Early blockchain success will be limited: Gartner

Success in the early years of blockchain projects will be limited with proof-of-concept (POC) maintenance rates over a two-year period at less than 12 per cent, according to Gartner research.

Analysts John-David Lovelock and David Furlonger said that even if a blockchain POC project doesn’t move through to production may not be a failure. Most POCs generate significant lessons around the business challenges that need to be overcome and, perhaps critically, whether existing non-blockchain technologies applied more effectively can achieve similar or better goals, they said.

The researchers said value accretion using blockchain is a “considerable leap of faith” for many companies due to the technology facilitating totally new operating paradigms (for instance, the removal of central payment intermediaries).

Change at this scale raises a ‘significant conundrum’ for CIOs, the researchers said.

“Clearly the technology is not quite ready for deployment,” they said. “However, blockchain is not just about the next technology iteration whereby that technological change is applied to unchanging business processes and stable societal norms.

“Pioneering CIOs are well aware that blockchain reimagines the terms and conditions of doing business and the way in which society and the economy operates. They are therefore actively planning for this eventuality by trailing multiple blockchain technologies and creating ‘blue ocean’ use cases to pre-empt the future state.”

The researchers believe the technological challenges of blockchain are solvable in the near term. Radical changes in business processes and operational norms will take a longer time to manifest in a company or ecosystem, they said.

“A factor to note is that many blockchain initiatives rely on achieving network effects, where the value is reaped by participants based on adoption by others of the same system. This situation results in backloading of benefits to the parties involved.”

The researchers believe there’s no ‘intrinsic business value’ to participate in a blockchain POC project. The POC must result in a production blockchain system “before there can be any received business value,” they said.

Business value can be derived from increasing revenue through current business models; creating revenue streams through new business models; reducing costs through operational efficiencies; and improving liquidity by freeing up capital; and cutting indirect costs such as customer experience, they said.

Gartner expects the “business value-add” of blockchain will grow to slightly more than US$176 billion by 2025 and it will exceed $3.1 trillion by 2030.