Some Realism about Blockchain
12.22 For a variety of reasons, it now appears that early reports of blockchain’s potential to disrupt commerce were exaggerated.
Even blockchain entrepreneurs acknowledge that parallels can be drawn between the wave of enthusiasm for blockchain and the dot-com bubble of the late 1990s.[1159] Although the results of blockchain pilot projects are rarely shared with the public, the few that have been disclosed have not been encouraging. For example, in 2019, the German Bundesbank revealed that a pilot project it had launched in 2016 with Deutsche Boerse AG demonstrated that using blockchain to transfer and settle securities transactions was slower and more expensive than processing the same transactions using more conventional computer technology.[1160]12.23 The idea that the adoption of new technology tends to occur within a ‘hype cycle’ of excessive enthusiasm followed by excessive pessimism before widespread adoption is finally achieved was first suggested by Howard Fosdick in 1992.[1161] Fosdick’s thesis was that the amount of publicity a new technology receives was inversely related to its usability, so that, by the time a technology came into widespread use, it was receiving virtually no publicity at all. This trade-off was later popularised by the Gartner management consulting firm under the rubric ‘hype cycle’.[1162] The Gartner hype cycle is divided into five phases—technology trigger, peak of inflated expectations, trough of disillusionment, slope of enlightenment, plateau of productivity—but for a technology featured in a Gartner hype cycle report to progress through all phases is exceptional.[1163] Most overhyped technologies, such as Desktop Linux for Business, Web Services-Enabled Business Models, or Broadband over Power Lines, make brief appearances, then disappear without a trace, or are discarded as ‘obsolete before plateau’.
The ultimate fate of blockchain—perhaps repurposed under a new label, such as ‘peer-to-peer computing’—will not be known for many years, and even then can only be confirmed with hindsight.12.24 Given the dearth of concrete results to support most of the claims being made on behalf of blockchain, something else must have been driving the bubble. Part of the answer is clearly spillover effects from the bubble in cryptocurrencies.[1164] In addition, blockchain was often portrayed as a radically new and different way to process transactions. These claims were clearly overstated:[1165]
There is a mania surrounding the blockchain technology which underlies cryptocurrencies—it is surrounded by a boundless enthusiasm, and based on the breathless excitement, one might believe that it is the cure for cancer, Alzheimer’s disease, and the common cold, all in one. Allow me to inject some reality into this conversation: Yes, even though someone recently told you about how critical blockchain is for your future life in the same breathless excited voice with which your parents told you bedtime stories like the three little pigs, Cinderella, or read you the Very Hungry Caterpillar; the truth remains that blockchain is just a tamper-resistant way of recording transactions into a digital ledger.
12.25
Computer security experts also cast doubts on claims that there is anything particularly original about the security features of blockchain:[1166]
Private blockchains are completely uninteresting. In general, they have some external limitation on who can interact with the blockchain and its features. These are not anything new; they’re distributed append-only data structures with a list of individuals authorized to add to it.
Consensus protocols have been studied in distributed systems for more than 60 years. Append-only data structures have been similarly well covered. They’re blockchains in name only, and—as far as I can tell—the only reason to operate one is to ride on the blockchain hype.12.26
Many with hands-on experience of working with business information systems found blockchain advocates’ enthusiasm hard to fathom. For example, a supply chain management company IT manager noted: ‘I have a hard time getting too excited about [blockchain] because it’s just going to be a new form of messaging... It’s going to have some advantages, like better security around the messaging, but I just don’t see it as being something deeply transformative’.[1167]
12.27
class=21>The positive tone of many status updates on blockchain pilot projects can often be attributed to conflating the benefits attributable to the unique characteristics of blockchain with those attributable to any digital transformation or business process reengineering effort. Other times, the positive tone of reports on blockchain success stories is mere puffery. For example, David Gerard analysed a report about the World Food Programme’s pilot projects in Pakistan and in Jordan that recorded cash and benefits disbursed to vulnerable families and then reconciled those disbursements with the families’ entitlements.[1168] Gerard noted that the pilot was carried out using a system that lacked almost all the hallmarks of blockchain technology, and that ‘[laterally all the benefits of the scheme are stated as possibilities— “could,” “can,” “aims to,” “potential to”—rather than anything that had been tangibly realised in the pilots’.12.28 One possible reason that the most extravagant claims for blockchain could ricochet around the Internet encountering little resistance is that people who understand the weakness of the claims being made for blockchain have little incentive to try to persuade committed blockchain-boosters that they are mistaken.
Those with subject-matter expertise in enterprise computing systems usually have better things to do with their time than try to reason with zealots and ideologues. Once an enterprise realises that its own blockchain pilot failed, its managers have no incentive to tell their shareholders or competitors what really happened. Those responsible for launching those projects would not want to call the attention of their own directors and shareholders to their own missteps, nor would they want to tip off competitors poised to make their own investments in blockchain, allowing them to avoid making the same costly mistakes.12.29 Management consulting firms seeking to make a quick profit from the current high level of interest in blockchain have a strong incentive to be very selective about what kind information they disclose to prospective clients about other blockchain pilot projects that they have worked on. In a competitive market for management consulting services, such a strategy might maximise short-term profits, but backfire in the long term if clients later blame the consultants for money squandered on unsuccessful blockchain projects. Some management consulting firms with a longer-term client relationship strategy are seeking to build creditability by warning clients to avoid blockchain projects:[1169]
The majority of enterprise blockchain projects do not actually need blockchain technology and would be better off using conventional technologies. .. While there are several dozen nascent supply-chain-related blockchain initiatives, none are fully operational. Significant concerns remain regarding the foundational technology, with regard to scalability, flexibility, confidentiality of data, efficiency, governance and interoperability.
12.30 In July 2018, internet pioneer Vint Cerf weighed into this debate by posting to Twitter a photograph of a simple flow-diagram containing only two boxes: the first box contains the question, ‘Do I need a Blockchain?’; and then an arrow points to the second box with the answer, ‘No’.[1170]
12.31 A recent attempt to collect and analyse information about forty-three publicly announced blockchain projects failed because no one associated with any of the projects would answer any of the researchers’ questions.[1171] The researchers were careful to note that the mere fact that no one would answer any of their questions did not prove those projects had failed. They did, however, highlight the irony of evangelists for more transparent and accountable
technology systems refusing to cooperate with efforts to make their own operations more transparent and accountable.
12.32
One heuristic that can help to distinguish between mere preliminary explorations of a new technology, on the one hand, and success in achieving widespread adoption of a new technology, on the other, is simply to ask whether or not what is being discussed is a pilot project.
If the person promoting a new technology does not understand the question, or refuses to answer it, then that is usually a good indication that what is being discussed is, in fact, only a pilot project. If the response is that, following a successful pilot, the technology is now gaining widespread adoption, a second heuristic can be used to assess the credibility of this type of claim: the ratio of the transaction volume for the new technology over the total volume for that type of transaction. For example, the fact that $25 million of electronic fund transfers were being processed on a monthly basis using a blockchain technology might sound impressive until that total is compared to the trillions of dollars of electronic fund transfers that are executed on a daily basis using legacy systems.12.33
Even as scepticism about the plausibility of claims that blockchain will transform commerce grows, many reputable organisations continue to churn out ponderous publications trying to guess what impact blockchain might have in the future.[1172] The dry, abstract, ponderous tone of a 2019 UN development agency report gives no clear indication that its authors realised that their informants were only talking about pilot projects, not real commercial transaction processing systems:[1173]
In the case of private or permissioned ledgers, blockchain technology provides for the immutability and auditability of transactions entered by the authorized parties and, thereby, satisfies the requirements of legal systems for considering digital evidence as being valid. In addition, the tamper proof nature of data recorded using blockchain technology, usually in a chronological order and/or with time stamps further enhances the reliability of and authenticity of the recorded transactions, thus lending credibility to, and increasing the admissibility of, the electronic data being submitted as evidence.
12.34
The empirical research for this report appears to have consisted of asking blockchain promoters to disclose information about their products and business models in a standardised format.
Its authors tried to signal their commitment to neutrality and objectivity by including this disclaimer in the abstract of the report:[1174]This document is a work in progress. It is presented to the Plenary in order to share the state of advancement of this work. It does not constitute a position of any kind of UN/ CEFACT or the UNECE Secretariat.
12.35
Such a disclaimer is insufficient to offset the authors' failure to distinguish ‘vaporware' from commercial success.
12.36 By contrast, a Gartner report published around the same time highlights the growing disillusionment of enterprise technology managers with blockchain:
For many, blockchain is a technology looking for a problem. Much of the resulting disillusionment is due to the misalignment of blockchain with the requirements of enterprise projects. But it also is due to complete blockchain technology—with features such as decentralized consensus, elimination of central authorities, tokenization, data confidentiality, scalability, manageability, security services and more—still not being ready for enterprise use. In 2019, IT leaders, including CIOs, trying to embrace blockchain face a confusing array of technology questions. They seek to understand: how it works, why they need it, what value it offers over legacy database or other technologies, what use cases are most appropriate and how to work with their peers in a consortium. They also need to understand how to integrate blockchain into their existing systems and processes.[1175]
12.37 Management consultants, such as Gartner analysts, have access to different kinds of information about commercial practice than do researchers in government, non-governmental organisations, and academia, but that does not mean that researchers who are not management consultants cannot find ways to dig below the surface of self-serving statements by technology developers.
12.38 Researchers working outside of management consulting firms or enterprise IT departments can still be expected to make an effort to assess the credibility of information they receive from industry sources. For example, in November 2017, BBVA issued a press release announcing its intention to revolutionise trade finance by collaborating with Wave, a blockchain startup.[1176] Applying the first heuristic, it is clear that the press release described a pilot project. Before moving on to the second heuristic, there must be evidence that the pilot was completely successful and that efforts are underway to secure widespread adoption of the new technology; but there are no subsequent press releases from BBVA about its collaboration with Wave. In 2019, a blockchain enthusiast disclosed the following information in a blog: ‘At present, Barclays is the only company exploring the potential of the Wave platform. But they also want to collaborate with other banks or financial institutions to fully utilise the potential of this wonderful trade finance blockchain.’[1177] The most obvious inference that can be drawn from these two sources is that BBVA abandoned its effort to collaborate with Wave, presumably because the outcome of the pilot project was not acceptable to BBVA.
12.39 Although blockchain may ultimately end up together with Desktop Linux for Business, Web Services-Enabled Business Models, or Broadband over Power Lines in the graveyard of technology solutions that went straight from being overhyped to being irrelevant, many blockchain promoters’ criticisms of the current fragmented, archaic state of trade finance are well taken. Many blockchain advocates appear, however, to be unaware of the slow, steady progress in modernising the technology of trade finance that is being made using legacy technologies.
IV.