Is Blockchain Overhyped? Misinterpretations vs. Reality

14.06.2018
6 min.
title

Blockchain is everywhere: conferences, Google searches, trending video grids and even your favorite gym. But is this just hype and oversaturation or is there real value in blockchain?

Well, opinions vary across the board. American economist Nouriel Roubini calls Bitcoin “the bubble of all bubbles,” and says that Blockchain has been around for the last ten years with very little to show for it. Warren Buffet calls blockchain a “mirage.” He also says that “the idea that it has some intrinsic value is just a joke.”

These claims about blockchain overhype are often met with skepticism, since even governments all over the world are jumping on the bandwagon and adopting the tech very fast. You may also calm yourself down with the fact that, after all, Buffet was wrong about internet stocks bubble in the 90s, and the success of companies like Amazon, Facebook and Google proves him totally wrong. But don’t turn that “noise” off just yet. It’s easy to dismiss criticisms of blockchain as just “hate” or a counter reaction to overhype, but Gartner has dropped the bomb on this hot issue when it evaluated blockchain’s position in tech hype cycle under the “peak of inflated expectations” and said that blockchain is headed for an inevitable “trough of disappointment.”

So who is right?

Experts say that blockchain as the underlying infrastructure is not overhyped but aspects of the crypto industry, such as cryptocurrencies, will see big losses or complete transformations in the future. So when considering adopting blockchain, there are areas where it is important to proceed with caution. Let’s look at what you have to be aware of.

Common blockchain misconceptions

Misconception: If you are not using blockchain you are missing out

Reality: Because the technology is so popular, some people mistakenly assume they need it, without considering the specifics of their project. Blockchain being used in areas where it’s inappropriate gives the whole technology a bad name. This is the byproduct of hype where many people treat blockchain as a panacea and run to it in scenarios that don’t need a blockchain-based approach. Blockchain is not going to solve every problem you have, and it’s not going to work for every project. To learn if blockchain is applicable for your business environment, ask yourself these questions:

  • Do you have a project with multiple parties in need of access to the same data?
  • Do these parties have a need to write to the data store?
  • Do all these parties need a reliable way to check if data is valid and tamper-proof?
  • To achieve all those goals, do you depend on intermediaries and overcomplicated processes?
  • Will your business benefit from a decentralized system? Are there good reasons not to have a centralized system?

If the majority of your answers are yes, you need to research blockchain architectures further before you commit.

Misconception: Blockchain will be adopted universally in a short period of time

Reality: It’s still very early for the technology, and lack of adoption and standards are huge issues. Successful implementations that have been covered in the press are not pure blockchain architectures, but rather blockchain-based or blockchain-inspired ones. According to a poll by Basware, a provider of financial supply chain solutions, 48% of people report they don’t fully understand what blockchain is exactly, which is the main deterrent for adoption. 42% said a need for skilled experts to apply the technology is an issue. Unfortunately, despite the hysteria, massive technical and non-technical blockchain adoption isn’t around the corner at all. We are only in the rational assessment stage slowly moving beyond proof-of-concept. According to an OgilvyRED 2017 survey of tech elites in the USA, the level of awareness for blockchain technology is just 27%. This factor needs to be taken into consideration when planning your blockchain-based project.

All of these factors are at play when it comes to actual deployment. According to Gartner’s 2018 CIO Survey, only 1% of CIOs fully deployed blockchain tech, and just 8% are investing into developing short-term plans or have already been experimenting with blockchain application development. 14% of CEOs are working on medium and long-term plans. The majority, however, are in the dark: 43% of CEOs are aware of blockchain but have failed to make any action plans, and a whopping 34% have no interest in deploying the hyped up tech at all.

Worldwide blockchain adoption

Source: Gartner (May 2018)

Misconception: Blockchain is volatile because Bitcoin is volatile

Reality: Despite the fact that most people know by now that Bitcoin does not equal blockchain, there is still lack of insight just how important a higher level of abstraction is in this case. According to Forrester, blockchain must be viewed as a “technology concept or architectural principle.” Of course, blockchain tech is currently tied to cryptocurrencies but that doesn’t mean that if Bitcoin crashes or disappears completely, blockchain will perish as a concept. NYU professor of corporate finance and Wall Street’s “dean of valuation” Aswath Damodaran says that just like the .com bubble in the late 90s, everyone knows blockchain is the future, but just how it’s going to shape it, is still unclear. In the 90s internet companies were priced, not valued. The same way crypto commodities are now also priced and not valued. The real value will come only with wider adoption.

Misconception: Blockchain is immutable

Reality: The immutability of blockchain is exaggerated. Even though the write-once, append-only principle is its strong point that adds a level of data assurance, blockchains can be rewritten by recomputing the chain, or forking it. Besides, what a blockchain development company sees as blockchain blueprint today will be changing rapidly in years to come. Gartner predicts that by 2021, 90% of all enterprise blockchain platform implementations will have to be replaced within 18 months.

Misconception: Blockchains are decentralized and help businesses ditch former intermediaries

Reality: Blockchain networks are not entirely decentralized, nor are they free from intermediaries. Blockchains are distributed networks that retain a degree of decentralization, but Forrester research hints that central control is represented by miners and development teams, as well as the code itself and its logic. When it comes to intermediaries, the current ones may change dramatically as adoption widens and standards appear. New intermediaries emerging from adoption may include wallet providers or crypto-currency exchanges, governing bodies and regulatory frameworks overseeing standards, etc.

Misconception: Blockchains are secure

Reality: Even though blockchains may be harder to tamper with, they are not immune to attacks. According to Forbes, you can’t find a system or a database that is totally immune to attacks. However, the larger you make it, and the more distributed the network is, the more security you will get as a result. Blockchains do provide a way of catching unauthorized records changes to applications that are developed on top of them. But security principles will have to continuously evolve to counter the ever-changing threats and vulnerabilities. And this means you depend on the skills of your blockchain developers against the skills of blockchain criminals.

Misconception: Blockchain prevents fraud

Reality: The harsh truth is that, regardless of how fraud-proof blockchain architectures may seem to be, false ownership registered into a blockchain system is still false ownership, according to Forrester. Being hard to tamper with and visible to all participants on the chain does not change the fact that the ownership is fake. Blockchain is just one element in your infrastructure helping make sure the product supply chain is valid. Transparency does help but Forrester warns about its potential to have negative repercussions like diminishing competitive advantages or promoting price fixing.

Conclusion

Let’s face the facts: blockchain application development is not mature, and there will be a decline in popularity and a general sense of disillusionment after the peak in expectations is achieved.

But even if blockchain is a bubble in its current state, it is still—as a concept of decentralization at its core—a transformative technology that will cause the revolution of everything. So, decentralization will definitely remain as the foundation of new revolutionary solutions but Bitcoin may disappear from the equation. Smart contracts will be the blueprint of the new economy, but whether they will involve Etherium or not, is not clear. The “how” is what we have to figure out yet.

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