The hype of Blockchain; Part #1

Blockchains; here to stay, but don’t fall for the hype

The last couple of years a new buzzword, Blockchain, has become seemingly more popular. The amount of problems the technology is said to be able to solve seems almost limitless, and there are predictions of how Blockchain technology will revolutionize almost every industry. As always, this is rarely the case. The area of use we can imagine today are just as narrow as the area of use of the internet people could foresee in 1992.

However, there’s no coincidence that this technology has been praised, and despite how overhyped the technology is, there truly are elements within that are highly disruptive. I hope that by reading this blog post, you will start grasping at least a little bit of what this technology can bring to the world. Furthermore, the post will hopefully also teach you to not fall for the hype, and understand some use cases where using a Blockchain “just because” is a stupid idea.

Perhaps you’re working at an organization where you have the power to initiate a Blockchain project that is said to streamline one of your current processes, and therefore save your organization X amount of money. For you, I hope that this blog post can be a valuable lesson, to avoid overinvestments in projects that are already from the beginning doomed to fail.

What is a Blockchain, and why the hype?

In its essence, a Blockchain is a public record that can store timestamped information when information is added to the record. An important concept is that all information written to the Blockchain is permanently stored on the Blockchain for all foreseeable future. As this information is permanently stored it cannot be tampered, and a Blockchain can therefore be used to digitally prove that an event written into the Blockchain has occurred. Another important concept is that the record is public, and anyone can add information to the Blockchain without asking for permission, and furthermore inspect the validity of the information on the Blockchain. This concept opens for a tremendous amount of applications, that today are not even imaginable. From applications as simple as storing proof that you have bought a property and therefore the ability to prove the ownership of physical objects, to machines agreeing with other machines of certain events has occurred. This opens up for automizing tasks that require agreements between humans, but also makes it possible for machines to perform new types of tasks that aren’t possible today. For the first time decentralized autonomous organizations without human management are possible.

As the Blockchain can store timestamped events its first application, what Blockchains where actually invented for, is quite obvious; transfer of value. For the first time it’s possible for two parties to digitally agree on that a specific value has been transferred between the parties, without the need for a third party to authorize the transfer. As Blockchains have a public permanent record that cannot be tampered, this makes it impossible for the same party to transfer the same value more than once, or to counterfeit the value as anyone can trace where the value originates from.

Another very anticipated feature that Blockchains enable is that every transaction can be programmed. This makes it possible to program rules into the transactions that only validates the transaction if the rules in the transactions are met. Contracts between parties can therefore now be made digitally, to prove that a party only can use a transaction if they fulfill their part of the contract (also called smart contracts).

The current situation

Given any new business cases Blockchain technology could bring, and all the amazing possibilities it could imply, how does large organizations adapt to this new technology? You guessed it; in the same way as always. Instead of adapting their own business models to fit the technology, they try to adapt the technology to fit their business models.

We’ve seen this time after time, when new revolutionizing technology is brought to the world. Large organizations fail to see how the new developments can disrupt their business models, and instead believe that they are too big to fail and the new competition simply won’t be a threat. It’s not a coincidence that 88% of all fortune 500 companies in 1955 are gone, and many of the remaining companies have been forced to completely reconstruct their business models. The world is ever changing and if you don’t keep up, you’re left behind.

There are many recent examples of large companies that have misjudged the threat of new technology and now have either gone bankrupt or lost large portion of market shares. Just to name a few examples; Kodak failed to see the impact of digital cameras, Nokia failed to see how the smart phones would soon dominate the market when Apple released the first iPhone, and many taxi firms failed to see how Über and ride sharing applications would disrupt the market.

As I’ve been operating within the Blockchain space since early 2013, I’ve seen company after company talking about how they will ”disrupt from within” but still seem to believe that they can cherry pick specific features of Blockchain technology and at the same time chose to ignore the features that they simply believe to be ”too disruptive”. I hope that I can convince you that this perspective of the situation simply won’t work. It’s either all or nothing, and it’s really important that your organization realizes, so that it doesn’t become the next Kodak.

So; why won’t the above approach work? Stay tuned for part #2 and you’ll know.