Published December 12 2018
Whenever a new and exciting technology is introduced there is an inevitable overreaction. Even when the technology is a genuine harbinger of change, people will oversell its capabilities and the extent of its impact. The ridiculous hype surrounding the Google Glass’ initial announcement in 2012 demonstrates this principle. While augmented reality is a legitimate emerging field with legitimate applications, hindsight proves that the Google Glass was not to bring the revolution it promised. Blockchain and other distributed ledger technologies are the latest technology to be oversold to the public with this kind of propagandistic hype. While blockchain does legitimately promise much, it is important to carefully compare what it is actually capable of accomplishing to the promises of those who would take advantage of the unaware.
Consultants sell the potential of blockchain to firms by taking advantage of the lack of understanding of a new and complicated technology. They use blockchain as a buzzword, blindly generalizing the success of cryptocurrencies like Bitcoin to completely unrelated endeavors. Reuters recently found that companies that changed their names to include the word “blockchain” on average found their share prices rise threefold. They compared the blind hysteria to a similar study by Purdue in 2001 that saw companies changing their names to include “.com” or “internet.” Pursuit of this sort of short-sighted growth is what caused the dot-com bubble and subsequent crash.
Even in cases where a firm is considering legitimate use of blockchain, it is important to consider whether their circumstances are conducive to the success of a distributed ledger. A distributed ledger is an expensive proposition. Traditional centralized ledgers have the advantage of not requiring the extensive computing power devoted to the validation of activity on distributed ledgers. In its most extreme case this costly validation process results in Bitcoin alone using more energy in upkeep than 159 of the world’s nations. Additionally, a distributed ledger is of little use to a single company. Effective distributed ledgers require a large number of participants to prevent malicious attacks and fraud. A distributed ledger is most useful to a whole collection of companies within an industry. In fact one of the most promising potential uses of blockchain is in trade finance and supply chain management. With many parties, in many jurisdictions, dealing in many goods, using many documents, a distributed ledger allows for more efficient and transparent transactions.
Lastly, it is important to note that not all technologies have an immediate impact. Even in cases where blockchain is the ideal solution to the problems faced by an industry, it might not be practical to implement. A large shift in both culture and organization is required for any organization seeking to implement a distributed ledger. It is not always practical to rip up the very foundations of a company’s infrastructure, even in the most ideal of circumstances.
Blockchain has the potential to make radical changes to the way we store and share information, but it is not going to make these changes today, tomorrow, next month, or even next year. It will likely be decades before the impact of distributed ledger technology is fully felt. While it may be tempting to look at blockchain and other promising new technologies as an immediate fix for the needs of an organization, it is important to see them as changes to plan for in the long term.