The rising popularity of bitcoin and similar cryptocurrencies has cast a spotlight on the technology they are built on – Distributed Ledger Technology (DLT) or blockchain (a type of distributed ledger). However, awareness around how blockchain works is rather low and often leads to extremely polarized opinions and expectations from this technology.
But opinions aside, multiple studies have found that the uptake of blockchain beyond the Proof of Concept (PoC) stage is wanting. Here’s a look at a few hurdles to the adoption of blockchain beyond PoCs.
Absence of an Enabling Infrastructure
Lack of infrastructure support has been one of the biggest challenges to the adoption of blockchain technology. The computing power and energy required to implement blockchain, especially in public, permission-less networks, is one of the most significant hurdles. Moreover, although there has been significant growth and improvement in protocols and network providers, many application providers that leverage these networks are still at the incubation stage.
This situation is similar to the initial days of the Internet when access and infrastructure were key challenges. The other challenge in adoption is the lack of standardized protocols, which makes interoperability between networks built on different protocol specifications difficult.
Passing the Regulatory Litmus Test
Although private and permissioned networks are gaining significant traction in the regulatory industry, crypto financials are yet to be recognized and accepted by banks and financial institutions.
According to a study by Cambridge University, a significant number of central banks are exploring blockchain systems for remittance transfers, inter-bank payments and other uses. About 36 percent of central banks also envisage the potential of blockchain to help in regulatory compliance, but only 18 percent specifically mention exploring this technology for audit trails (such as tracking of payments and asset transfers).
However, at the public sector level, there is no coherent strategy or agenda on how this technology can be leveraged. This translates into limited budgets and funding for testing and deployment. Some studies also highlight the existing notion that the majority of public services are mostly performing well and that there is no incentive to consider a complete overhaul of their systems involving significant investments.
Distributed ledger networks with regulated entities should take into consideration data protection rules and ensure that data is only stored and processed in locations that are permitted according to regulations. This, however, only works if all the participants of a network have their nodes running in locations permitted by the regulations. A good example is the General Data Protection Regulation (GDPR) in Europe.
Plugging the Skillset Deficit
The lack of skilled, capable personnel will continue to hamper the adoption of blockchain. Globally, more than 100 start-ups employ over 2000 people trained to use this technology. Large enterprises with in-house blockchain systems have close to a couple of thousand trained resources. However, this is still far from the support that is required.
In general, the most cited challenge is the large quantity of misinformation in the industry. Also, the presence of many ‘experts’ who have no technological understanding of what blockchain technology is and what it can do.
The need for educating both the general public and developers is thus a time-bound imperative. In fact, a recent survey found that 86 percent of financial services executives felt that their organizations have not developed the necessary blockchain skills yet.
The Challenge of Quantifying Benefits
At the enterprise level, the adoption of blockchain is mostly driven by already budget-stricken business and IT departments that are unable to quantify the benefits clearly. This results in the technology being deemed as a new toolkit or a challenging business case. Surveys indicate that ‘unknown costs / benefits’ is still a rather significant issue for central banks and to a lesser extent for private enterprises.
Use cases for blockchain exist across industries and geographies. Processes that have a lot of paperwork and many different stakeholders can see high efficiency gains by employing this technology. Neither central banks nor enterprises feel that blockchain suffers from a lack of actual use cases. This suggests that despite the many challenges the technology needs to overcome before it can be deployed widely, its potential benefits are evident.
Contrary to the significant attention the technology has been receiving, it seems blockchain is a solution waiting for the right problem statement.