Barriers To Blockchain Adoption
Blockchain is a fashionable topic to discuss. Not surprising as the Fourth Industrial Revolution is here, and blockchain adoption is a part of it. According to the World Economic Forum’s 2018 report, 10% of global GDP will be registered on blockchain-based systems by 2025. Impressive, isn’t it?
An increasing number of startups and some large enterprises are testing the waters of blockchain. Banks and shipping companies are among them. Some governments work on blockchain integration as well.
Yet, the innovative distributed ledger technology that promises to bring transparency and traceability into any business processes has already encountered many barriers on its way to adoption.
Deloitte 2016 blockchain survey predicted a faster pace at which the innovative technology would infiltrate various industry sectors than we see in 2019.
The reason is that blockchain adoption is not only the decision of technology; it is also a business decision. There are many obstacles each company, no matter how large or small, has to overcome.
Why is Blockchain Adoption Problematic for Businesses?
1. First, there is no confidence in the technology. It is still an innovation, and it’s normal. Building trust in the network represents a challenge for blockchain.
2. High costs and complexity of blockchain.
3. A lack of understanding comes next as many executives have a vague understanding of blockchain and the changes it will bring. Many still connect it only with cryptocurrencies management.
4. A general lack of standards is also a problem. Blockchain-specific vocabulary is insufficient; its terminology is both scarce and new.
5. A lack of general regulation is a problem. The survey of C-level corporate executives conducted by RANE showed that 23% of its respondents had a concern over the lack of clear blockchain regulation. The good news is that some governments have already come to terms with the idea of blockchain implementation; others are considering it. Yet, there is still a long way to go.
6. Vague data regulation is one more issue. For instance, the General Data Protection Regulation (GDPR) does not align well with blockchain’s immutable ledger.
Though most of these problems are universal and not business-specific, there is a difference in the way large enterprise companies and startups approach and solve them.
Startup Challenges
Startup companies have more advantages in implementing any new technology, blockchain included, as they are not burdened with legacy problems and have more freedom.
Yet, regardless of better awareness and less constraint, blockchain startups are not that easy to launch. While emerging companies rarely face the problems of large enterprises (a lack of use cases for the technology, trouble justifying the ROI), they also have to overcome universal barriers.
So, 48% of respondents of the PricewaterhouseCoopers Global Blockchain Survey 2018 mentioned regulatory issues as the greatest obstacle on the way to blockchain adoption.
Also, among other major barriers are:
1. a lack of trust among users;
2. a lack of standardization;
3. absent or poor collaboration between blockchain-related companies;
4. an inability to bring the network together;
5. an inability to scale; and
- intellectual property and audit/compliance concerns.
According to David Tolioupov, CEO of Zensoft, “Startup companies can move at a faster pace as they can see the true potential of an innovative technology right now. They devise use cases for blockchain solutions development instead of trying to find ones. Thus, they can utilize the technology most efficiently.”
Enterprise Companies Concerns About Blockchain Adoption
According to Deloitte’s 2018 Global Blockchain Survey, startups, or emerging disruptors in Deloitte’s terms, have less trouble implementing blockchain, while enterprise organizations face many issues.
They are usually constrained by the following barriers to blockchain adoption:
1. Implementation. Large companies have trouble replacing or adapting existing legacy systems. Many of them do not understand the point of new technology implementation in the absence of a proper use case to justify it. This idea was supported by 74% of the Deloitte research respondents who actually “see a “compelling business case” for the use of blockchain technology” but don’t see how it can fit into their existing system.
2. Regulatory and legal concerns. These refer to the choice of a regulator, data privacy issues, intellectual property, and enforceability of contracts.
3. Potential security threats.
4. Lack of skills and understanding. While blockchain is still in the transition stage, finding qualified specialists is a real challenge at the moment. However, according to the LinkedIn 2018 Emerging Jobs Report, the past year saw a 33x increase in blockchain developer jobs. So, more and more DLT-capable professionals are entering the job market.
5. Uncertain ROI. This is a normal concern for any investor.
6. Lack of trust. At this stage, many companies are skeptical about blockchain, regardless of all the hype.
7. Blockchain is not a current business priority.
More Blockchain Adoption Issues
Another essential problem with enterprises comes from a poor understanding of blockchain nature and potential and how radically it can affect the business. It is a change that will bring many implications, and it is a challenge many large businesses are unwilling to accept so far.
Yet, staying passive while watching others try and succeed (or fail) is the worst strategy in the time of transformation. This does not imply that all legacy organizations have to give up their habitual ways of doing business for the sake of an innovative solution. Surely no. Fortunately, a growing number of enterprises see the point in at least trying to fit blockchain into their existing systems.
What’s Changed in 2019?
Blockchain hasn’t become a less popular topic for discussion; quite the reverse. While the overall attitude to this technology is still cautious, it has definitely matured, and businesses become more willing to acknowledge it.
This insight comes from a more recent Deloitte’s 2019 Global Blockchain Survey: “83 percent see compelling use cases for blockchain, up from 74 percent, and respondents’ overall attitudes toward blockchain have strengthened meaningfully.” It demonstrates that companies start finding blockchain more and more appealing. Judging by the answers of the 2019 survey respondents, the trust in blockchain integration is growing.
The commercial adoption of blockchain by enterprises won’t be immediate. It is rather a prospect of the future as the list of reservations to overcome is still broad. The good news is, however, that while barriers haven’t gone anywhere, they are becoming more uniform. We can, thus, expect faster blockchain adoption on a mass scale.
As a digital, peer-to-peer, decentralized, distributed ledger, blockchain has the potential to transform systems and enable solutions we never thought possible. As with any developing technology, there are challenges to address — but initiatives within the social impact space are already demonstrating some of blockchain’s advantages over traditional solutions.
Reducing Risk And Fraud
The OECD reports that an estimated 20–25% of funds are lost to corruption globally at the government level. Even when it’s unintentional, waste, inefficiency and misallocation of funds cost millions of dollars that could otherwise be used for good.
One advantage blockchain has is that it’s tamper-proof. Through a process known as “consensus,” each transaction is verified by multiple parties independently. Entries are immutable, meaning they can’t be modified, and can only be updated by adding an addendum. With all entries publicly viewable, this offers unparalleled transparency into how donations are used. Not only does this build trust between an organization and donors, but it helps mitigate the waste and fraud that has historically been a part of charitable giving.
Transparency And Accountability
Blockchain-based philanthropy is also addressing social causes that haven’t been well served by traditional systems. Research shows that trust and confidence in charities has dropped. Donors want to see more accountability and assurance that their contributions are making a difference. Tracing funds from the point of donation is a major benefit blockchain can offer.
Alibaba, China’s e-commerce conglomerate, developed a blockchain-based donation system called Charities on the Chain. It records donations from Alibaba’s users and lets charities, auditors, donors, media and other parties track information on how donations are being used.
Reducing Administrative Costs
Administrative costs have been a point of contention with charities; in some cases, overhead is higher than what is passed along to recipients. One administrative expense is the need for legal and financial intermediaries, which cost time and money. I work in smart contracting, which is a blockchain application intended to digitally facilitate or verify the negotiation or execution of a contract. In my experience, smart contracting can help charities reduce the need for these intermediaries.
Transcending Borders Faster And More Efficiently
With traditional banking channels, sending money internationally can be a complex, multistep process. Transactions on blockchain result in a 40 to 80% reduction in transaction costs and take seconds to process instead of two to three days. Instant cross-border transactions allow charitable organizations to make an impact quickly instead of being held up by red tape.
Beyond digital currency, accessing international, immutable forms of identification via blockchain can assist in the screening and verification of volunteers. Accessing verified work history records or other documentation instantly could reduce delays and vastly improve the efficiency of international emergency aid programs. For social good initiatives looking to transcend borders with blockchain, the first step is often determining the unique gaps and inefficiencies that exist. From there, organizations can assess the situation and better determine if blockchain is right for them.
Increasing Accessibility
Many of us take for granted our ability to open a bank account, obtain a credit card or get a mortgage. Meanwhile, approximately 2 billion unbanked or underbanked people. Blockchain technology offers an incredible opportunity for people without access to banks. Decentralized digital currencies not only allow fast, easy and low-cost transfers, but they also create a more open financial system.
In the Philippines, one of the top five countries to receive overseas remittances, coins.ph allows locals to convert cryptocurrency sent to them by relatives into their local currency. This reduces the costs and settlement times of remittance transfers. While just one example, the benefits of accessibility are truly global, given that inclusive financial systems reduce inequality and bolster economic growth.
New Ways To Give
While some charities and foundations accept Bitcoin and other cryptocurrency donations from donors directly, other sites facilitate the donation of cryptocurrencies to good causes through their platform.
Donations can include clauses stipulating that money is only transferred if certain conditions are met, and can be tied to fundraising goals or even performance. Alice, a social funding and impact management platform, makes each project’s performance publicly available, allowing donors to find and contribute to social projects that are actually effective.
What’s Next?
While charities and nonprofits are beginning to see the untapped potential of blockchain technology-based solutions, there are still challenges to overcome.
One hurdle facing the blockchain space is regulatory pressure. Policymakers are still attempting to understand the long-term implications of this technology and it is still uncertain how they will choose to regulate it. Ease of use is also a challenge — blockchain technology works differently than traditional systems, resulting in an inevitable learning curve for organizations wanting to explore its potential. More user-friendly projects and accessible information will help simplify the use of blockchain.
Security is another key concern. While blockchain is secure, smart contracts are not — so finding ways to address the security challenges around this technology is crucial.
Although most use cases are still in their pilot or idea stage, existing use cases demonstrate blockchain’s potential to benefit social initiatives across the globe. It is clear that blockchain technology is here to stay, and the social impact space will need to experiment, adapt and evolve in order to leverage this technology.
It will be fascinating to watch this technology unfold and address old challenges with new solutions that were never thought possible.
