As blockchain hype subsides, banks count the cost of early euphoria

As blockchain hype subsides, banks count the cost of early euphoria

Banks and technology companies have poured billions of dollars into blockchain projects, but as the hype dies down, many of the early evangelists for the technology have come to the conclusion that production-ready deployment still remains a distant goal.

Research conducted by the World Economic Forum and Accenture involving interviews with 550 individuals and an analysis of 79 blockchain projects has found little confidence in the ability of the technology to match its early promise.

Survey respondents on average expected a 24% return on investment on their early blockchain projects, but realised only a 10% return. Indeed, fully 59% of respondents said they had no confidence that the project would deliver a positive return on investment.

Indeed, much of the value appears to lie in the reputational sphere, with 42% of respondents expecting a noticeable or significant brand improvement from simply announcing a blockchain project.

A separate review conducted by Reuters of 33 projects involving large companies announced over the past four years and interviews with more than a dozen executives involved with them found a similar story.

At least a dozen of these projects, which involve major banks, exchanges and technology firms, have not gone beyond the testing phase, the review shows. Those that have made it past that stage are yet to see extensive usage.

Though many technologists and service providers classify the technology as v1.0 and ready for production, skepticism remains, notes the WEF.

Proof-of-concept projects are often led by evangelists, developed in R&D, and always in controlled environments. Moving to production requires stakeholder buy-in and can be a real challenge, states the WEF

Furthermore: "It is important to keep in mind that blockchain is in its early stages and there are limitations as a result. For example, challenges exist in fully addressing security, speed and efficiency. It is important for organisations to carefully consider whether there are other technologies or approaches to digitisation that may deliver on their objectives more effectively or efficiently."

Comments: (6)

Urs Meier
Urs Meier - Tata Consultancy Services - Zurich 22 July, 2019, 06:23Be the first to give this comment the thumbs up 0 likes

Blockchain is not a silver bullet solution. There will be a long time of co-existence of legacy ledger and DLT. In areas of multiple stakeholder, as permissioned blockchain I expect good business opportunities, e.g. trade finance, consent management in ecosystems, traceability of ownership.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 22 July, 2019, 13:59Be the first to give this comment the thumbs up 0 likes

Most techs that are mainstream today went thru' a phase when all they did was only provide a boost to brand image e.g. ERP in the late 1980s & early 1990s when it became de rigueur for companies to declare that they'd implemented an ERP package in their IPO filings; putting an 'i' or 'e' or '@' before anything in the late 1990s & early 2000s viz. eBusiness, eApplications. To that extent, contrary to how it appears at first blush, reputation boost received by announcing a blockchain project is actually a good thing. Of course, like those previous techs, blockchain will also eventually have to do more than just provide reputational boost. Key to that, IMO, is to pick and choose the applications for which blockchain really provides a compelling value proposition instead of exhibiting a cult-like behavior that blockchain will do everything including make your coffee. 

Regulated Blockchain - Oxymoron Or Killer App?

A Finextra member
A Finextra member 23 July, 2019, 22:17Be the first to give this comment the thumbs up 0 likes

There is no surprise to learn BlockChain is a long way from bringing recognizable value.  In my opinion the key to successful must focus on applications "use cases" where trust between the parties does not exist and or the existing central intermediary is not seen as trustworthy.

Philippe Carrel
Philippe Carrel - Finmechanics - Singapore 25 July, 2019, 09:57Be the first to give this comment the thumbs up 0 likes

In the words of Bundesbank's Weidmann, a breakthrough application is missing so far. Now the idea of people sharing the same data, within different individual applications and environments is not going to disappear. Blockchain remains the future.

John Schlesinger
John Schlesinger - Temenos - London 19 August, 2019, 10:03Be the first to give this comment the thumbs up 0 likes

I regard blockchain as being a denial of service attack on the innovation dollars of banks.

There are two different technologies - distributed ledger and smart contracts. There are significant issues with both.

DLT is a kind of database. It is insert only, immutable (hence cannot contain any PII because of GDPR), and is distributed but not partition tolerant (because it must always be available and strongly consistent). That means it is suited to settlement but not clearing. Its only enterprise use case is therefore management of ownership of assets. But this requires trusted parties for the consensus to be deterministic. So the hype around Bitcoin, which uses probabalistic consensus, is not transferable to reliable enterprise use cases. In any case, Bitcoin is really Bitgold - it is a store of value but far too slow to be used for transfer of value.

Smart contracts require the enteprise to master immutable code in distributed multi-threaded applications. These are fiendishly difficult to get right. It is much harder than writing provably correct code for safety critical applications, like fly-by-wire airliners (think 737 Max 8). This is because the code has to be proved correct while multiple distributed services execute the code which is not the case for fly-by-wire. The software industry is not ready for this problem

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 19 August, 2019, 13:171 like 1 like

LOL I've heard that Blockchain is many things including 'best thing since sliced bread' but "Denial of Service Attack on Innovation Dollars" is a first:)