Blockchain is supposed to be a great innovation, a technological leap forward that will revolutionize the global financial system.
Billionaire tech entrepreneur Marc Andreesen says “we’ll all look back in 20 years and conclude that Bitcoin was as influential a platform for innovation as the Internet itself was.”
Really? If blockchain is so great, why aren’t more businesses using it?
I have the good fortune to talk to people who understand blockchain and people who run businesses. I’ve also worked for a Fortune 500 company. Here are the issues from a business perspective.
Fail with somebody else’s money
Innovation is for start-ups—they fail all the time. Established businesses don’t have that luxury.
If an established business has money to spend experimenting with anything new (e.g., blockchain), it is almost certainly already successful and profitable. It has also likely invested in processes, workflows, partnerships, systems, and technology that work well enough. It probably has a workforce that’s used to doing things a certain way with skills available on-hand, in-house.
Put yourself in this CEO’s shoes. If you think your business is successful, well-run, and profitable, you’re going to think long and hard before you rock the boat. You don’t want to worry your investors, anger your workers, and risk losing a lot of money “just to see” if this new technology will work. Instead, you’ll run small, inexpensive tests. If you do anything large, you will find other well-established, quality partners who are perceived as cautious or prudent.
Until some competitor uses the same new technology to threaten your business model, you will go slowly. Very, very slowly.
This is a good thing.
You don’t want Facebook risking your entire social network and your outlet to the world and your connections to many of your friends because Mark Zuckerberg saw a tweet from John McAfee claiming bitcoin will hit $1,000,000 next year.
Prove it’s worth my money
New technology needs a proving ground. Successful businesses rarely risk their livelihoods and the livelihoods of their employees on unproven, complex technology, for the reasons noted above. Hence limited efforts like MetLife’s Vitana, IBM/Maersk’s TradeLens, Walimai’s Tael, Ernst & Young’s Zero-Knowledge Proof on Ethereum, and JP Morgan’s JPM Coin, among hundreds of other blockchain implementations. Some U.S. defense contracts use blockchain technology to improve security and compliance. Starbucks has partnered with a subsidiary of Intercontinental Exchange to see whether it can use cryptocurrency to settle transactions.
Some small and medium-sized businesses use blockchain technology, too—have you heard of FPT Group, Santander, or Equator? If not, you will have likely not heard of the other thousands of businesses using blockchain. I have invested in an early-stage company that crowdfunds investments in energy projects. It’s building smart contracts to create a secondary market for private equity shares, something that’s only feasible using blockchain technology.
All these projects are modest in scope and commitment. They represent only a fraction of the potential business uses of blockchain. Big companies move slowly and small companies don’t grab headlines.
Does this mean blockchain is doomed?
No. The first microprocessors were used for rudimentary calculators. The first email could only travel to computers connected to the same network. The first personal computers came as self-assemble hobby kits. Slide rules, letters, and mainframes remained the dominant technology for years while people developed these newer technologies. Everything takes time.
Maybe blockchain doesn’t pan out, but you can’t know from looking at today’s business usage. Blockchain is hard to understand. Blockchains can’t communicate with each other. Blockchain technology hasn’t coalesced around common standards. Blockchain developers are expensive and rare. Smart contracts are hard to create and implement properly.
Enterprise solutions like permissioned blockchains don’t usually capture the best use of the technology—if you already know and trust the people you’re dealing with, a blockchain just decentralizes your existing databases and processes. That may have benefits…but it’s not really the transformative value of blockchain, which is the ability to exchange things with strangers with certainty everybody will get the outcome they expect without paying layers of middlemen or exchanging private, sensitive data.
One Thing You’re Getting Wrong About Cryptocurrency
So if you run a business, are you going to change your systems, renegotiate your contracts, and retrain your employees on a leap of faith in blockchain? Not yet. You’re more likely to wait until the tech matures a bit, see where others have been successful, and then adapt. You risk ceding the future, but you’re hoping you can quickly catch up. Meanwhile, you’re still able to deliver for your clients and customers, which is the most important thing.
When will businesses use blockchain?
Businesses will use blockchain once they’re sure it can make them money. Until then, you will not see wide adoption.
Even Jack Dorsey, multi-billionaire Twitter CEO and bitcoin champion, buys only $10,000 of bitcoin each week and has implemented blockchain in only a small part of one of his businesses, Square. He just announced a bitcoin development team—of only five people.
This is one of the richest people in the world, arguably the biggest bitcoin advocate on earth, putting only a tiny portion of his wealth into bitcoin, funding only a tiny team to explore ways to improve bitcoin, and implementing cryptocurrency in only a tiny portion of his business portfolio.
Dorsey’s gung-ho on bitcoin but he’s also a savvy businessman. Enthusiasm is great. Businesses prefer profits and they’re driven to serve customers.
It will take years for blockchain developers to figure out what works and what doesn’t, what types of blockchains work best, and how businesses can best use the technology. During this time, you’ll see lots of innovations. Some will succeed, some won’t. Adoption will slowly expand. You can’t force change.
It’s possible blockchain will fail, or more likely serve a niche purpose. It’s also possible blockchain will transform international commerce, revolutionize financial markets, and eventually become so ingrained in our lives we can’t imagine a world without it.
Why don’t businesses use it?
Because they’re waiting to see which outcome is more likely.
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Mark Helfman is a cryptocurrency commentator and author of Consensusland, a novel about a country that runs on cryptocurrency.
Also published on Medium.