It’s a “wake up and smell the coffee” moment for blockchain. The immutable, distributed ledger technology has the potential to be a trusted authority that solves many business problems, yet many multi-nationals that have sunk funds into piloting blockchain have yet to implement the disruptive technology for real.
Governance, not technological complexity, the key
Blockchain is an open ledger of information that can be used to record and track transactions, which are exchanged and verified on a peer-to-peer network. It creates a transparent record by allowing multiple parties to a transaction to verify what will be entered onto a ledger. Each transaction or “block” is transmitted to all the participants in the network and must be verified by each participant “node” solving a complex mathematical puzzle. Once verified, the block is added to the ledger or chain — and can’t be changed.
Daunted, perhaps, by its mathematical complexity, senior executives in many large enterprises treat blockchain with caution. Some confuse it with bitcoin — an application of the technology that has incurred bad press and, ironically, lowered trust in the trust-enabling platform. A new report from tech think-tank Leading Edge Forum, Blockchain Brokers Trust in a Fragmented World, suggests that focussing on regulatory and governance aspects, rather than on the technology itself, will unlock blockchain’s value.
“At LEF we believe the blockchain slowdown is temporary: we see blockchain following a typical path of maturation to becoming a utility/commodity like the cloud and many other technologies,” explains the report’s author, Paul Worthington. “Unlocking its value depends on establishing higher order aspects of policy and governance, which currently lag behind its technological capabilities.”
Collaboration with regulators unlocks value
Facilitating collaboration among regulators, policy makers, lawyers and governance chiefs who together set the rules for participation, interoperability and data sharing are . The island launched a blockchain office and sandbox in February 2019, for financial services and e-gaming companies wishing to work through untested or unfamiliar regulatory and legal issues.
“Regulators are working with an unfamiliar technology and because blockchain works in a different way, it breaks some of the traditional practices — they need to think substantially differently,” explains Lyle Wraxall, chief executive officer, Digital Isle of Man. Likewise, the blockchain office helps business ventures harness the trust properties of blockchain, bringing them together with legal and regulatory parties in order to sandbox governance implications, before scaling up.
Regulatory sandbox approach
The Isle of Man’s focus on creating a regulatory environment that recognises blockchain and defines rules for players on blockchains is enabling businesses to access the higher trust levels in the technology. The territory is growing an e-gaming sector on the back of blockchain, and the island is home to the first blockchain-enabled lottery platform, which uses smart contracts.
Wraxall emphasises he’s not interested in championing blockchain per se, but in attracting high quality businesses and helping them utilise the innovative technology. “The applications [for our sandbox] that work best are business ideas that don’t even mention blockchain. Focussing on blockchain would be like basing an online business case on the merits of TCP/IP,” he remarks.
Interestingly, the same technology-agnostic approach is being used by security providers that use blockchain to secure digital assets — it’s sold as intellectual property protection, and the underlying technology is irrelevant and unnamed.
Lack of imagination an impediment
Aside from an unhelpful preoccupation in the boardroom with technological intricacy over governance and rules that would allow blockchain to contribute to business, there’s another impediment slowing adoption. The delay is chiefly down to “a lack of imagination and communication in businesses,” according to Iain Steel, chief procurement services officer at law firm TLT LLP.
Delay hinges on the gulf between procurement people and technology people within the same organisation, says Steel. “Procurement [people] think it’s about a technology and are blind to its uses, and techies are casting around for applications to make it credible for their business peers.” It doesn’t even require a vast investment to get it up and running, Steel points out, adding, ”The measureable benefits need to be more widely advertised and shared to garner support.”
Future gains spur blockchain rethink
Gartner’s forecast that blockchain will generate an annual business value of more than US$3 trillion by 2030 sits uneasily next to other research that flags up a state of inertia in boardrooms. A PwC survey from 2018 found that 84 per cent of sample organisations have dabbled in blockchain — often at the proof-of-concept stage. “Everyone is talking about blockchain, and no one wants to be left behind.”
Voices such as LEF’s that call for blockchain implementations to be enshrined in fit-for-purpose governance may provide a route out of the blockchain hiatus. Exemplars such as those on the Isle of Man, where regulation and rules unlock blockchain business value, will further concentrate attention on the governance question and get departments talking to one another.
Part 2 of a 3-part series on blockchain looking at how governance and regulation are the keys to making blockchain operational and how to get started with blockchain. Read part 1 here.