There has been an endless wave of blockchain technology announcements for mass consumption recently overwhelming even the most accomplished individual users – not to mention complex enterprise blockchain application developments eluding even the most innovative of professional enterprise blockchain practitioners. Oftentimes, new blockchain developments overlap otherwise complement existing foundational practices further confounding professional users. The fact of the matter is a technology as young and revolutionary as blockchain is bound to have widespread misconceptions leaving greater reward for those professional users who are able to avoid common pitfalls, steamroll corporate inertia and capture early efficiencies as a result of successful use case pilots and program implementations.
At the most basic level, users perceive blockchain to be the foundational technology for cryptocurrency. However, there is more to blockchain technology than that. Increasingly, not only tech experts but even individual users have begun to recognize that cryptocurrency is just the tip of the iceberg when it comes to reaping the efficiencies of blockchain technology applications.
Keeping that in mind, let’s review 6 common misconceptions affecting enterprise blockchain adoption:
1. Blockchain works like a Cloud Database and with no added benefits
“Why Blockchain not Database?” is a question we have become frequently accustomed to hearing. Contrary to popular enterprise perception, rather than a centralized cloud database, blockchain technology works as a distributed ledger with its own unique set of benefits. The fact that both technologies involve offsite data storage tends to drive oversight of the core benefits derived from decentralization.
On the other hand, Cloud based databases tend to be centralized even as they work as a delivery engine for various computing services across the internet simultaneously powering the occasional DLT node instance. Cloud databases not only use different encryption tools but their centralized systems are markedly distinct from the system architecture provided through a distributed ledger even when accessed via the internet.
In terms of accessibility, another major difference between blockchain and cloud databases is that records can be stored piecemeal in encrypted record increments across consensus secured distributed systems. This offers the benefits of increased cybersecurity, immutable record integrity, more adaptable traceability and increased trust across multi-party transactions endemic to a capitalist market that shuns monopolistic business practices.
2. Blockchain is not Secure and not Advanced Enough for Enterprise Adoption
This is one of the biggest misconceptions that has plagued blockchain adoption. Many companies still believe that blockchain technology has security, performance and privacy issues and may not be suitable for enterprise adoption. People assume that since blockchain is a distributed ledger, details of all the transactions conducted on it would be visible to all peers, leaving data privacy compromised. But this is certainly not true as people misunderstand how transactions are stored on blockchain. In reality, the hash of the transactions are stored on the ledger. Hash is generated through a one-way cryptographic function which converts the transaction details into a string of numbers. In the case of documents, one can just store the cryptographic signature while storing the actual document in a data lake (which could be encrypted/decrypted using a public key/private key). Blockchain helps in making sure that the file remains untampered when accessed again, as the signature changes if the file is edited even the slightest bit.
Security is, in fact, one of the defining aspects of blockchain technology. The Bitcoin blockchain, for example, uses a cryptographic algorithm hash like SHA-256 to render an extraordinarily high level of security. News reports of individual account hacks victims to social psychology and email phishing schemes cannot and should not be confused with heightened enterprise level security made possible with blockchain where there is little to chance for the consensus driven algorithm to be at risk. Large public blockchains offer extremely robust protection from continuous cyber-attacks.
In 2018 DLT took enterprise boardrooms and IT Project Management Offices by storm when it began illustrating early signs of technological maturity and industry acceptance following pilot development success cases and great excitement at the individual level in 2017. In the last few years since then Blockchain technology has come a long way and continues to drive high standards of innovation throughout industry.
3. Joining an Industry Blockchain Consortium same as Adoption
For late adopters some companies have decided to partner up with industry in an attempt to address blockchain protocol data record standard formulation. While some late adopter enterprise collaborate and figure out how blockchain technology can address traditional problems and pave the way for mass adoption.
While small and medium businesses (SMBs) are faster and more nimble in adopting new technology and products, enterprise adoption is slow. Sale cycles are long, there are more gateways and there remains strong incentives for multiple internal stakeholders to keep things as they are.
Part of the ascendancy of enterprise blockchain has come from a growing desire by corporate decision-makers to join forces with others to develop and work on similar solutions. All hoped that the more entities working together in developing and managing proof of concepts, or pilot phases, could make developments more valuable. These efforts have been performed via membership to larger collaborative organizations, or the “old world” consortiums.
Industry consortia, with great efforts, have no real way of competing with the insane pace of the tech industry constantly creating solutions, platforms and networks. If they choose to stick to defining exactly what the stack should look like, they are bound to remain irrelevant very quickly. If they choose to define standards that could make adoption of any stack for transformation, they will drive value for the enterprises they serve.
4. Enterprises need to build their own Blockchains
As with any new technology – many Enterprises want to own and control it. Companies approach blockchain with a similar initial bias tending to want to build their own solution from scratch so as to mitigate the perceived additional risks for potential security and privacy compromises. Furthermore, being that Blockchain is the technology powering Use Case solution efficiencies they oftentimes they do need to be custom built for previously unmapped industry workflows using DLT.
The problem with this approach, besides the obvious one of core-competency, is that it runs counter to the principle of decentralization which is a core tenet of blockchain DLT – i.e. seeking to superimpose a centralized architecture on a technolgy which derives and delivers it’s greatest efficiencies from a decentralized structure. In short, the centralized approach to creating a blockchain-based enterprise solution is that it will drive mistrust for the potential abuse of privacy, security and…pricing. The centralized bias it creates will also perpetuate pre-existing data siloes endemic to already fragmented industries thereby limiting the promise of data mobilization or genuine digital transformation.
Simply put, a car company can attract new customers and partners creating the most innovative car using the most innovative technologies but once it gets into trying to build, own and operate the roads those cars are driven on it will likely generate disproportionate inefficiencies in the operation of those roads along with mistrust from otherwise would be customers and partners – not to mention losing its focus as a car company.
5. Blockchains Are Costly and Inefficient
There is a popular misconception that blockchain is quite expensive when compared to existing central databases or cloud-based solutions. On the contrary, several elements of the underlying technology are open source making the technology cheaper to use than traditional databases if properly architected. The blockchain solution is adopted by a network of users which may share the cost of implementation, thus reducing the cost burden on a particular player in the ecosystem. This depends on the structure of the blockchain, e.g. permissioned blockchains are usually more cost-effective and energy efficient compared to alternatives. Blockchains leverage a consensus mechanism known as proof of work (PoW) or proof of stake (PoS), usually associated with permissionless networks mining cryptocurrency. However, permissioned networks and even some permissionless networks use consensus mechanisms other than PoW and PoS.
Another major consideration is Companies trying to build their own network likewise build in their own burdensome costs and may incur infinite R&D capex and transaction costs. On the other hand if the company were to piggy back on the hard won efficiencies created by smaller innovative blockchain companies they would be able to greatly reduce their R&D spend, overhead, maintenance and transaction costs.
6. Blockchain is or “should be” an All-In-One Solution
Although blockchain proponents are fond of stating that the technology has never met a use case it didn’t like underlining that it is a highly effective technology, however – it is not a one-size-fits-all solution. And that’s because blockchain technology use cases are usually applicable to a specific domain(s). It makes sense why benefits like immutability, transparency, and improved efficiency that come with blockchain technology propel the notion among companies that it should solve those problems with a simple implementation.
In the real world, it requires careful consideration and a well coordinated approach to mapping the requirements of a specific workflow then combining it with the respective technologies which deliver the incremental efficiencies to be had in the final solution. That is to say, Blockchain IS NOT an All-in-One solution but usually a bundle of technologies delivering the final solution. This requires a multi-disciplined team who thoroughly understands the particular problems for a specific domain in order to properly bundle the solution. The availability of “out-of-the-box” complete solutions for highly specialized domains bundled with the efficiencies of blockchain therefore are still limited or first require the implementation of a pilot program.
7. Enterprise Businesses are not adopting Blockchain
False. Fortune 500 companies across all sectors including banking, fintech, pharmaceutical, technology, agriculture, retail, and more are driving blockchain development. Ok I know we said 6 misconceptions but this one is a biggie so we HAD to include it!
It remains true that Blockchain DLT has never met a use case it didn’t like. The applications of blockchain technology are endless and enterprises need to continue to be at the forefront to capitalize on all its benefits. The more you understand the fundamentals, mechanics, and use cases of blockchain technology, the more nimbly and suitably you can select the right blockchain technology development partner to work with. For those companies interested in the manufacturing supply chain – we would be happy to work together on your next generation solution.