Blockchain continues to be one of the most hyped technologies around: its supporters claim it can do everything from create new currencies, make governments more transparent, and improve the safety of supply chains. It's even been touted as a magical fix for post-Brexit trade between the UK and Europe.
But while interest in blockchain continues to be high, there is still a significant gap between the hype and market reality.
Only about one in ten companies claim they have deployed, or are in short-term planning for, blockchain projects. This is mainly because the majority of such initiatives never make it past the initial experimentation phase, according to tech analyst Gartner.
"The blockchain platforms and technologies market is still nascent and there is no industry consensus on key components such as product concept, feature set and core application requirements," warned Adrian Leow, senior research director at Gartner.
The analyst firm points to what it said are the seven most common mistakes that blockchain projects commit.
- Misunderstanding or misusing blockchain
The majority of blockchain projects are used for recording data on a blockchain via decentralized ledger technology (DLT), but ignore features such as decentralized consensus, tokenization or smart contracts. That organizations are infrequently using the complete set of blockchain features prompts the question of whether they even need blockchain.
- Assuming the technology is ready for production use
Most blockchain services and technologies are too immature for large-scale production work that comes with the expectation of security and network management services.
- Confusing a basic technology with a complete system:
Blockchain is a foundation-level technology but is not a complete application, lacking features like a user interface, business logic, data persistence and interoperability mechanisms. "When it comes to blockchain, there is the implicit assumption that the foundation-level technology is not far removed from a complete application solution. This is not the case," said Gartner.
- Thinking blockchain is simply a database or storage mechanism
Blockchain is designed to provide an authoritative, immutable, trusted record based on the action of untrusted parties. That means it's different to a traditional database because blockchain entries can't be altered. A conventional data management solution might be the better option in some cases, Gartner said.
- Assuming that interoperability or standards exist
Most blockchain products are in development, so don't assume any one service will interoperate with others in future. Never select a blockchain platform with the expectation that it will interoperate with next year's technology from a different vendor, Gartner warned.
- Relying on smart contracts as a mature technology
Smart contracts are perhaps the most powerful aspect of blockchain-enabling technologies, but there are still big challenges with scalability and manageability and will take two or three years to mature.
- Ignoring governance worries
Human behaviours or motivation are rarely addressed by the technical governance of public blockchain projects, but organisations need to be aware of the issues that could pose a risk for the success of their project, and should consider joining groups to help define those governance models.
Gartner is not alone in warning about organisations plunging heedlessly in blockchain projects. A report from the techUK industry group also highlights a number of ongoing issues for companies that want to exploit blockchain.
The techUK report notes that businesses are often reluctant to engage with blockchain because it is mostly known as the technology behind bitcoin and is thus associated with the "scandals and the volatility in the cryptocurrency market."
"Businesses also struggle with the cyber security aspect associated with blockchain, and the fear that decentralisation is equivalent to a lack of control and responsibility," the report said.
Another issue with blockchain projects is the potentially high cost of replacing existing systems. In share trading, clearing, settlement and payments, where blockchain could be of some use, existing systems have been embedded over the last 30 years, the cost and time of replacement by many parties is simply not feasible at the moment.
Companies are also worried about the idea of immutability that's core to blockchain – that transactions, once recorded, cannot be deleted. For some businesses, the idea of never being able to revoke or remove a transaction brings concerns about how to alter possible errors and also about infringements under the EU's General Data Protection Regulation (GDPR), which includes the concept of 'the right to be forgotten'. How to make GDPR and blockchain work together remains an issue.
Similarly, the distributed nature and lack of centralised control with blockchain could cause a headache when it comes to data protection legislation, which puts rules on where some data can be held. Blockchain has often been touted as a fix for some of the most intractable problems around, but a lot more work will be required before that becomes a reality.