More than six months have passed since I wrote Forrester’s predictions 2019 report for distributed ledger technology (DLT, AKA blockchain). In the blockchain world, that’s ages ago.
As I keep being asked how those predictions are shaping up, and having just attended two excellent events in New York, now’s a good time to take stock. So how did we do?
Terminology shift from blockchain to DLT: I was mostly wrong but also a little bit right. What we’re seeing today is neatly reflected in the titles of the two conferences I referred to above: the EY Global Blockchain Summit and IMN’s Synchronize 2019: DLT And Crypto For Financial Institutions. In other words, in the financial services sector, the distributed ledger/DLT terminology has become predominant; there are even firms where the term “blockchain” is banned from the vocabulary altogether. Outside of this industry, though, it’s a different picture: Say “DLT” or “distributed ledger,” and you get blank stares; say “blockchain,” and eyes light up. For the same reason, many startups continue leading with “blockchain” in their marketing, even if their software lacks some of the characteristics typically associated with that descriptor. One said to me: “Blockchain is a recognized category; DLT isn’t.”
Key takeaway: Neither “blockchain” nor “DLT” really tells you what you’re getting — it’s a bit like saying “cloud” or “big data.” You really need to open up the tin and look at what’s inside if you want to understand an offering’s capabilities.
An abundance of platforms, with improved tooling and services — it’s all happening. The list of frameworks we most frequently encountered in 2018 remains largely unchanged (Ethereum/Quorum, Hyperledger Fabric, R3’s Corda, Digital Asset Holdings’ software, and MultiChain). New: Since the second half of 2018, Hyperledger Sawtooth has gained considerable traction, and there are a couple of new enterprise-focused blockchain kids on the block, albeit with well-established parents in the shape of Cisco and VMware, respectively. Major vendors like AWS, IBM, Microsoft, Oracle, and SAP have been busy launching new or upgraded offerings. We’re also seeing enterprise-grade tooling emerge from startups, such as Blockchain Technology Partners’ Sextant, a management tool for Sawtooth. Of note also: Digital Asset has open sourced its DAML smart contract modeling language, and work is underway to integrate it with Sawtooth and VMware’s Concord.
Key takeaway: The pace of innovation is fast, and you can expect a steady stream of enterprise-relevant launches. It’s too soon to tell how the respective frameworks will shape up or, indeed, shake out; this will only become clearer once we move into scaled-out, fully operationalized environments. Today’s enterprise focus is mainly on permissioned environments, but there is interest in the potential of an eventual convergence of permissioned and public networks. In that context, a key step forward has been EY’s announcement to open source Nightfall (zero-knowledge proofs to ensure privacy on public blockchain networks).
Technology will be less of a challenge than business and regulatory matters — very much so. Yes, this is still an emerging technology, and I’d be irresponsible if I belittled the challenges that development teams have to solve on a daily basis to architect distributed ledger networks and applications that can be operationalized. But it’s the non-tech challenges that are ultimately the make-or-break of a blockchain initiative. We’ve seen initiatives go nowhere because network participants couldn’t agree on what data to share or on what legal basis to cooperate with. And these are projects focused on efficiency gains in existing processes, not major transformation efforts. Such projects are clearly of value and a necessary stepping stone toward realizing the true potential of DLT-based processes. At the same time, these struggles are also a good indicator of why those involved in projects are much more realistic about time frames now.
Key takeaway: DLT projects are 80% business, and there are no shortcuts. A proof of concept can act as a catalyst to engage the relevant teams (functional, legal, and compliance) and — when applicable — regulators in more meaningful ways. The greater the degree of process and culture change, the longer the process will take, particularly when multiple organizations need to be involved.
Innovation around the tokenization of assets — key strategic developments are underway. The true innovators in the DLT ecosystem have always highlighted how the tokenization of assets will be a key enabler for new business models. But assets frequently change owner, and not everybody will be on the same platform or in the same network. Cue the Token Taxonomy Initiative, launched in April 2019. The goal is to develop a technology-neutral taxonomy, terminology, and specification for tokens.
Key takeaway: Initiatives involving the tokenization of assets typically are more strategic in nature, and the more transformative they are, the longer they’ll take to come to fruition. But the foundations are being laid today.
In my predictions 2019 report, I also made reference to the impending threat of a “blockchain winter.” So far, this hasn’t come to pass. But the risk remains, particularly in situations where blockchain simply isn’t the right approach or where the expectations of DLT are out of line with what the technology or, indeed, any technology, can deliver. As predicted, we’re continuing to see a steady stream of initiatives go into production and innovators working on the design of those new business and trust models that blockchain can enable.