Blockchain technology isn’t shaking out how we thought it would. So, should we pack our bags and go home?
For the last decade, blockchain technology has captured the imaginations of nearly every industry across the globe, including the federal agency I work for. And while it may forever be known as “the technology underpinning Bitcoin,” blockchain’s evolving reputation to solve a wide and varying range of problems has led to an infusion of billions of dollars into the technology. A recent Forbes article pointed out that total corporate and government spending on blockchain is on target to hit $2.9 billion in 2019, an 89% increase from the year before. So, what are we getting for all of this investment?
Unfortunately, not that much.
Blockchain technology enables peer-to-peer digital transfers of value without third-party validation. It replaces the trust function that we often rely on when transacting business over the internet. The idea that we can outsource this trust function from humans and institutions to technology has significant implications for many industries, which is a big reason blockchain has garnered so much attention.
But, alas, blockchain technology isn’t shaking out how we thought it would. Some observers go so far as to declare the technology “useless” or claim that blockchain solutions are far worse than what they’re replacing. Even the diehard blockchain believers acknowledge some rather significant hurdles that need to be overcome before blockchain is widely adopted. So, should we pack our bags and go home? Of course not. As the saying goes, the past is prologue, and there is a lot we can learn from history as we navigate this period of uncertainty.
Written over 30 years ago, Peter Drucker's book “Innovation and Entrepreneurship: Practice and Principles” has staying power. Ducker reminds us that “most innovations … result from a conscious, purposeful search for innovation opportunities, which are found in only a few situations.”
One of those situations is what Drucker called “knowledge-based innovation.” These types of innovations are rarely based on one factor but on the convergence of several different kinds of knowledge. Take the airplane, for example. According to Drucker, the airplane was invented as the result of two knowledge roots: the gasoline engine and aerodynamics. “Each was developed quite independently. It was only when the two came together that the airplane became possible.” This is precisely the way blockchain technology came to be. It is the result of pre-existing technologies converging, working together in a new way that enabled a novel way of transferring value over the internet.
Knowledge-based innovations are the most glamorous of all innovation types and often comes to mind when we talk about “innovation.” The downside of knowledge-based innovations is that they require a great deal of time to mature. Drucker pointed out that “the lead time for knowledge to become applicable technology and begin to be accepted on the market is between 25 and 35 years.” If this timing is right, that means blockchain technology is a lot like a teenager who’s decent at driving in an empty parking lot but would be a public danger in midtown Manhattan.
So as this new technology matures, here are a few reminders that Drucker left us with that add some perspective to the seemingly slow churn of blockchain applications. May they serve as motivation to all of us as we forge ahead:
- Purposeful, systematic innovation begins with the analysis of the opportunities. The question I get asked the most when I talk about our blockchain work is, “What problem are you trying to solve?” I appreciate where the question is coming from (after all, blockchain technology should be used to improve “something”), but I believe we are over-emphasizing “problem-solving.” Drucker didn’t frame things in terms of “problems,” he framed them as “innovative opportunities,” and that we need to periodically and systemically scan the horizon to identify opportunities to explore. This could be a change in perception or a demographic shift that lends itself to the value proposition of blockchain. Viewing the world through the lens of opportunities as opposed to only problems will widen our aperture and give us license to explore completely new paradigms to achieve some end.
- To be effective, innovation has to be simple and it has to be focused. The worst thing we can do for the advancement of blockchain technology is to try to explain the technology. I’ve both contributed to and have watched these explanations of blockchain technology go terribly wrong, only to watch eyes glaze over and confuse the issue even more. We should be talking in terms of outcomes and goals and not what a “node” does. Do people really understand how the internet works? All they know is that when they type something into a search engine it gives them an answer. So, let's all strive to simplify using blockchain, not complicate things.
- Effective innovations start small. There seems to be a lot of collective frustration with the progress we’ve made to date with blockchain. But innovation is iterative, cumulative and continually building on itself. What we are seeing with blockchain technology is small but steady progress. Pilot projects are moving to production. The reality is that things are playing out as they should.
- Don’t try to innovate for the future. Innovate for the present. Many authors have opined on what the long-range impact blockchain technology could have on society. Although they paint a pretty picture of what the future might look like one day, we should search for opportunities that blockchain technology can exploit today. One use case that’s gaining popularity is using blockchain technology for cross-border payments. With blockchain, they are proving to be faster, more transparent and cheaper. Commenting on the use of blockchain technology for this use case, Gartner vice president Avivah Litan noted in a recent Computerworld article, “This really isn’t a revolution, it’s just a big incremental improvement to doing business as usual.” But to Drucker’s point, “incremental improvement” is better than waiting for the best application to come along.
- Innovation is work. We often associate innovation with flashes of genius, but nothing could be further from the truth. Drucker reminds us that innovation takes knowledge, ingenuity, and “… hard, focused, purposeful work making very great demands on diligence, on persistence, and on commitment.” Stories of hard work and perseverance are pervasive in the athletic and business world. We don’t, however, feature hard work and perseverance when we talk about innovative endeavors. Edison once said, “we often miss opportunity because it’s dressed in overalls and looks like work.” It’s safe to say that blockchain technology is wearing overalls.
Perhaps a more fundamental lesson we can draw from history is that out of chaos, will come order and understanding. The dust will eventually settle. But for now, we have to be comfortable with being uncomfortable and know that once we get to the other side of the innovation gauntlet things will be much clearer. History teaches us that it takes patience, and a lot of work. John R. Pierce’s quip probably sums up the current state of blockchain technology the best, “After growing wildly for years, the field of blockchain appears to be reaching its infancy.”
Craig Fischer is a program manager within the Treasury Department’s Bureau of the Fiscal Service who is focused on financial innovation and understanding the impact emerging trends and technologies will have on government finance. Craig leads the agency’s blockchain work where he and his team have carried out two proofs of concept over the past two years.