"Blockchain Fatigue" is Here? The Blockchain Revolution Seems to Have Stalled
In 2019, the blockchain revolution seems to have stalled.
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At least, that's what those in the know are saying.
A recent report from the global research and advisory company Gartner referred to it as "Blockchain Fatigue." Other authorities have echoed this sentiment, suggesting that pilot projects have failed, few have been put into production, and blockchain is likely to be a niche technology.
Supply chain blockchain projects are primarily focused on verifying authenticity, improving traceability and visibility, and enhancing transaction trust. Gartner believes that due to immature technology, lack of standards, overly ambitious scope of applications, and a comprehensive misunderstanding of blockchain, most projects are still in the pilot phase. By 2023, 90% of supply chain projects based on blockchain will suffer from "Blockchain Fatigue" due to the lack of compelling use cases.
Experientially, this view is mistaken.
Our research shows that hundreds of production systems are operational across a dozen industries, with most systems based on Ethereum, Hyperledger, or Corda platforms, but other platforms are also emerging.
Global trade finance is shifting towards blockchain. TradeLens—IBM and Maersk's joint blockchain initiative in shipping—saw the arrival of the first round of new shipping giants this year; Everledger is working to eliminate conflicts arising from diamond entry into China through a WeChat application; and the disruption of venture capital with $10 billion token financing raised just last year.
Incredible digital currency and economic inclusion initiatives are also underway. For example, India's Reliance Industries announced that its mobile subsidiary Jio will turn 300 million users into the world's largest blockchain network; Facebook proposed Libra, a cryptocurrency that could make the social media giant overnight the largest retail bank in the world; and subsequently, the People's Bank of China revealed it is "almost ready" to issue a sovereign digital currency for international use, with Chinese leaders urging the nation to "seize the blockchain opportunity" to drive national innovation.
All of this sounds more like blockchain "full speed ahead" than "burnout."
1. Blockchain has a PR problem
The terms "blockchain" and "crypto" still evoke thoughts of criminals, wrongdoers, and nouveau riche using new technology to deceive. Meanwhile, narrow infighting and childish arguments have had a detrimental effect on the entire ecosystem.
But we are witnessing rapid and legitimate progress on the standards front. For example, the Enterprise Ethereum Alliance (EEA) launched the Token Taxonomy Initiative (TTI) in April of this year, and by November, TTI members from competing blockchain platforms released the first token-based business model and network-sharing framework, TTF.
Collaborations like the Blockchain in Transport Alliance (BiTA) have made progress in specific industry areas, such as standards for location components and frameworks for event tracking. This interdependence will be key to moving forward.
Editor's note: TTI members developed the token taxonomy framework in an effort to provide a clear definition and scope of tokens, including use cases, classifications, terminology, and standards to accelerate the arrival of a token-powered blockchain future.
Founded in August 2017, BiTA is headquartered in Tennessee, USA. Its members mainly come from the freight, transportation, logistics, and affiliated industries. With nearly 500 members in 25 countries/regions, the annual revenue exceeds $1 trillion.
In addition, organizations like the Digital Chamber of Commerce have proven their importance to governments seeking to achieve a proper regulatory balance. We contribute to the Belt and Road Initiative by highlighting use cases and the need for governance, cooperation, and transformation at the societal level.
Leaders such as SEC Commissioner Hester Pierce, Bank of England Governor Mark Carney, former CFTC Chairman Chris Giancarlo, and extraordinary leaders have become advocates.
2. Blockchain is running headlong into the legal, regulatory, and structural systems that govern society
Freedom of speech and information is protected by the U.S. Constitution.
But when it comes to assets, all of our legal and governmental systems are designed to maintain the exclusivity, specificity, and authority of these assets, which is why blockchain and crypto are taking so long.
We are running into many fundamental principles of economic and social operation.
"Because the U.S. Constitution protects speech from interference by the federal government, the digitization of information through the late 20th century via the Internet was conducted in a 'light touch' regulatory area as prescribed by law."
Conversely, due to the long-standing establishment by U.S. states and the federal government to protect property rights (including the property rights of financial services consumers (banks, trust companies, and others)), the digitization of value at the beginning of the 21st century is being conducted in a "heavy touch" regulatory area.
Financial service providers have been subject to state and federal regulations for decades. As a result, the practice guiding digital information (i.e., 'don't ask permission, ask forgiveness') used for the digitization of property is particularly provocative to existing laws and regulatory orders, as seen in the initial token financing.
A survey conducted by the Canadian Digital Chamber and the BRI showed that regulation is the biggest obstacle blockchain innovation enterprises have faced so far.
Existing regulations tend to favor incumbents over disruptors.
Blockchain presents new challenges to regulatory bodies that aim to protect consumers and markets, but their ossified attitude towards blockchain often stifles innovation and growth.
Like the Canadian Digital Chamber and Accenture Canada, the BRI recently conducted a comprehensive survey of entrepreneurs, scholars, government, legal, and corporate participants in the Canadian blockchain ecosystem, providing an in-depth analysis of Canada's thriving blockchain industry for governments, businesses, and civil society.
Editor's note: The report, released in October, examines key employment data, regional distribution in the Canadian blockchain ecosystem, and some of the most pressing regulatory and ecosystem challenges facing blockchain companies in Canada.
3. This technology is still immature
Editor's note: Donald Sull completed his undergraduate and graduate studies at Harvard, taught at MIT, and was ranked as a leading global business management thinker. He observed that managers often get stuck, so when faced with a completely new situation, they revert to old responses. Active inertia refers to "management's tendency to respond to the most destructive changes by accelerating past successful activities."
Interoperability. Like early internet, private intranets dominate, isolating blockchains in various islands. Projects like Cosmos and Polkadot, or collaborations between Ethereum and Hyperledger, may achieve an interoperable blockchain internet in the first half of 2020.
Scalability. Most platforms have a lot of work to do in scaling their solutions. Ethereum remains the primary platform for smart contracts and application development, still processing only 15 transactions per second, with many delays facing its Istanbul upgrade. As users cobble together multiple blockchains to achieve scale, interoperability can mitigate this issue.
Editor's note: Following the Constantinople upgrade earlier this year, Ethereum underwent its second upgrade of the year on December 8— the Istanbul upgrade, which is more focused on protocol improvements and technical development, with a greater impact on developers rather than end-users.
Usability. Buying and selling cryptocurrencies is still difficult. Participating in the cryptocurrency ecosystem requires a certain level of verification, which most users are not interested in. Complex security procedures have become a barrier to adoption. Creating more user-friendly processes for securely purchasing and storing cryptocurrencies remains a key challenge for the entire industry—Microsoft, Overstock, and Virgin Galactic are among the few places where individuals or businesses can use cryptocurrencies.
Security. As John Oliver pointed out, using blockchain is more secure than traditional computer systems. However, hackers can still disrupt blockchain-based applications, systems, and businesses. In 2019, a single exchange (QuadrigaCX) and its fatal centralized business model lost $250 million.
Editor's note: In December 2018, Gerald Cotten, the founder and CEO of the Canadian digital asset exchange QuadrigaCX, passed away due to illness, and the stored cryptocurrency assets on the exchange could not be withdrawn. Subsequent bankruptcy reports indicated that Cotten had used client funds to trade in his own account on other cryptocurrency exchanges, seemingly siphoning off over $200 million from customers.
Data Rights. Internet users have created the "new oil"—data—but digital landlords capture all the value. The solution is not only government protection of privacy like the EU's General Data Protection Regulation but even charitable landlords allowing users access to some of their data. We believe that self-sovereign identity on the blockchain will enable us to capture and control our data. While promising identity frameworks like Sovrin are underway, we still have a long way to go compared to entirely new identity frameworks.
4. The Bet
If business and government leaders do not take action, the consequences could be severe. Think about the global race for digital currencies, which could be a major theme in 2020.
First, there are traditional crypto networks like Bitcoin.
Second, companies like Facebook and other digital conglomerates will be far behind?
Next is nation-states, with China set to implement its digital currency in 2020 as a step towards replacing the dollar as the dominant currency. This will undoubtedly push the Fed to advance the digital dollar. With the participation of other countries, we may see the Bank of England's envisioned "synthetic hegemonic currency," evolving from a basket of other legal tenders to a dominant global currency.
In the coming year, central bankers, policymakers, and business leaders—we all—will determine what the future of the digital economy will look like. Western economies have the opportunity to embrace decentralization and the value internet to maintain their leadership positions in the global economy. But leaders need a level of flexibility and openness that we have yet to see.
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