considerable time required to deploy a complex new transformative technology; and the intrinsic complexity of blockchain-based systems. Let me discuss each of these potential reasons.
The difficulty of enlisting collaborating participants
“TradeLens could only work with the collaboration of a host of companies and nations — which never fell into place,” said the article. This is not surprising. Complex initiatives that require the close collaboration of multiple companies are quite difficult to organize for a number of reasons: the participating firms are often competitors, they often have a different set of priorities, they insist on transparency since they generally don’t trust each other, they want property rights and governance stakes commensurate with their investments, and so on. Let me cite two concrete examples from my personal experiences in the IT industry.
In the early decades of the IT industry, vendors brought to market their own proprietary network systems, such as IBM’s Systems Network Architecture and Digital’s DECnet. These worked quite well as long as all communications were within the same company using the same vendor’s architecture. But, going across companies and vendors was quite cumbersome. Just sending an e-mail using an IBM application to someone in a different institution using another vendor’s application was quite cumbersome.
The internet changed all that. Through the 1970s and 1980s, the research and academic communities developed open network and e-mail protocols, — TCP/IP, SMTP, POP, IMAP, — that enabled people to easily communicate with anyone on any system. A few years later, the web’s open standards, — HTML, HTTP, URLs, — enabled a user on a PC connected to the internet to access information on any web server anywhere in the world. The explosive growth of the internet in the 1990s finally forced companies to embrace the open network, e-mail and web standards, and to participate in organizations like IETF and W3C formed to oversee their evolution.
A similar story played out with UNIX. In the 1980s, UNIX became a popular operating system for technical workstations, supercomputers and several different applications. But different vendors had developed their own version of UNIX, — IBM’s AIX, Sun’s Solaris, HP’s HP-UX, — which all differed somewhat, so that users couldn’t easily port applications across all these different versions of UNIX. Various groups tried and failed to create a standard set of UNIX application program interfaces (APIs), mostly because the vendors didn’t trust each other. Finally, Linux emerged in the 1990s as an open source UNIX-like operating system and was embraced wholeheartedly by research and internet communities.
Over time, an increasing number of companies supported Linux, contributed to its development, and founded the Open Source Development Labs (OSDL) in 2000 to oversee its development, which became the Linux Foundation in 2007. In 2016, the Linux Foundation launched the Hyperledger project based on Hyperledger Fabric, an open source permissioned blockchain infrastructure on which the TradeLens application was developed.
Companies will generally not adopt major new technologies and applications, nor collaborate in their development until these technologies have proven their business value in the marketplace. That still hasn’t happened with blockchains, largely because the technologies are still too new and immature to replace existing good-enough solutions.
The considerable time required to deploy a complex new transformative technology
“General purpose technologies (GPTs) are engines for growth,” wrote Erik Brynjolfsson, Daniel Rock, and Chad Syverson in “The Productivity J-Curve,” a 2020 NBER research paper. “These are the defining technologies of their times and can radically change the economic environment.” But realizing their potential requires massive complementary investments, such as business process redesign, co-invention of new products and business models, the re-skilling of the workforce, and a fundamental rethinking of the organization itself. Moreover, the more transformative the technologies, the longer it takes to widely embrace them by companies and industries across the economy.
For example, after the introduction of electric power in the early1880s, companies took 40 years to figure out how to restructure their factories to harness electric power with manufacturing innovations like the assembly line, and to develop new electric household products like refrigerators, dishwashers, and washing machines. Similarly, transistors replaced vacuum tubes in radios, TVs, and computers in the 1950s. But it’d take another few decades for the semiconductor industry to take off with the development of a large number of consumer electronic products including personal computers and smartphones, and very powerful computers that enabled the development of large, complex applications like e-commerce, search, and AI.
Blockchain is a general purpose technology, capable of supporting a wide variety of applications, and likely to become a major next step in the continuing evolution of the internet. But, like the internet, blockchain is a foundational technology, whose full transformational impact will take time. The adoption process of foundational technologies is gradual, incremental and steady, because they must overcome many different kinds of barriers, — technological, organizational, and political.
The intrinsic complexity of blockchain applications
Blockchains are based on decades-old fundamental research in cryptography, distributed data, game theory and other advanced technologies. But advanced as these technologies are, the real complexity in the enterprise use of blockchains is not due to its technologies. The complexity is mostly up the stack, in the collaborative applications supported by blockchain platforms that involve multiple institutions.
I think of enterprise blockchain applications as a kind of ERP 2.0. Enterprise Resource Management (ERP) systems aim to improve an organization’s efficiency by sharing information across its various departments and processes. ERP implementations are generally quite complex because they affect many of the functions of the organization. Imagine now implementing an ERP system, not across departments within the same organization, but across multiple different organizations spread around the world — which generally don’t trust each other. In my opinion, this is the key reason for the intrinsic complexity of enterprise blockchain, — the nature of the applications, not the technology.
Marco Iansiti and Karim Lakhani nicely explained this complexity and the promise of blockchains in their 2017 Harvard Business Review article, “The Truth about Blockchain”:
“Contracts, transactions, and the records of them are among the defining structures in our economic, legal, and political systems. They protect assets and set organizational boundaries. They establish and verify identities and chronicle events. They govern interactions among nations, organizations, communities, and individuals. They guide managerial and social action. And yet these critical tools and the bureaucracies formed to manage them have not kept up with the economy’s digital transformation. They’re like a rush-hour gridlock trapping a Formula 1 race car. In a digital world, the way we regulate and maintain administrative control has to change.”
“With blockchain, we can imagine a world in which contracts are embedded in digital code and stored in transparent, shared databases, where they are protected from deletion, tampering, and revision. In this world every agreement, every process, every task, and every payment would have a digital record and signature that could be identified, validated, stored, and shared.”
Such a blockchain-based transformation of the economy will take time. But, as with other transformative technologies, I’m hopeful that we will make progress in a series of incremental steps, including early steps like TradeLens that didn’t quite work out and that hopefully we can learn from.
Great article Irving Wladawsky-Berger. We first looked at #blockchain in 2012, which we were reliably told would revolutionise residential property transactions. As you highlight ‘the technologies are still too new and immature to replace existing good-enough solutions.’ How often have we seen this? Consumers are only really getting used to digital wallets just now and to ask them to consider blockchain as a solution is still one step too far. Your second point on the time to deploy is really important as many organisations are still grappling with existing technology, or within the residential property sector, lack of technology adoption amongst some stakeholder groups. They still need to catch up. Finally, on ‘complexity’ couldn’t agree more. The more complex the solution, the more time it takes to introduce and bed in and for organisations and people to embrace. Replacing good enough existing solutions is a major hurdle, plus the financial investment required.
Posted by: Stuart Young | January 05, 2023 at 07:36 AM