The Blockchain Technology: Realism Replaces Hype

Tuesday, 03 May 2016 18:53

Over the last few years, much hype has been created over virtual currencies such as Bitcoin and its underlying technology, the distributed ledger technology, commonly called the blockchain. What is Blockchain? Is it a hype, or a real game changer. This article concludes that after inflated expectations Blockchain is now entering into the Trough of Disillusionment.

 

Over the last few years, much hype has been created over virtual currencies such as Bitcoin and its underlying technology, the distributed ledger technology, commonly called the blockchain. Simply stated, the blockchain enables direct interaction between stakeholders without the intervention of a “middleman” such as a clearing house. Early enthusiasts predicted that it would revolutionise the financial services industry, make banks, central banks and clearing houses obsolete, result in huge savings for providers, lower the cost of transactions for consumers while providing increased speed and efficiency. In other words, it would ring in a whole new and better world.

A useful concept to look at the development of views and opinions around the blockchain is the hype cycle by the Gartner Group. While not everyone may agree with the concept of a cycle or may question its scientific predictability, the underlying idea is simple, intuitive, and easy to understand. Basically, the concept states that new innovations may sound interesting at first and thus create hype. After a period of disillusionment, the original innovation may change, be adjusted, tested and tried before it can turn into a mainstream offering with widespread acceptance and usage.

Let us consider the Gartner hype cycle in connection with the blockchain (see graph below) The hype cyce consists of 5 stages:

 

 Gartner Hype Cycle

 

Technology trigger

In this first stage, new technology creates interest in the market and the media. Pragmatic use cases may not exist yet and there is uncertainty about the exact applicability of the technology.

Few people have heard about the innovation, unless they are technology experts themselves. So the new innovation is mostly just “talked about” by insiders.

  • Regulators have become aware and are starting to undertake research and analyses of the innovation.
  • In terms of Bitcoin and the blockchain technology, we experienced this stage in the years 2009- 2011. Bitcoin created much interest but was mostly considered a means of payment or investment.

 

Inflated expectations

This stage started around 2012. The technology trigger was followed by high expectations, often fuelled by the media. 

Consumers were told that they should expect the new technology modifying everything for the better. Large corporates and banks started investing into or partnering with blockchain providers. Courageous statements were made about the blockchain leading to revolutionary jumps, causing the death of whole industries, radically transforming the financial services industry, and changing consumers´ lives completely.

This hype created interest and resulted in inflated expectations. However, new business opportunities were identified and thus new blockchain service providers entered the market, ranging from technology to marketing to analytics companies. First concerns about regulatory implications were voiced.

 

Disillusionment

In our view the blockchain trend has recently entered this third stage. However, we are already well on our way up the fourth stage, the “slope of enlightenment”.

  • The “disillusionment” stage is, as the terms implies, characterised by a certain disappointment and disenchantment with the new technology. The need for realistic forecasts becomes apparent: how much will moving to the new technology cost, what are the financial benefits? How will we implement the transition from current technology to the blockchain? How do we ensure that blockchain smart contracts are legally enforceable? In this stage, a myriad of questions emerges.
  • The realisation that the blockchain is global in nature, not regional or national, has led to interest in avoiding fragmentation. Thus more than 40 large banks have started to co-operate and collaborate to develop standards, rules and templates.
  • This is also the stage for replication and cloning: as weaknesses of the early technology become clearer, clones have sprung up. Various models of the blockchain have been developed. This in turn has created the cry for linkages and interoperability between the various blockchain models.
  • Many of the earlier courageous statements about quickly changing the world are quietly taken back or re-phrased.
  • Large stakeholders have realised that existing regulatory requirements need to be taken into account and active dialogue with the regulators is well underway. While consumers are still largely unimpressed by the blockchain, corporates are now becoming interested in finding out how the blockchain could benefit them.

 

Slope of enlightenment

In this stage it becomes clearer where, how and whom the technology can benefit, how much it will cost and who will pay for it. The banks, the corporates, the providers, the consumer?

Awareness of the new technology among corporates, banks and even the consumer has risen somewhat, but actual usage (e.g. of using Bitcoin for payments) is still minimal.

 

Plateau of productivity

In Gartner´s model the last stage of the hype cycle is called the “plateau of productivity”. Now mainstream adoption starts to take off and the new technology becomes rooted in day-to-day business.

  • Consumer awareness has increased and marketing of new products and services based on the blockchain becomes possible.
  • Corporates understand the possibilities as well as the limitations of the blockchain and demand improved services from their banks and other providers.
  • The market has developed criteria enabling an assessment of the viability of providers.
  • Theoretically, at the end of this stage, it should become apparent that the new technology is paying off.  

Clearly we have not reached this stage yet. In fact, we would claim that we are still far off. Yet, the future looks promising, with a lot of hard work ahead of us.

 

This blog is written by Edith Rigler, Senior Consultant at Payments Advisory Group

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