Industry News

Is Blockchain Ready to Cross the Chasm? Lessons From the Internet


Irving Wladawsky-Berger | Friday, August 4, 2017

Dow Jones Institutional News

Earlier this year, IBM Corp. conducted the largest study to date on the state of adoption of blockchain. The study interviewed almost 3,000 C-Suite executives from over 80 countries and 20 industries to learn about their company's blockchain plans. Survey responses where classified into three groups: explorers, investigators and passives.

Explorers are already involved in blockchain pilots and experiments. They make up an average of 8% across all industries, with higher activity in certain industries like financial services. Twenty-five percent of organizations are investigators, considering but not yet ready to deploy blockchains, and 67% are passives, not considering blockchains so far.

These survey results are not surprising for a technology as new and complex as blockchain. With such technologies, you typically have a relatively small number of early adopters. A larger number of followers are waiting to learn from the early adopters' experiences, while the laggards are not yet sure what the technology is about or if it applies to them.

The IBM study analyzed the responses of the explorers, in an attempt to figure out what's driving them to embrace blockchain at this early stage. Their responses suggest that they view blockchain as a kind of trust accelerator, helping to build trust in several ways: increased transactional transparency; higher data quality and accuracy; increased trust in transaction reliability; and improved security against fraud and cybercrime.

Traditionally, intermediaries have taken on the role of trust keepers, adding costs, delays and complexity to the processing of transactions. Explorers expect blockchain to reduce transaction costs by eliminating intermediaries; increase transaction speed by reducing clearing time; and simplify and automate business processes, especially processes that deal with interactions across companies and governments.

They also see blockchain as enabling the creation of platforms for business model innovation and new ways of working. Platforms are all about scale and network effects, where the whole is much greater than the sum of their parts. Platforms require the formation of multi-sided ecosystems, including partners and developers on the supply-side, and users and customers on the demand-side. The greater trust, security and efficiencies inherent in blockchain platforms could be competitive differentiators in the formation of such multi-sided ecosystems.

CIO Explainer: What Is Blockchain?

Blockchain has the potential to transform our economic and social systems. It's a foundational innovation , like the internet, whose full transformational impact will play out over decades rather than years, because such innovations must overcome many barriers--technological, organizational, governance, political. Their adoption process is thus gradual, incremental and steady, unlike the hockey stick adoption we typically associate with disruptive technologies.

The impact of blockchain could well be enormous, but its full transformational impact will take considerable time.

The IBM survey study reminded me of Crossing the Chasm, Geoffrey Moore's 1991 bestseller. Crossing the Chasm applies what's known as the diffusion of innovations model to the development of high-tech markets, paying particular attention to the transition from early to more mainstream adopters.

According to Mr. Moore, "the point of greatest peril in the development of a high-tech market lies in making the transition from an early market dominated by a few visionary customers to a mainstream market dominated by a large block of customers who are predominantly pragmatists in orientation. The gap between these two markets, all too frequently ignored, is in fact so significant as to warrant being called a chasm, and crossing this chasm must be the primary focus of any long term high-tech marketing plan. A successful crossing is how high-tech fortunes are made; failure in the attempt is how they are lost."

What will it take to help blockchain across this chasm? How long will it likely take?

As with similar such questions, let's look at the lessons learned from the decades-long evolution of the Internet for inspiration and guidance.

ARPANET, the packet switching network and precursor of the Internet, was developed by a small number of researchers in the 1960s and 1970s. It adopted the TCP/IP protocols in the early 1980s, evolving through the decade into what became known as the internet. The Internet's early adopters arrived in two phases. First came universities, supercomputing centers and other research communities in the early and mid 1980s. Then came commercial early adopters, who were only allowed to use the Internet toward the end of the 1980s. Their numbers grew rapidly over the next few years, and by the mid-1990s the Internet was being embraced by a much larger number of mainstream users, - having successfully crossed its chasm.

What helped take the internet from early adopters to mainstream users? Three main reasons stand out for me: standards, applications and governance.

Standards: Through the 1980s, an increasing number of university, government and research networks embraced TCP/IP as their networking standard. The advent of routing technologies enabled these various TCP/IP networks to eventually coalesce into one internet or network of networks. A few years later, the web's open standards made it possible for any PC connected to the Internet to access information on any web server anywhere in the world.

Applications: A killer app is an IT application whose value is easy to explain, because while relatively mundane in nature, it turns out to be unexpectedly useful in business and/or everyday life. Email and the Web are great examples of killer apps.

Governance: Much of the success of the Internet and World Wide Web is due to the international organizations created to oversee their evolution, including the Internet Engineering Task Force, the Internet Corporation for Assigned Names and Numbers and the World Wide Web Consortium.

Let's now turn to blockchain. Last year, the World Economic Forum published its annual list of the Top Ten Emerging Technologies for 2016, and named blockchain as one of the technologies in the 2016 list. The WEF report compared the blockchain to the Internet, noting that "Like the Internet, the blockchain is an open, global infrastructure upon which other technologies and applications can be built."

But, is blockchain ready to transition from its early adopters to a more mainstream market? Let's look at where we stand with blockchain in each of the three areas that helped the Internet across.

Standards: There are already a number of blockchain platforms in the marketplace; more are in development. All are generally based on the original design released in 2009 by Satoshi Nakamoto, but the platforms differ, depending on the applications they are designed to support. There seem to be two fairly distinct blockchain design points. One is primarily focused on blockchain as the underlying platform for Bitcoin and other cryptocurrencies; the second is focused on blockchains as a general purpose platform for transaction applications, a kind of Internet 2.0.

The cryptocurrency-oriented platforms are mostly based on public, permissionless blockchains and proof-of-work systems. More general purpose platforms like Hyperledger are aimed at supporting business applications, and are mostly based on private or permissioned blockchains, akin to the internet encompassing private intranets. Some blockchain designs straddle both camps, like Ethereum, which includes support for the Ether cryptocurrency and for distributed transaction applications like smart contracts.

There is an urgent need for blockchain standards, at least at the fabric level, the equivalent of the TCP/IP layer. "While these groups attack the problem from different angles and with different agendas, each shares a common goal to make this technology ready for prime time - by building infrastructure, developing standards and making it scalable."

Applications: Since blockchain is all about the creation, exchange and management of valuable assets, its applications are like to be considerably more complex to develop than internet applications. "Launching this type of application requires massive collaboration among companies, governments and other entities," said the WEF report. "Similarly, this resource will need constant care and tending to onboard more and more users over time. It illustrates the profound differences between managing information creation versus value creation activities. The latter require deep negotiation, contractual and jurisdictional understandings, and the ongoing stewardship of application-level ecosystem."

Governance: "Like the first generation of the internet, this second generation promises to disrupt business models and transform industries... pulling us into a new era of openness, decentralization and global inclusion. However, this extraordinary technology may be stalled, sidetracked, captured or otherwise suboptimized depending on how all the stakeholders behave in stewarding this set of resources - i.e. how it is governed," adds the WEF report in a strong cautionary note. "How we govern the internet of information as a global resource serves as a model for how to govern this new resource: through a multi-stakeholder approach using what we call global governance networks."

Is blockchain ready to cross the chasm from its early adopters into a wider marketplace? Not quite yet. Much remains to be done. Given all the attention and activity, this important transition should be able to take place in the not too distant future. But, as Geoffrey Moore reminds us, crossing this chasm is "the point of greatest peril" for a high-tech innovation.

(END) Dow Jones Newswires

August 04, 2017 11:51 ET (15:51 GMT)

This article was licensed through Dow Jones Direct.

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