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Guard against blockchain over-exuberance

While Blockchain technology is certainly worth investigating, CIOs should not be fooled into thinking it is the panacea for all the potential use cases currently under discussion. It’s advisable to apply a healthy dose of skepticism. By Martha Bennett, Forrester’s principal analyst

Stories about digital currencies in general, and Bitcoin in particular, are still filling news feeds. However the industry is now more focused on the underlying technology of the blockchain and the concept of the shared ledger.

This is most clearly evidenced by the raft of startups which have been attracting headlines and investment dollars. A number of established companies are also investing in in-depth research and even proof of concept projects.

Despite what the headlines suggest, all blockchain projects are in the early exploratory phases. It’s not something you can buy and deploy and, what’s easily forgotten in all the euphoria, is that very little has actually been proven yet.

This does not discount the future potential of blockchain technologies. There are many startups with interesting technology approaches and compelling use cases, and some of the world’s best-known technology and consulting firms are working on blockchain projects.

However, it is clear that CIOs should critically assess what their needs are and get a much fuller understanding of their options before jumping on board the blockchain bandwagon.

Many a CIO has asked just how seriously they should be taking blockchain technologies, and when this happens the recommendation is to apply some basic but important reality checks.

At the outset it’s important to define what your understanding is. Like ‘cloud’ or ‘big data’, ‘blockchain’ means different things to different people. It’s important to ascertain what a particular person or company means by the term.

Find out which issues the blockchain technology addresses that aren’t possible to address in any other way and, if it does address these, has this been proven? Similarly, if cost savings are being put forward for using blockchain, has this been proven?

There are many interesting projects in the labs at startups, banks, and consulting firms. Many of these are even functioning prototypes, but it’s already conceded that they won’t scale at enterprise level.

In addition to this, Blockchain is a regulatory quagmire and many development companies fall short by not engaging with regulators before they offer the solution to clients.

Looking past the Bitcoin blockchain and its limitations, one can remain fairly upbeat about some of the alternatives. Ethereum, is of particular interest. With its Turing-complete programming language, it is more suited to complex requirements. But it isn’t the perfect solution either for the types of use cases currently put forward for blockchain solutions in an environment involving trusted parties. Hence the emergence of initiatives such as the Linux Foundation’s Hyperledger Project.

In short, companies should apply a five- to ten-year timeframe and keep asking ‘why?’

Blockchain technology today belongs in the research or innovation lab. For each project, there must be a detailed explanation of why and how blockchain is more efficient, secure, and lower cost than any of the available alternatives, as well as being legally acceptable.

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