In 2016, we likely witnessed the peak of the blockchain hype cycle. The Economist captured the sentiment best: “[blockchain] is merely moving through the same hype cycle as other next-big-things have done before it: inflated expectations are followed by disillusionment before a technology eventually finds its place.”
Now that we’re moving beyond the hype, 2017 could be the year that legitimate blockchain-based, enterprise solutions finally emerge from the noise of the POC landscape and find their place in production. But for that to happen, the institutional centers of gravity need to shift from the innovation teams to the operational technologists. CIOs and their staffs will need to embrace the transformative potential of the technology to solve their biggest operational challenges and establish production-grade requirements.
In my experience, practical understanding of blockchain technology has dramatically increased over the past year. At the beginning of 2016, I spent the bulk of any pitch for Manifold Technology, walking people through the very basics of distributed ledgers. I rarely made it to the important substantive details that set ours apart from other solutions because investors and customer prospects had no baseline understanding of blockchain technology and its benefits (as well as its tradeoffs), let alone an ability to differentiate between vendor offerings. Now when I present, I get very few blank stares, and most of the time in fact, fairly knowledgeable and thoughtful questions both about our approach and our unique ability to provide enterprise value at scale.
Over the past year, blockchain enthusiasts saw consortia like R3CEV gain traction (before losing some key members) and high profile initiatives announced by large clearinghouses such as DTCC. However, while financial institutions and venture capitalists have continued to express avid interest in the technology, much of the focus has remained on niche applications rather than truly transformative, enterprise deployments.
Sure, there are plenty of big institutions like Goldman Sachs, BNY Mellon, State Street, and RBC that have already made sizeable bets on the technology, but there are still very few production-scale implementations. Although enterprise teams are getting savvier about how to prove the value of specific applications, there has been relatively little attention paid to how the technology can be deployed to improve foundational business processes, or whether solutions even have the architectural strength to achieve foundational scale and stability. Concerns about scalability, stability and security have been overshadowed by nearer-term imperatives to prove narrow application concepts and justify next quarter’s innovation project funding. But proving scalability is critical to succeeding beyond a lab environment as a viable, real-world solution.
As innovation teams hand the baton to the operators, proving value will mean moving beyond simple, narrowly-focused metrics to whether the technology can actually enable or improve on critical institutional workflows. Many executives are excited about how distributed ledgers can help them transform aspects of their business models with the promise of reduced risks and greater availability of capital, but many operational technologists view those expensive settlement inefficiencies to be merely symptoms of a larger, underlying disease: inefficient legacy infrastructure and workflows.
Replacing core systems and processes is like getting into a land war in Asia. Everyone knows the whole thing will get bogged down and end up costing a lot more than initially projected. But this danger is also exactly why the promise of a blockchain-based approach is so powerful. Distributed ledger technology offers institutions a way to modernize without putting core systems at risk by incrementally adding key systems to the ledger to create unified books of record, and guaranteeing the integrity of key data while offering more open access to diverse stakeholders.
Distributed ledger technology can provide significant gains in operational efficiency. It has the power to unify disparate accounting systems and data repositories, and eliminate (or automate) much of the back office processing that’s currently required to reconcile accounts. Just as Google shared docs or CRM applications have made it far more efficient to jointly perform administrative tasks, so too will blockchain-enabled ledgers make it easier for multi-party accounting and shared reference data to transform core settlement and asset management workflows.
2017 may indeed be the year blockchain technology begins to find its place in the world at scale. However, it will require operational leaders to move beyond niche applications and boldly embrace the transformative potential with an eye toward truly scalable solutions.
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