Blockchain: What’s it good for? Absolutely nothing, report finds

Blockchain has entered Gartner's 'Trough of Disillusionment' as a new report cites dozens of purported success stories that turned out to be failures.

blockchain bitcoin circuitry global
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In a joint report for the Monitoring, Evaluation, Research and Learning (MERL) Technology conference this fall, researchers who studied 43 blockchain use cases came to the conclusion that all underdelivered on claims.

And, when they reached out to several blockchain providers about project results, the silence was deafening. "Not one was willing to share data," the researchers said in their blog post.

In their research, Christine Murphy, a social researcher at Social Solutions International and John Burg and Jean Paul Pétraud, fellows at the U.S. Agency for International Development, found a proliferation of press releases, white papers and persuasively written articles touting the many attributes of the distributed ledger technology (DLT).

"However, we found no documentation or evidence of the results blockchain was purported to have achieved in these claims. We also did not find lessons learned or practical insights, as are available for other technologies in development," the researchers reported.

"Despite all the hype about how blockchain will bring unheralded transparency to processes and operations in low-trust environments, the industry is itself opaque. From this, we determined the lack of evidence supporting value claims of blockchain in the international development space is a critical gap for potential adopters," they added.

Blockchain pilots and proofs-of-concept, however, are not without value, the researchers noted; in the end, the real value of blockchain deployments may not be technology itself, "but rather as an impetus to question what we do, why we do it, and how we could do it better."

The scathing evaluation of blockchain by the research trio was backed to some extent by industry analysts, who said the marketing hype around it has created unrealistic expectations, especially as enterprise use is not yet fully baked.

Avivah Litan, a Gartner vice president and distinguished analyst, said while the report's findings came as no surprise to her, it lacked balance. The researchers did not bother to ask why projects had not delivered on goals, such as improving transactional efficiency, transparency and privacy, she said.

"Back in early 2018, we'd already said... 99% of enterprise projects are dead end; 99% don't need the technology; they don't get out of the lab. They're a result of CEOs fear of missing out – the FOMO phenomenon," Litan said. "Having said all that, it's a very valuable technology. People started trying to use it before it was ready for prime time. That's true in the cryptocurrency world and in the enterprise blockchain world."

Gartner gauges the maturation of new technology through a "Hype Cycle," a graphic-based lifecycle that follows five phases: from the Technology Trigger, when proof-of-concept stories and media interest emerges, to the Plateau of Productivity, when mainstream adoption occurs – if the technology is more than niche.

Among those five Hype Cycles is the Trough of Disillusionment, when interest wanes as pilots and proofs-of-concepts fail to deliver and technology providers either work out the kinks and improve the technology to the satisfaction of users, or ultimately fail and die out.

Gartner Hype Cycle Gartner

Garner's Hype Cycle for new technologies.

Enterprise blockchain technology that's centrally administered like a traditional database yet still part of a peer-to-peer architecture that immutably stores encrypted transactions is headed into the Trough of Disillusionment, Litan said.

"Blockchain winter has come," Litan said.

Earlier this year, a Gartner CIO survey revealed on average that only 3.3% of companies worldwide had actually deployed blockchain in a production environment.

In a blog post, Litan listed eight hurdles needed for blockchain to advance and meet the goals stated by technology providers hawking it as a cure-all for virtually any international, transactional network need - from fee-less, cross-border payments to supply chain tracking.

blockchain plans 2018 Gartner

A Gartner survey of CIOs last spring revealed only 1% had blockchain deployed in production environments; that number has grown to 3.3% today, according to Gartner Distinguished Analyst Avivah Litan.

The challenges include a more efficient consensus algorithm, a more scalable design – including the ability to move the bulk of data "off chain" to a separate database – and data confidentiality through zero knowledge proofs (ZKP), a cryptography technology that allows a user to prove funds, assets or identifying information exist without revealing the information behind it.

"Until such time that these hurdles are surmounted, most permissioned blockchain projects will remain in development or POC mode," Litan said. "More importantly, they will not support the key blockchain tenet of decentralization, so under those circumstances, these projects are likely much better off using proven legacy database technology."

Industry groups and vendors are working to overcome those hurdles. For example, Ernst & Young has created a public blockchain prototype it plans to launch in 2019 that lets companies use ZKPs to complete business transactions confidentially.

The Hyperledger Foundation and the Enterprise Ethereum Alliance (EEA) – the two largest open-source blockchain consortiums – have teamed up to tackle performance issues, including developing "Layer 2" architectures for offloading data from blockchains to aid scalability.

IBM, blockchain, Maersk Maersk

Ninety percent of goods in global trade are carried by the ocean shipping industry each year. A new blockchain solution from IBM and Maersk will help manage and track the paper trail of tens of millions of shipping containers across the world by digitizing the supply chain process.

Martha Bennett, a principal analyst for Forrester Research, noted any blockchain or "DLT" project is a long-term strategic initiative, and disappointment is inevitable "when the hoped-for miracles fail to materialize.

"It's not realistic to expect a solid cost model or definitive benefits statement because it's simply too early for that," Bennett said via email. "To assemble real evidence, we need to have a number of fully operationalized, scaled-out deployments running for at least a couple of years. And we're simply not there yet."

Just as there are many projects that exist only in white paper or conference presentation format – where language is all about the "could have" potential – "equally, there are many initiatives that are going forward because it's clear to the participants that the benefits are achievable," Bennett added.

For example, Walmart has for the past two years been piloting a produce supply chain powered by IBM's blockchain service. The pilot has been so successful, Walmart recently presented its suppliers with an edict: get your product data into the system by September, 2019 so it can be tracked from farm to store.

IBM blockchain Walmart IBM

After piloting a blockchain-based supply chain tracking system, the retailers are telling suppliers to get their product data into the system so they can begin tracking produce from farm to store. The deadline: September 2019.

Fintech software provider MonetaGo deployed the first Hyperledger Fabric production blockchain for financial institutions to gain financing approval. The network has been live since March and is used by the licensed Trade Receivables Exchanges in India.

"The network boasts 100% uptime and is scalable to meet the rapidly growing needs of the Indian market," MonetaGo CEO Jesse Chenard said via email. "Once frauds, fuzzy matches, and operational errors are accounted for, the return on investment is approximately 631.46. Understandably, this number is extremely high due to preferred pricing for early network participants. At scale, MonetaGo anticipates the ROI to be 45. That means for every dollar spent on the blockchain technology, companies can expect to make about 45 dollars back."

The Linux Foundation, which oversees the Hyperledger Foundation, pointed to other successful pilots, such as blockchain supply chain deployments by the diamond industry.

Jewelry blockchain TrustChain TrustChain

The TrustChain blockchain network will track and authenticate diamonds, precious metals and jewelry at all stages of the global supply chain, from the mine to the retailer.

"We recently concluded a perception survey on developers and financial decision makers at large companies using or considering blockchain. Almost 90% of the 376 respondents who responded to the online survey in August and September expect moderate to high growth in business blockchain over the next two years," a spokesperson for the Linux Foundation said via email. "A similar majority see business blockchain as a core technology of the future that will enable new business models to emerge."

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