Point of View

Is blockchain a giant digital joke?

July 4, 2018

For this year’s April Fools’ Day blog, we poked fun at blockchain and the increasing absurdity of some of its use cases. Quite a few of us out there fell for it—but most were able to delete quickly the LinkedIn comments and retweets lauding the blog as ‘visionary’ in time to save embarrassment (even though we know who you are!).

 

But, the more we think about it, the more unfair it seems to have used blockchain as an April Fools’ Day joke—not because the technology has so much to offer, but because the Barmy Blockchain Brigade is already turning it into a giant digital joke. Every day is seemingly April first on Blockchain Boulevard.

 

Amongst the hype and mad use cases, there is some gold, but it’s getting lost in the noise of all the bullshit. So, we’ve got together to create a Blockchain Bullshit Buster to help you dig out the gold from the piles of…well, you know.

 

Introducing the HfS Blockchain Bullshit Buster

 

Exhibit 1. The HfS Blockchain Bullshit Buster

Source: HfS Research

 

  • Principle 1. Replacing ledgers is pointless. Blockchains are systems of records; it’s just that they are distributed. So many of the use cases out there are focusing on blockchain’s role in replacing something that already exists or where an adequate solution is in place. If the whole purpose of blockchain is to simply replace a ledger of a database ‘because we can’, then you should get the distinct scent of blockchain whiff. If, however, the problem statement arises from the lack of distributed ledgers where multiple organizational entities need to interact, then blockchain offers value.

 

  • Principle 2. The realpolitik chestnut. Blockchain is just a technology, not a magic wand to solve for world hunger. The trouble with a lot of use cases is that they err on the side of blind optimism. ‘Wouldn’t it be great if blockchain could unite consumer electronic supply chains between two warring nations?’ While these suggestions sound peachy, we’re best advised to pull the chain on them. Quarrelsome world leaders, competition, and regulatory bodies are unlikely to put down their respective weapons to allow some blockchain consultants to come in and ‘transparency some things up’.

  • Principle 3. Change for the sake of change. Blockchain promises a lot but without any standards and regulations, don’t change for the sake of it. Make sure there is a burning platform to drive adoption or it will end up as an interesting lab experiment.
     

  • Principle 4. Blindly quoting the network effect. The network effect is not guaranteed by blockchain but by the underlying adoption of the solution. Consortiums have become the vogue, but it is not a new concept and consortiums have rarely worked in the past. The network effect comes into play if all participating entities have a common goal; it is not a blockchain feature.

     

  • Principle 5. Garbage in, garbage out. Blockchain by itself cannot validate the accuracy of the input data. If the input data validation is manual or open to human intervention, then what is the point? You can run the same risks with a fraction of the cost using other methods.

     

  • Principle 6. Stone carvings. Blockchain transactions are immutable, which is great. But delete or soft delete can be useful functionality sometimes. Think of the ‘right to be forgotten’. Blockchain data will persist forever for complete auditability without any censorship—is that what you want?

     

  • Principle 7. Speed of light. Blockchain transactions need to be written in multiple places and, despite claims, it will never be as fast as systems that are designed to be lightening quick. If the use case is purely around speed (huge volumes of data processed very quickly), you are better off looking elsewhere.

     

  • Principle 8. Privacy conundrum. Blockchain transactions are secure, but privacy…not so much. If your use case requires storing private data on blockchain, beware.
     
  • Principle 9. Law ambiguity. Smart contracts are rule-based and cannot replace human judgment, but in real life, several laws are intent-driven and ambiguous by design and subject to interpretation. Not everything can be ‘smart contract-ized’.

     

  • Principle 10. The good old cost-benefit. Scaled production-grade blockchain solutions are investment heavy from an adoption perspective. Think beyond the technology related dimensions such as consortium creation, system integration, and ongoing governance.

 

Now, we’ve been to a few industry events recently and all of them, without fail, have offered to provide a series of use cases for blockchain that will sear it into our memories as the only way forward. We applied our little buster to two of the use cases—one passed and one failed miserably.

 

Case #1. The pointless one. Why should we blindly trust blockchain, when it’s only as strong as the weakest link in the chain?

 

We recently came across this use case—the opportunity to audit the entire production process of food using blockchain. The logic behind it makes perfect sense. Some consumers want to know the products they eat are healthy, ethical, organic, and environmentally friendly. At the moment, we’re beholden to little stickers and logos which tell us things are fair trade or free range. We trust that these logos wouldn’t be there if they weren’t true and we make our choices appropriately (although there are endless redefinitions of what constitutes free range, for example, with some organisations offering logos to any business that allows chickens to move a few inches to the left or right).

 

Given the success of these little stamps of ethical righteousness, it stands to reason that any company that can give consumers a full unabridged appraisal of a product’s lifecycle from start to finish is bound to be a winner, right?

 

Well, not necessarily. There might be a few people that pay close attention to the certifications of an item, but for most, it’s a happy coincidence that their product also happens to be free-range or organic. (I’m sure there’s far more robust proof for this out there, but the crux of it is, if it were that popular, we wouldn’t have anything but certified products at this stage). More importantly, it’s usually just a quick reference logo such as Fairtrade (something quick and easy to look at) or to confirm we can brag about organic hummus at a dinner party without being found out.

 

So how are we going to shake up and disrupt this supply chain madness? With blockchain, of course. The crux of the use case was that the self-perpetuating cycle of audit and assessment that blockchain can offer would enable us to look through the full lifecycle of the product before concluding to put it in our basket. We’d know it was grown on a free range tree, organically. Packaged in a factory with high human rights compliance. Shipped on an environmentally friendly freighter. And put on the shelf by a nice chap called Kevin.

 

Now, I don’t disagree that blockchain could enable this oversight, but honestly what’s the point? And what problem is it solving? There are already frameworks in place that, albeit in need of modernisation, already work to regulate the production and sale of goods. Further, the core value proposition and, crucially, the monetisation of the product is geared towards the consumer. Retailers and manufacturers would pay to be part of the solution because it could then be used to market their products. But, most of us already loathe spending time in a supermarket, and now we’re expected to sift through a ledger for every product to make sure it meets our ethical standards? This could take hours, and it’s just not that appealing.

 

Even if we step away from the consumer and assume governments and regulatory bodies will be interested in this solution, it doesn’t add up. The real value, in this case, is to act as verification for an agreement or that a step has been taken—both of which still need to be verified by a third party to ensure they have taken place. While this enables transparency across the supply chain for trusted partners, it’s only as strong as the weakest link in the chain. Most modern food scandals take place not from negligence, but from active fraud and deceit. The recent horsemeat scandal in the UK is a prime example of how transparency over a supply chain is completely irrelevant if parties involved are committed to manipulating the system. Even if a blockchain solution had been in place, it’s unlikely it would have spotted any wrongdoing, as many of the partners were committed to the scandal.

 

If anything, relying solely on blockchain makes supply chains more open to corruption. They push for our intrinsic trust because of the safety and security offered by the technology, when in reality, it can be waylaid with relative ease if enough stakeholders in the chain are willing. Even with the weakest of conspiracy theories, the question we need to be asking before we hand over our trust is ‘how does the blockchain know it’s being fed duff information?’.

 

The answer is, it can’t. It’s reliant on a series of inputs being validated by third parties also adding inputs. Which moves us to our next point: blockchain only serves (in this example, at least) as a system of record. Does someone verifying that their produce is organic make it any more likely to be so than when they have a third-party organisation verify it with a logo?

 

Many of these use cases are still being fleshed out, but the core to each of them is that we should hand over our cynicism at the door because this is a technology that empowers us to trust anything. And there is a plethora of other examples that will impact areas of our society considerably only for the price of bowing down to the blockchain trust god.

 

Case #2. This one makes a little more sense (at least for the wine connoisseurs)

 

Thanks to a partnership between EY and EzLab, we tested blockchain certified wine (note ‘tested’, not ‘tasted’). The certified product is from Falanghina Wine produced by Cantina Volpone. You basically scan a QR code on the back of a wine bottle and it opens up the entire life history of the wine—see the screenshots in Exhibit 2.

 

Now, the concept is similar to the farm example above but with two key differences. First, wine connoisseurs are willing to pay a premium to understand where their wine came from, the temperature and humidity of the soil where the grapes grew, when the grapes were harvested, and additional details. But, I’ve not met such egg or milk connoisseurs.

 

Second, the data input in this example is not done through manual input but through integration with IoT sensors that are already in the grape farms. The technology will tackle a significant issue in the world of Italian wines, as counterfeiting issues have resulted in annual losses estimated at about 2 billion euros.

 

This is an example where a blockchain-based solution works well. It has a positive impact on consumer experience that yields an uptick on wine manufacturers’ top-line and the end-to-end traceability, transparency, and trackability of the supply chain.

 

Exhibit 2: Screenshots from wine blockchain test

Source:  Falanghina Wine

 

With everyone jumping on the blockchain bandwagon, the hype is drowning out all of the practical use cases

 

It’s becoming harder to see through the blockchain hype these days to examine the problems we’re trying to solve with, create solutions, and contextualise them in real-world scenarios. This isn’t helped by service providers jumping on the bandwagon and unifying behind a single approach to illustrating the use of the technology—a big PowerPoint slide, with a vague description of a current business environment on one end and an ill-defined business objective at the other. Inevitably, in the middle, the word ‘blockchain’ sits in bold, usually accompanied by a picture of two businessmen shaking hands. In their defence though, the sandwiches are usually quite nice—if only there were a way of finding out if they’re organic.

 

One of our analysts, Saurabh Gupta, does a bang-up job sifting through the blockchain hype to find the nuggets of gold that could make this the most exciting technology since the evolution of the world wide web itself. Don Tapscott is so desperate to hype up blockchain, he even declared that banning some cryptocurrencies could ‘destroy economies for decades’ (c’mon buddy, who are you kidding?), we need to face up to the reality of technology developments and whether they are really solving anything useful or are literally just trying to find problems to justify their existence.

 

At least with technologies like robotic process automation (RPA), there is a purpose behind their existence, although it’s not very sexy: fix messy processes by automating them, because automating things make them work better. Blockchain creates systems of records, which can be incredibly useful, but we need to pinpoint where real value and impact can be created and how we can regulate it to prevent fraudsters gaming the system. We also need to take into account the true ROI of these investments—ask most businesses to write off their hundreds of millions in legacy ERP investments and they will run a mile. They want to find workarounds and modernisation technologies to breathe new life into what they built, not simply destroy all the foundations they laid in the past.

 

Digital technologies created new channels for every business to make money, such as mobile apps, chat functions, and social interactive tools, but they didn’t replace traditional channels, such as using the phone or going to a shop for most businesses. Digital augmented most traditional analogue business models, it didn’t replace them. And this should be the real focus of blockchain: to augment traditional business channels, supply chains, communication channels, etc., and do it in a way that everyone can see the real value, not just find a few bits and pieces that make sense. Blockchain must be worth the investment.

 

We’re finding ourselves in this scenario an awful lot and when we look around the room, we see hundreds of faces nodding in unenthused agreement. Because nobody knows what blockchain is, how it will help, or why to bother in the first place. The trouble is, if you admit that, you won’t be invited to the next event with more mad use cases and pictures of businessmen shaking hands.

 

Bottom line: Blockchain runs the risk of becoming representative of the massive hype bubble we live in today: yet another technology hammer trying to find business problems to nail

 

In today’s world of marketing hype, there is no room for cynics, only for the lemmings who blindly laud the cult of a technology. Why do you think software vendors like SAP, Oracle, Workday, or Salesforce only invite the analysts and ‘influencers’ to their conferences who drink the Kool Aid and wave their flags passionately? This is the problem with today’s technology industry: we’ve become a bunch of lemmings who need to follow the marketeers, the salesmen, the client partners, and those ‘futurists’ who seem to come out of the woodwork every day to talk about things that are happening way off into the future, with little evidence of reality, and no accountability for how truly knowledgeable or accurate they are. And we’re just supposed to sit there starry-eyed and feast on the bullshit with a blind trust and fervor that what we are hearing is as impactful as the second coming of Christ.

 

Sadly, blockchain runs the risk of being yet another representative of the ludicrous hype our industry has fallen for hook, line, and sinker. We live in a hype bubble that we so desperately need to burst and find our way back to reality. When we strip blockchain down to its key characteristics, it’s much easier to dig through all the hype.

 

In the same way that a good mechanic can tell you a car won’t do well underwater because they know the baseline characteristics of the modern combustion engine, it becomes much easier to see through the nonsense when we strip blockchain down to what it is. And, in the same way, we can avoid dodgy second-hand car dealers promising us the new exhaust they’ve fitted on a Ford Mondeo will handle the Atlantic with ease, we can start to get to the bottom of what’s blockchain gold and what’s blockchain bullshit.

 

Blockchain protagonists need to prove it can augment traditional business models to deliver real measurable value, otherwise, we’ll soon be saying ‘remember all that fuss about blockchain’…

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