Study: Blockchain Hype Will Subside Due to Cost, Complexity

The hype surrounding blockchain will soon sharply recede and early projects will be postponed due to the cost and complexity of implementation. But in a few years, certain businesses will strongly embrace the technology for select applications, according to a recent report from GlobalData.

Entitled “Blockchain: Thematic Research,” the report predicts that the majority of companies will turn to traditional approaches or evolve in ways that reduce dependency on blockchain technology. The exceptions will be disparate corporations and devices that want to transact with each other independently and avoid the high fees charged by intermediary "middlemen" like banks and law firms. Users should see benefits by 2025.

“We are entering a new phase in the evolution of blockchain,” said Gary Barnett, chief analyst for technology thematic research at GlobalData. “Over the next 24 months, the more outlandish claims made by proponents of blockchain will be debunked and technology providers and users alike will begin looking with clearer eyes at the narrow but significant set of use cases where blockchain and distributed ledger technology can add real value.’’

Originating in the financial sector, blockchain is an electronic ledger of transactions that are continuously maintained in blocks of records. The ledgers are jointly held and run by all participants. Coupled with cryptographic security, this makes them tamper-proof. 

The blockchain industry is being shaped by a host of start-ups, platform providers and consortia on the supply side working with such forward-thinking financial customers as Goldman Sachs, Santander and Credit China FinTech, as well as by technology giants including IBM, Microsoft, Intel and Telstra. The British, Swedish and Singapore governments have also embraced blockchain.

The three main use case categories for blockchain are asset registries, financial services platforms and industrial platforms.

Asset Registries: When assets are exchanged, stock brokers, bankers, lawyers, trustees, notaries, accountants and other "middlemen" usually profit. By replacing them with a tamper-proof platform to exchange goods and services, blockchain could potentially increase efficiency and reduce costs across a range of industries.

Financial Services Platforms: This is where most of the early use cases and applications are being developed. Blockchain is in the early phases of reinventing banking and capital markets for everything from remittances and foreign exchange to share trading and back-office reconciliation and settlement.

Industrial Platforms: Manufacturers are playing wait-and-see as blockchain technology matures. Many are still at the proof-of-concept stage with partners. Walmart, for example, has joined forces with Kroger and several major consumer products companies to test the technology.

GlobalData also believes that most benefits that will bed derived from blockchain will have relatively little to do with the technology's use as an underlying transaction platform, but instead by the transformation, integration, and modernization work required to realize blockchain projects. 

“Much of the hype surrounding blockchain has set out to confer magical properties on the technology. Despite the hype, blockchain is not free, nor does it have the supernatural ability to transform your processes," claims Barnett. "Claims that blockchain will cut costs in financial services or logistics by 30% are fanciful to the point of being dishonest, since the bulk of savings will come from the digitization and modernization of processes rather than blockchain or DLT.’’

The most successful blockchain initiatives will be developed by consortia that combine technology providers and industry participants willing to invest in the process transformation and integration necessary to transform complex multi-party processes.

“Internal blockchain projects are the most likely to fail,” said Barnett. “There is no use case for blockchain within a single organization. The value of blockchain lies in its ability to provide a transaction platform for multiple, disparate parties.” 

The key players in the next phase of blockchain will be the technology-savvy systems integrators and the software providers that participate in established ecosystems. Firms like IBM, Accenture, SAP and Cognizant all combine technology expertise with the ability to bring multiple parties together, according to the report.