Along with a bursting of the cryptocurrency bubble, there might have been another implosion of sorts in recent months.  According to a Reuters report, several banks and financial institutions have put brakes on their efforts to reinvent existing systems and processes using blockchain. The report names prominent financial institutions, such as Depository Trust&Clearing Corporation (DTCC) and BNP Paribas SA, which started blockchain projects last year but have shelved them for the time being.

While small companies have profited their association with blockchain, the case is different for large organizations. For them, blockchain represents cost efficiency, streamlining of operations and, in some cases, new income streams. The Reuters report cites multiple reasons – costs to industry readiness – for a rethink on the part of these institutions. Tim Swanson, founder of technology advisory Post Oak Labs, says the problem lies with expectation management, or rather lack of it. “..many vendors and large consultancies that made claims that could not be fulfilled in the time spans they had said on stage at fintech events,” he said.

Hype That Does Not Equal Expectation

Hype has preceded actual implementation of blockchain in the last year. The most problematic aspect of this hype is the expectation of quick returns. Companies listed on the stock exchange have shot up to unsustainable valuations merely by adding “blockchain” or feigning interest in the technology. A notable case is that of Riot Blockchain, a company that dealt in veterinary products before its blockchain avatar, but saw its stock price shoot up from $8 to $40 on the back of a name change and rudimentary investments in blockchain.

Unrealistic timeframes are also causing problems with an assessment of the technology’s potential. DTCC announced a blockchain project last year to reconfigure its repurchase agreement transaction process. But it stopped the project this year because there was nothing wrong with the existing process. “Basically, it (the project) became a solution in search of a problem,” a DTCC official told Reuters.

Are Organizations Really Pulling Back From Blockchain?   

It might be tempting to believe the Reuters report as evidence of a pullback in enthusiasm for blockchain. This might especially be the case in the absence of statistical evidence. But anecdotal evidence runs both ways. According to a recent report, JP Morgan is considering spinning off its in house blockchain project Quorum into a separate entity. The bank told the Financial Times that Quorum “has become an extremely successful enterprise platform even beyond financial services and we’re excited about its potential.”

Research also points to increased enthusiasm for blockchain. According to research firm CB Insights, the number of unique active corporate investors in blockchain technology hit a high of 91 in 2017.

A corporate tracker maintained by Outlier Ventures (see above), a VC firm, diagrams industries across multiple sectors have begun using pilot projects using blockchain. Several companies with these sectors are part of multiple consortia that are promoting cross-industry collaboration. For example, the Ethereum Enterprise Alliance, which aims to develop standards for smart contracts, has a diverse membership roster, including the likes of Antibiotic Research UK and finance powerhouse JP Morgan. The CB Insights study further writes that “although there have been a number of high-profile members exiting consortia, successful trials and expanding member bases could bode well for the future of blockchain consortia, which are fundamentally tied to the quantity and quality of their respective members.”

In a lengthy post on the Harvard Business Review site last year, Marco Iansiti and Karim Lakhani, faculty at Harvard Business School, explained that blockchain is a foundational technology as opposed to a disruptive technology. According to them, it has the potential to create new foundations for our economic and social systems. “But while the impact will be enormous, it will take decades for blockchain to seep into our economic and social infrastructure,” they wrote.

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