I was struck the other day, not by anything related to the daily turbulence we’ve come to commonly associate with newer and existing blockchain coins, tokens, and whitepapers alike, but rather, by a report from Forrester claiming that 90% of existing enterprise blockchain pilot experiments will never become a part of their respective company’s long-term operations.
Sensing an opportunity to harbor a productive conversation with my coworkers and professional network, I anxiously shared this news, only to be taken aback by the swiftness of dejection in the responses that I received. Nearly everyone with whom I had discussed the report offered their commiseration, which came in stark contrast to my own views on the subject.
Sure, facing down a 10% adoption rate is an overwhelmingly persuasive statistic, but guess what else fails 90% of the time -- all startups. Point being, a high rate of failure doesn’t detract from the viability of the blockchain ecosystem; it actually elevates the entire space by prominently displaying the factors that do and do not lead to success.
The Primary Problem
However, be that as it may, I found myself beholden to an exploratory research project in an attempt to decipher why the reported adoption rate had reached a trough.
Ultimately, I came to a single, overarching conclusion -- the protocol wars are still being waged, and enterprise decision makers are anxiously waiting to crown the victor.
Traditionally, technological innovation and investment has occurred at the application layer, with the underlying infrastructures and protocols receiving relatively little fanfare or attention. The internet stack saw value in creating Facebook, for example, rather than a more efficient HTTP solution. Applications were the star students that produced the highest returns whereas protocol plays were nowhere near as lucrative.
This relationship is reversed in today’s blockchain application stack. Value is concentrated on the protocol layer, with only a fraction of that value being distributed along the application layer. This is never more obvious than when evaluating the Bitcoin protocol; the network itself has a value of nearly $120B, whereas the sum market value of every application being built on top of Bitcoin is worth less than a few billion dollars, at most.
And being the rational, self-serving organisms that we are, humans will always vie to compete in the pool with the largest cash-prize. According to Gartner, there are more than 100 blockchain platforms/protocols being developed today, which wouldn’t be as big of a problem if most were placing a significant focus on interoperability, however, very few are.
What’s more, is that of the 100 or so platforms being developed, only about 10% have even been released, and of those, only three are truly operational: Bitcoin, Ethereum and EOS.
We’re in an all-out arms race to determine whose technology is the most reliable and scalable to build upon. Some are working to extend the functionality of other platforms (Elements → Bitcoin), others are working to facilitate the issuance and management of digital assets (Openchain), and a few others are working to solve the challenge of secure and private data exchange between trusted intermediaries using secure multi-party computation (Spring Labs).
Separating Hype vs. Reality
The question becomes, how should the enterprise evaluate the growing playing field of potential blockchain technology partners? Quite the quandary, as conventional evaluation methods (case studies, customer testimonials, product demos, etc.) won’t apply, yet it’s extremely important for applicable decision makers to stay abreast of current and future developments as to not potentially lose a significant competitive advantage.
My advice, taken from my own experience as a venture capitalist (VC), is straightforward: approach each potential blockchain technology partner with a VC mindset, focusing primarily on three categories:
- Scope — Per use-case, how broadly or narrowly defined is their messaging? Are they attempting to solve a hyper-niche problem, or are they building more wide-reaching solutions? Projects that place too broad a focus often get clipped by specialized competitors, whereas those who aim too narrowly run the risk of inadvertently locking themselves into a niche.
- Vision — Read each white paper primarily as a starting point, only. But then ask yourself, where else could this platform go? What are the possibilities outside of the initial use cases? Simply put, if Platform A could potentially solve four problems, but Platform B only solves one, then why wouldn’t you choose to partner with the former? It’s important to understand that every successful project will inevitably produce ulterior solutions. Understanding what could develop is just as important as understanding what’s being developed.
- Team — This is undoubtedly the most important category of them all. In VC, there’s a saying, “Invest in the engine, not the car.” The flashiest and most-attractive product on the market can swiftly prove useless without the right team powering the motor. Professional networks can take decades to develop. Can the founding team attract the talent and partners necessary to ensure product viability? Don’t look for teams that are overly stacked on the technical side. It’s just as important to have those who understand the market being targeted and the problems affecting it.
The enterprise adoption rate of blockchain-based solutions has indeed slowed in 2018, but that phrase alone only tells half of the story. Researching why the adoption has slowed will paint a much clearer picture.
We’re in an exciting period of development. The nascent stages of every major technological revolution bring about hundreds of hungry competitors vying to be the next IBM, Microsoft, Google, Amazon, or Uber. I can’t wait to see who’s up next.
Adam Jiwan, CEO of Spring Labs
Image Credit: Zapp2Photo / Shutterstock