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90% of All Current Enterprise Blockchain Solutions Will be Obsolete by 2021, Gartner Predicts

Utah Wyoming Blockchain Bill

market for blockchain solutions could be growing at a faster pace
than the evolution of these technologies, a phenomenon that might
contribute to promote their early adoption but could lead to the
obsolescence of the current products in the next two years.

A study by the analysis firm Gartner concluded that by 2021, 90% of all the currently available enterprise blockchain platforms will require an upgrade or replacement within 18 months to adapt to the needs of the markets and remain competitive.

According to Adrian Lee, senior research director at Gartner, there
is currently an over-dimensioning of the benefits associated
with the use of these technologies:

“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.

Blockchain is Not the Answer Yet… But a Bright Future is Approaching

The interest in blockchain technologies, especially in the business area, has substantially increased despite the bearish streak experienced by the markets during 2018. IBM and Alibaba are the corporations with the highest number of blockchain-related patents registered, and every day the use of these technologies seems to diversify onto applications outside the purely economic sphere.

Jimmy Song has spoken in many ocassions against the "blockchain not bitcoin" philosophy
Jimmy Song

However, the issue of early obsolescence is not an isolated opinion of Gartner. A few weeks ago, Bitcoin programmer and proponent Jimmy Song explained in a controversial post that in most times “blockchain is not the answer” to solve the problems associated with conventional industries.

Mr. Song thinks there is a hype around blockchain technologies that does not correspond to reality. From his point of view, there is no decentralized application that is more profitable and efficient than an equivalent based on traditional or “centralized” technology.

“The past five years have produced nothing with this so-called “blockchain” technology and we’re unlikely to see anything in the next five. The only thing that blockchain seems to be good at is promising to fix the biggest problems while delivering very little and consuming tremendous capital.

Despite the arguments mentioned above, Gartner’s study is optimistic. Obsolescence would only exist if service providers refuse to innovate – something very difficult to happen. In fact, Gartner believes the market will exceed 176 Bn USD by 2025 and then grow to 3.1 Trillion USD 5 years later, so they recommend that investors “prepare for a rapid evolution” of these technologies:

“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.

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How to Make Public Blockchains Safe for Enterprise Use

Paul Brody is EY’s global innovation leader for blockchain. The views expressed are his own.

At the beginning of this year, I wrote a column predicting that companies would find the allure of public blockchains irresistible. While a world of private blockchains provides many enterprises, regulators and central banks with the comfort that there are accountable, centralized entities involved, these permissioned networks will never match the innovation or network effects that public, permissionless networks offer.

If the world of enterprise commerce remains committed to private networks, then they will have only substituted one intermediary (financial institutions) for another (software companies and hosting organizations). However, it is possible, and essential, to bring these two worlds together, and to do so on public, permissionless and decentralized networks.

In order for public networks to deliver on their promise, two key things must happen. First, regulators must provide a clear set of rules around how tokens, assets and smart contracts that exist on public blockchains will be assessed. And second, companies must implement these regulatory rules in the decentralized environment of the public networks.

The first of these is off and running. Regulators in the U.S., Europe and around the world are defining what is an asset, a currency or a security. It shouldn’t be expected that all regulators will come to precisely the same conclusions, but it does look like some early convergence is taking place: Utility Settlement Coins are being characterized as securities while cryptocurrencies are being treated more like currencies or assets.

One gap that we regard as particularly important going forward is how tokenized fiat currency will be regulated: If you have a $1 token on a public blockchain, and that is backed by one U.S. dollar in an escrow account, will that be a security or a currency and what rules might apply? So far, no regulator has specifically addressed this emerging category of blockchain tokens.

The second is that whatever the regulatory rules are, they must be implemented in tokens and smart contracts. In particular, it’s important that while the blockchain as a whole may be decentralized, a central bank should be able to issue and cancel its own currency on a blockchain and companies should be able to manage their own assets when they are tokenized.

Know your carton?

To illustrate how important this is, let’s come back to the question of how companies will do business with each other on public blockchain networks: The exchange of product or asset tokens for money tokens. Once a company starts to tokenize its inventories and assets and use those in contracts and financial services, they are disintermediating traditional financial entities. They are also, consequently, taking on some of the regulatory responsibilities of those intermediaries.

Tokens, if they have value, can be moved around as easily as money, for example. While a consumer packaged goods (CPG) company may never have had cause to think about this before, once they tokenize packages of detergent, those tokens have an effective exchange rate with real money and other goods that makes them perfectly suitable for any kind of deal, legal and otherwise. That means even CPG companies will become responsible for know-your-customer (KYC) and anti-money-laundering (AML) compliance.

Is this a deal-breaker for public networks and enterprises? No, it isn’t.

One of the great benefits of smart contracts and blockchain tokens is that they are programmable. Going forward, audit, KYC and AML regulations can and will be written into smart contracts and tokens. Combined with exchange controls and other checks, it will be possible to control how and when tokens are used on public blockchains without resorting to the centralization of the blockchain as a whole. This will even include canceling and issuing new tokens to handle theft and loss.

There are, no doubt, many who will mourn the end of public blockchains as systems wholly outside of regulatory control. For blockchains to deliver on their promise, this is inevitable, but how this happens matters a great deal.

If regulatory compliance is delivered through centralization, then there will be a great loss to innovation and we may see the dream of a re-decentralized internet die. I didn’t call my original paper on blockchain technology “Device democracy” for nothing. It’s my dream, too.

There is another option, however: regulatory compliance within a decentralized framework. An opt-in model based on voluntary agreement to smart contracts means that companies can use blockchains for business without embracing undue risk. But at the same time, individuals and startups can continue to pursue radical experiments without having to ask anyone for permission.

Hardhats image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Why Blockchain Is Becoming the 'New Normal' In Enterprise

Richard Gendal Brown is the CTO at R3.

After years of discussion and planning, enterprise blockchain is now becoming a reality across industries as diverse as insurance, healthcare, gold, oil and gas, finance and more. But it’s worth taking a step back and reflecting on the reasons why.

Have you ever stopped to think about the difference between the way businesses function and the way the markets in which these businesses operate function?

Most businesses are centralized, with the standard corporate structure of a CEO, a board of directors and all the departments necessary in order to run effectively; yet most markets are decentralized, with no central body in charge. As a result, these two inextricably linked entities function in entirely opposite ways.

When the IT revolution began many decades ago, it was natural for companies and other centralized organizations to be early adopters of the technology: there was a competitive advantage to be gained by optimizing a firm’s operations, and a command-and-control mechanism was required to get the technology adopted and working practices changed.

As a result, it’s no surprise that if we now look back on the achievements of the IT industry over recent decades we see that technology platforms have mostly been deployed within firms and have mostly been used to optimize those firms alone.

However, when you raise your attention to the level of industries and markets, you see an entirely different scenario. It’s really quite remarkable how little has changed in so many markets. International trade today would be easily understandable by a merchant from three hundred years ago. The mechanics of how a complex reinsurance contract is negotiated would look little different from a century ago. The list goes on.

Costs of centralization

In fact, it’s only when markets have introduced centralization, such as with the creation of highly regulated centralized infrastructure in the financial markets, that we’ve seen a transformational change at the level of an entire industry.

The results have often been spectacular. But they have come at the cost of new intermediaries, greater risk concentration and a resulting regulatory need to ensure these new institutions do not become rent-seekers or stifle innovation once established.

Until recently, we simply haven’t had the technology that would allow us to make such changes without introducing new points of centralization and control. The deepest assumptions of most of the software that exists today are that it will be deployed within a firm, that it will be controlled by that firm, and that, because it is run by or for that firm, its outputs can be trusted by people in that firm.

And so we find ourselves in today’s world, where each company in a market has an insanely complex IT estate with hundreds or thousands of corporate applications, many of which do the same thing as their competitors. Except the reality is, in fact, worse.

Not only do we have a mass of duplicated systems, none of them are ever in sync. They constantly have to be reconciled and checked to make sure that every party to a deal or contract is in sync with each other.

Bitcoin’s lesson

However, the advent of bitcoin taught us something very interesting – it was possible to build systems that are deployed between multiple entities, who don’t fully trust each other but desire to transact with each other, and to do so without introducing a new centralized party they must all trust.

It could be a massively powerful breakthrough to apply the same logic to other areas such as legal contracts and healthcare records, or reinsurance policies and complex loans. It could be the Holy Grail for optimizing entire markets without forcing these markets to reshape themselves to conform to the badly-fitting centralized models that today’s software would demand. It would be the best of both worlds and could unleash a productivity revolution.

This is what we at R3 believe is the potential of the application of blockchain technology to business. Used correctly, it offers the ability for anybody to transact directly with anybody else on an open network, with total assurance that “what I see is what you see,” with guaranteed privacy and scalability.

Now, thanks to enterprise blockchain technology, entire markets are in the process of being transformed and it’s happening without forcing new intermediaries into the mix or driving these riotously decentralized markets into inappropriate centralized models.

Blockchain is decentralized software for today’s markets, and over the next decade, it will become the new normal in industries across the globe.

Takeoff image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.