When I read about Blockchain for the first time, I was speechless. This was five years ago. I remember telling my wife that it was one of the most astounding inventions I had witnessed in the computer science field.
Since then, it’s been evolving at a rapid pace. For many organizations though, Blockchain remains either an esoteric technology or a financial scam.
Those adventurous companies that have dived into the field have experimented mixed results. Often, their innovation managers are pushing to have Blockchain proof of concepts. The team goes out there to explore the industry and come back discouraged. There is no dominating platform; those that are the reference are too elaborated or too restricted for commercial uses.
The overall feedback? Too complex and limiting. Working anything beyond a toy requires a specialized Blockchain team. Even then, any developed application will still be restrictive and not easily scalable. In other words, it won’t serve the current company’s user base. So while they believe the technology might be crucial, they can’t figure out how to use it. They’re looking to deliver better value to their customers, but they feel it’s still far from being ready for that.
There is an inherent risk with this, which is to lose track of the ball. Too many organizations will ride the Blockchain hype. Few will stick to it after they’ve built some proofs of work. The problem is, Blockchain isn’t just a technology improvement, but a disruptive one. Treating it as another new technology will make most companies the targets of the disruptive wave that will accompany it.
Blockchain’s disruptive potential
Two hallmarks herald the future disruption; low-end market foothold and rapid innovation of the underlying technology. So far Blockchain is gathering marginal support in the Finance industry. Many customers don’t require the highly-sophisticated finance products banks offer. Some of them are turning to Blockchain companies to bridge that gap. From secure money transfers to more complex money fund rising through ICOs, the market for financial substitutes keeps growing.
During the next few years, we’ll see how Blockchain entrants will offer better and more diverse services. In less than three years, I expect many of the most significant Blockchain players to start competing with the incumbents and win.
Incumbents aren’t oblivious to this. It’s not surprising that the first ones to experiment with Blockchain are the top financial institutions. They’re not ignorant of the potential for disruption, so they’re making sure they’re on top of what’s going on. Few, though, are acknowledging the disruptive nature of Blockchain.
For most, their Blockchain proof of concepts is the low hanging fruit of their industry. Small-scale tests that don’t bring money, clients or prestige. For them, investing beyond small-scale experiments is a money loser. There is no real incentive for them to pursue such operations when their cash cows lie elsewhere. This is why, I believe, many of these incumbents will abandon their proof of concepts sooner or later.
On top of that, most are trying to levy their current models onto this new technology. This will result in, at most, innovative substitutes but not true disruption, reinforcing the feeling that investing in Blockchain is a waste of resources.
Blockchain enables the application of entirely different business models, for wholly disconnected industries. This allows new ways of operating and as such, the creation of new markets. The capacity to create such new market footholds is another effect of real disruption.
Blockchain technology evolution
We’re far from seeing the true nature of Blockchain. Like with the transition between offline to online, the first use cases are both, elementary and unimaginative. They rarely embrace the full range of possibilities the technology enables. The problem is, predicting what they will look like is impossible. But disruptive they’ll be.
The next two years will be critical for the technology. We’re going to see a fast iteration of the core technology. The transition between Bitcoin’s Blockchain to Ethereum was a big first step. It jumped from a currency use case to much broader use of the technology through smart contracts. Ethereum though put into evidence the current limits of some aspects of Blockchain technology, i.e., scale and volatility.
The next generation of Blockchains is attempting to fix this. From sharding (Zilliqa) to new consensus methods (pBFT, dPoS, dBFT); from public (Zilliqa, NEO, EOS, …) to private (Hyperledger Fabric, R3 Corda, …); from data-centric (Ethereum) to agent-centric (Holochain).
As with any disruptive technology, gathering critical mass is a problem. Most of the next generation innovations are still in testing phase. They’ll need at least one more year before they’re operational and can start maturing. I don’t expect this to take too long and we could have scalable commercially mature Blockchain platforms by the end of 2019.
Infrastructure problems solved, new users will pour all over the smart contract dimension. The automation of contracts will, in turn, accelerate the rise of new business models. We’ll experience gradual automation of traditional contracts. New companies will start offering plug & play contract templates for everything, not just financial services.
This will be coupled with the convergence of the Internet of Things (IoT) and Artificial Intelligence over the smart contract horizon. This combination will provide the basis for new world order.
Increasingly intelligent devices, powered with AI agents, will start having the capacity to enforce and execute smart contracts at scale. On one side we’ll have to deal with machine-to-machine contracts and on the other with human-to-machine contracts. AIs will develop very different contracts to deal with other AIs than the ones employed by humans.
New automated arbitrage systems will be developed, and we’ll enter the age where machines and humans are different citizens.
I know that what I paint might seem dystopian, but it seems we’re heading that way. Automated contracts mean, faster and less ambiguous social enforcement. Time will say how humans adapt to the new paradigm.
How not to miss the Blockchain age
Many companies will miss the Blockchain boat. Stiff competition will force them to implement Blockchain solutions. Nevertheless, they’ll be two and three steps behind the innovators. New entrants will relegate them to a second place.
We’ll see a new crop of startups become dominant in this space and eventually take over entire industries. Imagine the Google for Blockchain.
Incumbents need to recognize the disruptive nature of Blockchain. They’re all familiar with the coming disruption wave, but few are acting accordingly.
Organizations need to focus on investing in the technology. They should be setting independent spin-offs that focus on working with the technology. These teams shouldn’t work around sustaining the current user base, but about creating new customers altogether. Focusing on existing users will narrow the scope of Blockchain to a sustained innovation. One of the best examples is Ripple. In a few years, we’ll regard them as an iteration of the Swift protocol and nothing more. They’ll make plenty of money, but they won’t dominate the industry. They’ll turn into an industry provider and not the dominant force.
So anyone that genuinely wants to ride the new wave needs to keep in mind the following. Build independent teams. Don’t let the mothership set the strategy. Experiment, explore and look for new market footholds. Try out new business models for new users and double down on it. What’s a sunken cost now, will become a significant win in five to eight years.