Mistakes to avoid in your enterprise Blockchain projects

Ray Valdes, Gartner Research Vice President and Gartner Fellow

Organizations in Asia-Pacific and around the world have begun experimenting with blockchain technology for a number of use cases including monetary remittances, academic credentialing systems, land title systems, and tracking the origin and provenance of products. Yet, Gartner estimates 90% of enterprise blockchain projects launched in 2016 and first half of 2017 will fail within 18 to 24 months.

Part of the problem is that the majority of enterprise blockchain projects do not actually require blockchain technology. In fact, these projects would probably be more successful if they did not utilize blockchain.

CIOs should be aware of the common mistakes that can lead to disappointment and failure in enterprise blockchain projects.

Simply knowing where the frequent points of failure exist can help enterprises avoid falling into the same traps. 

  1. Misunderstanding or ignoring the purpose of blockchain technology
    For a project to utilize blockchain technology effectively, it must add trust to an untrusted environment and exploit a distributed ledger mechanism. Private blockchain deployments relax the security conditions in favor of a centralized identity management system and consensus mechanism that obviates the trustless assumptions. To correct this, enterprises must create a trust model of the entire system to identify trusted areas versus not-trusted areas and apply blockchain only to the untrusted parties.
  2. Assuming that current technology is ready for production use
    Despite a market of over 50 different blockchain platform technologies, only the bitcoin stack and the Ethereum platform are proven “at-scale.” However, third-party system integrators and multiple startups are marketing the technology as if it were mature. CIOs should assume most blockchain platforms will be immature for 24 months, and continue with experimentation and proofs of concept, especially in the context of open source.
  3. Confusing a limited, foundation-level protocol with a complete business solution
    While the term blockchain is often used in conjunction with innovative solutions in industries such as supply chain management or medical information systems, what is currently available on the market does not always match what is hyped in news stories. Given how blockchain is talked about, IT leaders might think the currently available foundational-level technology is essentially a complete application solution. But realistically, blockchain has a lot of evolving to do until it is ready to fulfill all the potential technologies. When considering a broad-scope, ambitious blockchain project, CIOs should view the blockchain portion to be less than 5% of the total project development effort.
  4. Viewing blockchain technology purely as a database or storage mechanism
    Some IT leaders conflate “distributed ledger” with a data persistence mechanism or distributed database management system. Currently, blockchain implements a sequential, append-only record of significant events. It offers limited data management capabilities in exchange for a decentralized service and to avoid trusting a single central organization. CIOs must be aware of and weigh the data management tradeoffs to ensure blockchain is a good enterprise solution in its current form.
  5. Assuming that today’s leading platforms will still be dominant (or even extant) tomorrow
    With over 50 options in blockchain platform technologies, and another dozen on the horizon, CIOs should not assume that the technology selected for a project this year will offer longevity. As with mobile, social and e-commerce platforms of the past, it is possible the most effective technology has yet to be created. CIOs should view blockchain options from 2016 and early 2017 as provisional or short-term options and plan projects accordingly.
  6. Ignoring funding and governance issues for a peer-to-peer distributed network
    The hypothesis is that blockchain platforms will be less costly than the current system of multiple redundant systems, processes and data interoperating with each other. However, the cost of blockchain technologies will be significant — made larger if existing legacy is not retired — and who will pay for what when multiple parties are participating remains mostly unanswered. Additionally, as the system grows in scale, so will the cost. Multiparty systems require new approaches to governance, security and economics that raise technical, as well as political, societal and organizational questions.
  7. Failure to incorporate a learning process
    It is important that enterprises take a hands-on approach to blockchain projects. The lessons learned from experimenting with the platforms, new business models, processes and products will be helpful for future implementations as part of a broad-scale digital transformation. Even if projects are contracted out, the IT department should work closely with the third-party supplier/partner to learn skills and concepts such as peer-to-peer computing, smart contracts, consensus mechanisms, identity management, governance and more that will be essential in future projects. CIOs should ensure knowledge is developed and transferred across the enterprise and recognize that knowledge might be the only value delivered by a blockchain project from 2016 and early 2017.

Ray Valdes is a research vice president and Gartner Fellow. He focuses on blockchain technology, metacoin platforms and the programmable economy. He led the Special Report, “Practical Blockchain”.