As distributed ledger technology transitions from hype to reality, the future of blockchain has become a topic of great importance. Will it succeed in all its proposed use cases? How many projects will still be active in five to 10 years?
Where is blockchain technology most likely to succeed?
The future of blockchain technology remains uncertain. In May 2018, CryptoCoinsNews reported that CAICT, a scientific research institute under the Chinese Ministry of Industry and Information Technology, found that only 8 percent of the approximately 80,000 blockchain projects launched globally since 2009 are still being maintained. Deloitte released similar findings in 2017.
Nonetheless, blockchain will, on a large scale, be used as a public and private repository of information, enabling faster and cheaper transactions. The technology is already being used for this purpose. The SBI Ripple Asia Consortium of 61 banks, for example, is live and operational and has even launched a mobile app for payments. Similarly, Spanish-banking group Santander has used blockchain for over two years to settle U.S. and European payments.
Given the growing number of state-backed blockchain projects, it seems increasingly likely that the technology will also be adopted for public services. The technology for these use cases can be more easily adopted and integrated into existing software systems, and cloud providers will likely deploy interface modules connecting blockchain networks into their systems. For other use cases at scale, such as smart contracts and supply chain logistics, it is possible that more proof of concept will be needed to show that potential problems can be overcome.
Is blockchain for you?
Before a company decides whether to integrate blockchain technology into its business processes, it must first clearly define the business challenges and how technology can help solve. It is important to thoroughly assess if blockchain is the right solution. Blockchain is, after all, just one potential technological fix. There are others — often more established and developed — that may be more suitable. Firms should weigh up the pros and cons of each potential solution; implementation and operational costs will be factors.
For payments, a company could easily link its treasury systems to a blockchain solution with just a new interface, with all other systems remaining untouched. The low implementation cost, plus around 30 percent of savings for every processed payment, as noted by Ripple‘s cost breakdown analysis, is attractive.
It is necessary to quantify the savings by solving the problem with blockchain technology, as opposed to other market solutions. Another example is that, for a trading company, a Bloomberg station costs a minimum of $2,000 per month. Alternatively, a blockchain trading platform can be used virtually for free.
What challenges may companies face when integrating blockchain?
Conversely, there are potential problems companies may face when integrating blockchain technology for certain use cases. For example, one potential challenge is the coordinated adoption of a blockchain into an institutional group — the technology only makes sense if enough agents are using it. This makes it hard for managers to run trials of the technology in small phases, so they must instead make a significant commitment and test it across a large part of the company.
Additionally, for blockchain startups, it can be difficult to sell their solution if they need to convince a pool of clients to buy and use it in order for it to work as intended. This could be a major barrier for new firms, especially since organizations are typically cautious about investing in new technologies or solutions that are not already market proven.
Challenges may also arise when executing so-called blockchain smart contracts. These are essentially mediated by an algorithm, so companies should ask themselves what happens when disputes arise between the different parties. It is paramount to understand what reasonable mechanisms are in place to solve any arising conflicts and disputes.
Companies could face additional difficulties when integrating blockchain into their existing IT architecture, as lasting success will require that the technology be integrated seamlessly. On the other hand, firms may be concerned by regulatory factors, especially for smart contracts — or they may even mistrust the technology altogether. Furthermore, the technology may not be mature enough for some use cases. In October, the Digital Transformation Agency (DTA) in Australia said more development and standardization of the technology was needed, according to news.com.au.
The future of blockchain
One emerging utilization of blockchain that shows promise is Contractual Workflow Application. This function is for large contracts that require substantial effort to coordinate — often by lawyers from various companies. As different parties liaise on the contracts (with roughly 2,000 emails exchanged per contract on average), it can be hard to keep track of which points have and have not been mutually agreed upon. Using a blockchain as a relatively inexpensive tool, teams can work in parallel on many parts of a contract, with the mutual acceptance of key texts settled via smart contracts. As Reuters reports, the banks Itaú Unibanco Holding SA and Standard Chartered are currently testing a similar system in Latin America.
It is difficult to predict the future of blockchain, but the technology is clearly here to stay. Blockchain has already gone through several advancements and development phases, and banks are today routinely using it. Unless a huge failure occurs, its use will continue, and it is possible that most international payments will be based on blockchain solutions within three years. During this period, the most solid use cases for the technology will emerge above the parapet of the thousands of currently ongoing projects, and software providers will start to integrate blockchain into their systems as needed.
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