Blockchain is a distributed digital ledger system that can be used for tracking transactions securely. While many discussions center on its potential use in the financial services industry, it can be used for almost any goods or services. The diamond industry, for example, uses it for registration. Observers think that its adoption could streamline processes, enhance transparency, and decrease costs.
Blockchain has potential to streamline processes and increase transparency.
Nonetheless, significant obstacles to widespread adoption exist. There are five major obstacles that need to be overcome.
Regulation and Standards
Transactions in the financial sector are highly regulated by government bodies. The transactions themselves, in many countries, move through government agencies, such as the U.S. Federal Reserve. At present, the financial services industry has no regulations in place for the use of blockchain.
The financial services industry is just one example. But the movement of money is a key test case in blockchain use, in part because it is still associated with the largely discredited Bitcoin cryptocurrency.
Financial services regulations illustrate a larger set of questions re regulations. How will third parties be conducted? How is transparency to be assured, and to whom? One of Blockchain’s advantages, at least as being touted by proponents is its security, but that security is not fully trusted given some past breaches.
In addition, there is no agreement on what standard policies will be or what laws will govern the transactions either locally, nationally, or globally.
As an article in Forbes points out, the lack of regulation affects even how transactions in blockchain should be written. Three open source consortia currently exist. Every one of them adheres to a different set of standards and code.
Validation Is Key
All new technology, from the nascent personal computer several decades ago to evolving apps now, needs to be tested. Pilot programs are needed. Proofs of concept (POCs) are needed. Revisions to versions 1.0 and 2.0 and their successors will very likely be needed.
At this point, validation has not been sufficient for business strategy executives to feel comfortable committing to Blockchain, no matter how appealing its benefits may be.
One of the primary conclusions to be drawn from technology news is that Blockchain will follow the path of nascent technology before it. After all, the idea of a small computer was a gleam in the eye of many people before entrepreneurs like Steve Jobs and Bill Gates made the machines and their use possible to the masses.
The path of technological innovation works like this:
- People use the nascent versions and standards that exist.
- Some of them will work.
- Others may not, or may not work in specific, desired ways.
- Adjustments are made.
- Some are scrapped.
- Others work better than the versions before.
- Eventually, the idea catches hold.
Participants in the 2016 Innovate Finance conference were pointing toward this path of technological innovation when they said, according to Computer Weekly, that potential blockchain adopters needed to “start playing.” In other words, early adopters of blockchain need to start to experiment and review models of blockchain use, with the idea that early stages can lead to better adaptations.
The facilitation of blockchain will be fostered by multiple adoptions and their refinement over time.