7 blockchain mistakes and how to avoid them

Companies are still cautiously dipping their toes into the blockchain trough, hoping to discover where the distributed ledger technology can create efficiencies in their business processes. But for those who are ready to take the plunge, there are common missteps to avoid.

Based on its research of blockchain implementations, Gartner this week published a guide to the seven most common mistakes companies should avoid.

Gartner gauges the maturation of new technology through a “Hype Cycle,” a graphic-based lifecycle that follows five phases: from the Technology Trigger, when proof-of-concept stories and media interest emerges, to the Plateau of Productivity, when mainstream adoption occurs – if the technology is more than niche.

Adrian Leow, senior research director at Gartner, said blockchain is currently sliding down toward the “Trough of Disillusionment.” That’s where interest wanes as pilots and proofs-of-concept fail to deliver forcing tech providers to either work out the kinks or allow a technology to fail and die out.

“The blockchain platforms and technologies market is still nascent and there is no industry consensus on key components such as product concept, feature set and core application requirements,” Leow said in a statement. “We do not expect that there will be a single dominant platform within the next five years.”

In fact, last week, Gartner in a separate study claimed that by 2021, 90% of current enterprise blockchain platform implementations will require replacement to remain competitive, secure and relevant.

“Many CIOs overestimate the capabilities and short-term benefits of blockchain as a technology to help them achieve their business goals, thus creating unrealistic expectations when assessing offerings from blockchain platform vendors and service providers,” Adrian Lee, a senior research director at Gartner, said in that study.

By 2025, the business value added by blockchain is expected to grow to slightly more than $176 billion – then surge past $3.1 trillion by 2030, according to Gartner. “Product managers should prepare for rapid evolution, early obsolescence, a shifting competitive landscape, future consolidation of offerings and the potential failure of early stage technologies/functionality in the blockchain platform market,” Lee said.

Consulting firms working in blockchain were surveyed by Gartner earlier this year and confirmed that CIOs aren’t even using the technology for its most valuable features. Mainly, companies are using blockchain as a database for shared record keeping and asset tracking while ignoring a key attribute: it’s an immutable audit trail.

“That no one is using those innovative features calls into question why they’re using blockchain. Just go use a database,” Avivah Litan, a Gartner vice president and distinguished analyst, said in an earlier interview.

The perception that the technology is not meeting business expectations has resulted in a palpable disillusionment among IT leaders because of the misalignment of expectations and the real-world requirements of enterprise projects. The problem also stems from a simple fact: blockchain is not yet mature enough for all enterprise use cases.

Here’s a rundown on the mistakes companies are making.

1. Not using blockchain to create immutable data audit trails

IT leaders who’ve taken the plunge into blockchain are mainly deploying it in proofs-of-concept tests, often to address the same problems a conventional database could handle, according to Gartner and other research agencies such as ABI Research.

“They’re not using it as a decentralized ledger able to support immutable data audit trails for exchanging a single version of transactional truth – the core mission at the heart of blockchain. For many, blockchain remains a technology in search of a problem,” according to Gartner.

2. Assuming the technology is mature

A second mistake enterprises make is assuming blockchain technology is ready for production use when the market remains largely composed of fragmented platform offerings that try to differentiate themselves in various ways.

Some blockchain platforms are developed more for confidentiality, others for tokenization or the digital representation of fiat currency or goods; still others are created for universal transactions. Most, Gartner said, are too immature for large-scale production work that comes with the accompanying and requisite systems, security and network management services. However, this will likely change within the next few years.

“CIOs should monitor the evolving capabilities of blockchain platforms and align their blockchain project timeline accordingly,” the report said.

3. Confusing protocol with complete business solution

A third misstep is confusing protocol with business solution, as blockchain is a foundational-level technology that requires applications on top of it to fulfill specific business needs.

While blockchain can and is being used in a variety of scenarios ranging from supply chain management to sharing data across medical information systems, it must also include features such as user interface, business logic and interoperability.

“When it comes to blockchain, there is the implicit assumption that the foundation-level technology is not far removed from a complete application solution. This is not the case,” Leow said. “It helps to view blockchain as a protocol to perform a certain task within a full application. No one would assume a protocol can be the sole base for a whole e-commerce system or a social network.”

4. Misconceptions about scale

A fourth misconception is that blockchain should be considered as purely a database or data storage system. The technology does not yet scale well, as each node in the peer-to-peer network receives a full copy of the distributed ledger each time it’s updated; as it grows, performance slows.

Blockchain, Gartner said, was designed to provide an authoritative, immutable, trusted record of events arising out of a dynamic collection of untrusted parties. That architecture comes at the price of database management capabilities.

In its current form, the technology does not implement the full “create, read, update, delete” model found in conventional database management technology. Instead, it should be seen as a write-once, append-many electronic ledger. “A conventional data management solution might be the better option in some cases,” Leow said.

5. Expecting interoperability too soon

A fifth mistake businesses make is assuming the blockchain universe includes interoperability standards. While some vendors of blockchain platforms talk about interoperability with other blockchains, it is difficult to envision interoperability when most platforms and their underlying protocols are still being designed or developed, Gartner said.

Currently, any vendor conversations about platform interoperability should be seen by CIOs and others as a marketing.

“Never select a blockchain platform with the expectation that it will interoperate with next year’s technology from a different vendor,” Leow said.

6. Assuming smart contracts are fully baked

A sixth mistake some make is assuming that smart contract technology is mature. While smart contracts arguably represent the most powerful aspect of blockchain because they are business automation applications that add dynamic behavior to transactions, problems remain.

Conceptually, smart contracts are software scripts that store procedures associated with specific transaction records. For example, a smart contract could ensure that when cargo reaches a point of entry, a manufacturer awaiting the parts is notified. Unlike a stored procedure in a centralized system, smart contracts are executed by all nodes in the peer-to-peer network, resulting in scalability and manageability challenges that haven’t been fully addressed.

Smart contract technology will undergo significant changes. So CIOs should not plan for full adoption yet, opting instead to run small experiments first. That area of blockchain will continue to mature over the next two or three years, Gartner said.

7. Misunderstanding governance

In a private or permissioned blockchain, governance of the network is typically handed by the owner of the blockchain. So while a supply chain consortium may have dozens of members, the originating company is typically in charge of onboarding, verifying identifiable and financial information, and resolving any disputes that may arise.

That’s not the case with public blockchains.

“Governance in public blockchains such as Ethereum and Bitcoin is mostly aimed at technical issues. Human behaviors or motivation are rarely addressed,” Leow said. “CIOs must be aware of the risk that blockchain governance issues might pose for the success of their project. Especially larger organizations should think about joining or forming consortia to help define governance models for the public blockchain.”

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