The Strategist

Why are large companies refusing blockchain?

08/13/2018 - 06:20

According to Forrester Research Inc., several projects based on distributed registry technology will be wound up this year. Even though some companies are still conducting experimental tests, many have tempered their ambitions and have postponed these plans. According to Forrester Research, 90% of these developments will not be implemented in their operations. via flickr via flickr
Even Nasdaq, which is actively promoting the ideas of the blockchain and crypto-currency, has not advanced in this area so far. The exchange operator, who announced in 2016 that it plans to use the blockchain technology in voting at shareholders' meetings and in issuance of shares of private companies, hasn’t applied this technology in any full-scale projects so far.

The blockchain’s purpose is to create a digitally protected registry, that is, an innovative way to track products, payments and customer activity. However, it turned out that it is difficult to use this technology for solving real problems. Its users experience problems with effectiveness, control and implementation of operational activities.

"The discrepancy between the hype around the blockchain and the real state of affairs is huge," argues Rajesh Kandaswamy, an analyst at Gartner Inc. "I've never seen anything like it." Cases of practical use of the blockchain are very rare."

All this is unlikely to please software and hardware vendors, among which are companies such as International Business Machines (IBM) and Microsoft. They seek to earn billions of dollars on cloud services that will help manage supply chains, send and receive payments, as well as interact with customers. Endpoint Technologies Associates President Roger Kay said: "The blockchain should be an important source of future revenue for IBM, Microsoft and other companies selling equipment, cloud services and consulting services. If the pace of implementation of the blockchain slows down, analysts will have to reconsider future profits in the direction of reduction."

More than 1,500 people work on development of blockchain-based projects at IBM. The company states said that it still sees strong demand for its products. However, according to Jerry Cuomo, the Vice President of Blockchain Technologies at IBM, the growing competition from other companies can affect IBM’s revenues. 

Microsoft is also very optimistic. "In our opinion, the market of corporate blockchain is extremely promising and is rapidly progressing," the company said in a statement. "We will continue working on the development of innovative technologies and will work closely with industry leaders to make the business community realize their value." According to a study conducted by WinterGreen Research Inc., at the moment, IBM and Microsoft control 51% of the estimated $ 700 million market for services and products based on the blockchain technology.

For most companies, the blockchain still looks like something exotic. Gartner’s study showed that only 1% of IT directors said they somehow use the blockchain, and 8% say they plan to implement thetechnology in the near future or conduct tests in this area. Almost 80% of IT directors said they do not have even a slightest interest in this technology.

Many companies that previously announced their plans to use the blockchain have already changed their position. Now, the operator of the largest Australian stock exchange ASX expects that its blockchain-based settlement and clearing system will not appear until the end of 2020. Two years ago, this company was going to launch a commercial blockchain platform in 18 months. The exchange’s representative said that "there are no delays", since until recently the company did not announce the exact date of the project launch. Australian mining giant BHP Billiton said in 2016 that it would use the blockchain to track rock samples and well fluids in early 2017. But, according to the company’s spokeswoman, "at the moment the company is not working on any projects or tests related to the blockbuster."

However, organizations that support development of blockchain-based technologies, believe that the situation may change for the better in the next year. "It's not about rapid growth," said Ron Resnick, executive director of the Enterprise Ethereum Alliance, which unites about 600 companies, including Cisco Systems, Intel and JPMorgan Chase. "I do not expect it to happen this year." 

There is one important reason for all these delays: most blockchain vendors do not offer compatible software. Companies are afraid of being tied to one supplier, and the Enterprise Ethereum Alliance (EEA) hopes to solve this problem by setting common standards. According to Resnick, in mid-2019, his organization will launch a certification testing program for blockchain-based software. Hyperledger, which represents interests of companies such as IBM, Airbus SE and American Express, is going to connect its blockchain-based software to the popular Kubernetes platform.

Most blockers are not yet able to cope with a large volume of transactions, and therefore are not suitable for large corporations. The possibilities for using them are very limited, and the most successful blockchain projects are those created by several companies. But when these companies are forced to share one blockchain, they may have difficulties with what technology to use. Many are simply afraid to become pioneers in this area and be the first to make a mistake. "Everyone is waiting for others to fail first, no one wants to become a guinea pig," says Brian Behlendorf of Hyperledger. "It’s just the way the world of corporate software works."