With their massive user bases and influence, the world’s largest brands could one day “flip a switch,” giving blockchain features to billions who’ve never heard of the technology before. When? No one knows for sure, but the first half of 2019 brought plenty of signals that large players are actively jockeying for position in a blockchain future, even as the timing and nature of that future remains uncertain.
Almost a third of the world’s population would suddenly have easier access to blockchain-driven currency if Facebook (with 2 billion users) succeeds with Libra, announced last month. Consider the influence the 27 additional companies listed as members of the Libra Association (including Visa, Uber, and Spotify) have with their customers, and the impact amplifies. Even if Libra fails to launch, how long will it be before another alliance of brands with a fresh approach circumvents the regulatory gauntlet?
But blockchain’s growing influence goes far beyond currency. Since new partnerships were announced this spring, over sixty percent of the world’s containership capacity is controlled by TradeLens members, a blockchain joint venture between IBM and shipper Maersk. IBM’s Food Trust ecosystem covers more than 100 organizations, including Walmart, Carrefour, and Albertsons, and consumers are already able to use a QR code to verify the source of their food using a blockchain in some retail locations. But these are just the signals hitting the headlines. As we enter the last half of 2019, where is momentum building and where has it stalled?
Mostly Hidden From View, Momentum Takes Shape
Many teams are making progress on potentially disruptive, complex, multi-year projects behind closed doors. The enterprise projects that are making more public progress tend to be lodged in the deep back office—markedly ho-hum on the surface, but a foundation that could be leveraged to one day impact the way we work and play. This makes it very difficult to see the magnitude of enterprise development from the outside—there is no market cap equivalent for corporate projects. This is coupled with a rough hangover from 2018’s overhype that has fed widespread skepticism and pullback in funding for new upstarts.
It’s in this environment that executives are faced with the difficult decision of letting others take on the significant expense of testing use cases and the market—or making investments of uncertain return in the hope of being on the winning side of a new wave of digital disruption.
While Strategies Differ, Top Brands Are Engaged
A broad range of brands are channeling significant resources into blockchain projects, well before there is a clear path to ROI. Many leaders are plunging in despite the lack of known outcomes, proven business models or best practice. The recently announced Forbes Blockchain 50 lists companies with a revenue or valuation of over $1 billion that are actively working to adapt decentralized ledgers to their operating needs. These organizations are rapidly learning where the technology holds promise—and where it fails—knowledge they can leverage to assert power in the new, more collaborative ecosystems that the technology makes possible. Initial successes often center on the mundane yet important objective of increasing auditability. While some of this work is focused on small slivers of a business, such as Metlife’s use of a blockchain to pay claims instantly to expectant mothers with gestational diabetes, it is easy to project how this learning is extensible to other populations.
Patent Activity Continues To Build
To the delight of armchair innovation theorists, brands like Nike and Samsung have filed cryptocurrency and blockchain related patents, fueling all kinds of speculation. Half of the pending patents have been filed by only seven companies – IBM, nChain, Walmart, Intel, Alibaba, Mastercard and Bank of America. Over 100 of those applications came from IBM alone over a six-month period, although China has historically led the way in blockchain patents.
The Money Has Slowed—But There Is Still Activity
With Q2 2019 at a close, venture investment has declined sharply. “We’re only on track to see $1.6 billion invested across 454 deals this year, which will be a serious decline from the $4.1 billion invested in blockchain last year,” reports market intelligence firm CB Insights. The firm identified five trending areas in venture investments, including new smart contract platforms (which they deemed “Ethereum-killers”), payments layers (bitcoin has weak adoption for day to day payments), enhanced privacy on blockchains, securities and derivatives innovation, and custody solutions.
Initial Coin Offering (ICO) activity has slowed to a crawl. However, every month some projects still get funded through ICOs. New vehicles like IEOs (Initial Exchange Offerings, which have some similarities to an ICO, but are offered through exchanges) and STOs (Security Token Offerings) have shown that thirst for lower friction financing persists despite regulatory challenges.
The number of corporate deals has likewise seen sharp declines over the buzzy days of 2018, with only 96 corporate deals to date this year, versus over 300 last year, according to CB Insights. Yet, as the enterprise continues to pilot the technology and begins to move to production, they are increasing spending on solutions. Worldwide spending on blockchain solutions is forecast to increase to nearly $2.9 billion in 2019, an increase of over 88% from last year, according to a newly updated Worldwide Semiannual Blockchain Spending Guide from IDC. The firm expects blockchain spending to continue growth at a robust pace to $12.4 billion in 2022.
A Fragmented Platform Market Confuses Decision Makers
Yet today’s blockchain platform market is a confusing array of overlapping and fragmented offerings, confusing IT decision makers. Recent Gartner research forecasts that 90% of current enterprise blockchain platform implementations will require replacement within 18 months to remain competitive, secure and avoid obsolescence. Gartner Senior Research Director Adrian Lee explains, “Many CIOs overestimate the capabilities and short-term benefits of blockchain as a technology . . . creating unrealistic expectations when assessing offerings.” This could be contributing to hesitance from CIOs to commit. Despite signposts of momentum, a previous Gartner report found that 77% of CIOs say their enterprise has no interest in the technology and/or no action planned to investigate or develop it—a trend Gartner deemed “dangerous”.
Governments Increase Blockchain Spending
Governments across the globe are actively experimenting with the technology. While China has made moves to ban cryptocurrencies, it considers blockchain a leapfrog technology, and is investing very heavily—and several of the world’s most well-funded blockchain companies are based in China. The governments of Estonia and Dubai have set ambitious goals for digitizing government records with blockchain technology. IDC recently reported that the U.S. government’s spending on blockchain will likely increase from $10.7 million in 2017 to $123.5 million in 2022. Blockchain spending among U.S. state and local governments is also expected to rise, from $4.4 million in 2017 to $48.2 million in 2022.
The Savvy Are Getting Down to Business
“The blockchain story is beginning a new chapter,” reports Deloitte in their 2019 Global Blockchain Survey. “The question for executives is no longer, ‘Will blockchain work?’ but, ‘How can we make blockchain work for us?”. The report revealed a small but steady year over year climb in perceptions among executives with experience in the technology. Eighty-three percent responded that their executive team believes there is a compelling business case for blockchains, an increase of 9% over the year prior. Over half identified blockchains as “critical, in our top five strategic priorities”, a 10% increase over 2018’s report. “The questions executives are asking are tougher, more granular, more grounded, and more pragmatic,” concluded the report.
Broader Adoption Could Strike Suddenly—But The Question Remains: “When?”
It’s tempting to assign no urgency to forecasts of blockchain disruption. There is no clarity how to succeed with this technology, and there are certainly more immediate business opportunities and threats. But as blockchain savvy teams around the globe build and gather allies, projects that appear to be ho-hum could quite quickly build to something that is pervasive, consumer facing, and difficult to outrun.
Blockchains begin at a subterranean level. Yet once an ecosystem is working together deep in their processes, participants can build and deliver new products and services with value that can be seen above the surface. Look away too long in this era of mundane usefulness, and you may miss the signs of something more disruptive ahead.