By Hari Subramanian for Finextra
Whenever a technology trend hits the peak of hype cycle, claims that it can even solve world hunger, abound. Evangelists start piling on the benefits that the new technology brings. Blockchain is experiencing this problem as well.
It is surprising to read reports from even reputed consulting firms and major banks that describe the benefits of blockchain along the following lines:
- Blockchain yields benefits in data manipulation and reconciliation
- It can bring efficiencies in front, middle and back office systems through decommissioning of legacy infrastructure
- It increases revenue and offers greater liquidity through real time capabilities
- It opens the doors for new products and services yet unimagined in the financial services landscape
Hoping to convince more ecosystem players to join the blockchain club, evangelists tend to overrate the benefits. While all of the above benefits may be true, the list fails to acknowledge that there are other competing and complementary technologies that provide some of them. For example, if you have to decommission legacy infrastructure, there are many proven technologies such as API’s, mainframe MIPS reduction, etc. that could do the job. Liquidity advantages often come through real time settlement capabilities that are often associated with real time networks that are outside of the blockchain.
Benefits that justify blockchain usecases must be tightened to relate to the core features of blockchain – data sharing across parties in a transaction or ecosystem and automatic execution of contractual agreements between parties and related triggers. Shared data would lead to reduction in data reconciliation effort. Automatic programming of contractual agreements could reduce operations costs, speed operations, and reduce counterparty risks. However the full benefits of smart contract execution relies on so many other conditions such as complete coverage of all possible event triggers and a perfect mapping between the physical and digital worlds (read my other blog “Fraud in Blockchain and Smart Contracts“).
Practitioners run the risk of diluting business cases for blockchain usecases by overstating benefits that should be attributed to other technologies rather than blockchain. In addition, they also need to look at other aspects such as whether the usecase would lend itself to fail safe – fail early experimentation due to lower complexity and risks in the nature of ecosystem to be setup, data to be shared, regulatory scrutiny that the usecase might attract, or proof of concepts to be developed.
First appeared at Finextra