Blockchain technology has been surrounded by plenty of hype, which makes many business leaders keenly interested in adopting it but also concerned about blockchain challenges and risks.
At its most basic, blockchain refers to peer-to-peer distributed ledger technology that can record transactions between two parties efficiently and in a verifiable and permanent way, enabling tracking and traceability. This emerging technology has game-changing potential for a wide range of applications that go far beyond its roots in cryptocurrency.
- Pharmaceutical companies have developed blockchain applications to secure supply chains for medicine and confidential test data.
- In collaboration with IBM, Walmart developed a blockchain system that cut product tracing times from seven days to 2.2 seconds.
- In April 2021, the Ethiopian Ministry of Education announced a deal with blockchain developer IOHK to create blockchain-based digital IDs for five million students.
Along with the benefits that some early-adopter organizations are getting from blockchain, broader awareness of the technology is growing at a rapid pace. While my organization, APQC, found that 66% of organizations were familiar with blockchain in 2019, within a year that number had grown to 80%. That said, the majority of organizations are still in the early stages of adoption (see figure 1).
Why do only 12% of participants report that they are live with either blockchain or blockchain as a service? What is holding back the 34% of respondents who are not even exploring the use of blockchain?
Here are the top five blockchain challenges organizations are facing, according to a 2020 APQC survey of supply chain professionals -- along with ideas on how to address them.
1. Lack of adoption
Blockchains are ecosystems that require broad adoption to work effectively. For example, track-and-trace capabilities in supply chains would not only require an organization to adopt a blockchain network, but for its suppliers to do so as well. Yet APQC has found that only 29% of organizations are piloting blockchain or have fully deployed it. Without widespread adoption, the effectiveness and scalability of blockchains will remain limited.
Yet there are good reasons to be optimistic that adoption of blockchain will grow. Organizations are increasingly coming together and forming collaborative blockchain working groups to address common pain points and develop solutions that can benefit everyone without revealing proprietary information.
For example, prior to the COVID-19 pandemic, several large pharmaceutical organizations came together with Deloitte to form the Blockchain for Clinical Supply Chain Industry Working Group. Working with blockchain developer LedgerDomain, the group built an application called KitChain. Among other benefits, the application allows companies to track shipments of packaged medicines, which not only helps secure the supply chain but will also reduce reliance on paper logs and ensure the security of medical trial data.
2. Skills gap
Blockchain is still very much an emerging technology, and the skills needed to develop and use it are in short supply. As figure 2 shows, 49% of research participants indicate that this skills gap is a top challenge. The marketplace for blockchain skills is highly competitive and has been for some time. Blockchain Council reports that demand for blockchain engineers surged in 2019 by more than 500% over the previous year, with base salaries for blockchain developers surging in kind. The expense and difficulty of talent acquisition in this area only adds to the concerns that organizations have about adopting blockchain and integrating it with legacy systems.
One way to counteract the skills gap is to use blockchain as a service (BaaS), which enables organizations to reap the benefits of blockchain without having to invest significantly in the technical talent behind it.
We've already seen this model narrow the skills gap in the context of other technologies, such as robotic process automation (RPA). Rather than having to develop bots and write code in-house, organizations can now look to numerous vendors who have the expertise to implement RPA and customize it for each organization's needs. Users only need to know the basics of the technology and don't need to be programmers to take advantage of its benefits. Similarly, users will need to understand how to execute smart contracts (which use blockchain to automatically execute certain actions once the terms of the contract are met), but they won't need specialized knowledge about the intricacies of distributed ledgers. BaaS has the potential to mitigate the blockchain skills barrier.
3. Trust among users
Lack of trust among blockchain users is the third major obstacle to widespread implementation. This challenge cuts in two directions: Organizations may not trust the security of the technology itself, and they may not trust other parties on a blockchain network.
Every transaction in the blockchain is considered to be secure, private and verified. This is true even though there is no central authority present to validate and verify the transactions, since the network is decentralized. A core part of any blockchain network is the consensus algorithms that drive common agreement about the present state of the distributed ledger for the entire network. It ensures that every new block added is the one and only version of the truth agreed upon by all the nodes in the blockchain. Business leaders have found greater trust in private blockchains where there are no unknown users.
To build trust among users, platforms such as TradeLens (a global logistics network created by Maersk and IBM using the IBM Blockchain Platform) show what can happen when peers and competitors work together to develop solutions to common challenges. Unlike anonymous public blockchains, on the TradeLens private blockchain, members are called "Trust Anchors" and known to the network based on cryptographic identities. TradeLens uses a permissioned blockchain to offer immutability, privacy and traceability of shipping documents.
4. Financial resources
The fourth barrier to widespread adoption of blockchain, according to participants in APQC's research, is the lack of financial resources. Implementing blockchain is not free, and for many organizations the pandemic and disruption of 2020 have left budgets tight. However, one other lesson learned from the pandemic is that organizations, and IT departments in particular, can change faster than previously thought possible.
A closer examination of this barrier shows that it is connected to an underlying lack of organizational awareness and understanding of blockchain. We've found that as awareness of new technologies becomes more widespread, the ability to effectively make a business case for their adoption improves accordingly. This will be true of blockchain as well, provided that blockchain advocates focus on building a business case that demonstrates how the benefits of the technology will offset the resources needed for implementation.
5. Blockchain interoperability
As more organizations begin adopting blockchain, there is a tendency for many organizations to develop their own systems with varying characteristics (governance rules, blockchain technology versions, consensus models, etc.). These separate blockchains do not work together, and there is currently no universal standard to enable different networks to communicate with each other.
Blockchain interoperability includes the ability to share, see and access information across different blockchain networks without the need for an intermediary or central authority. The lack of interoperability can make mass adoption an almost impossible task.
In a post-pandemic business environment where collaboration across functions and with suppliers and customers is essential, interoperability for blockchain will be critical. It is the only way that organizations will truly get the most value out of their blockchain investments. The good news is that over the past year we have seen an increasing number of interoperability projects meant to bridge the gap between different blockchains. Many of them are aimed at connecting private networks to each other or to public blockchains. These systems will ultimately be more useful to business leaders than prior approaches that focused on public blockchains and cryptocurrency-related tools.
In addition to the challenges of adopting blockchain, participants in APQC's research reported the top benefits they anticipate receiving from its use -- specifically across their supply chains.
- Increased visibility into the real-time tracking of end-to-end product movement (78% of respondents)
- Increased visibility into multi-tier supply chains and global distribution channels to reduce counterfeit goods and improve product integrity (69%)
- Improved data and process integrity, trust and control of confidential information (62%)
It would be naive to claim that that these blockchain challenges are not significant barriers to its adoption. Broadly speaking, though, many of blockchain's biggest challenges represent growing pains that are common with any new technology. In making the business case for adoption, blockchain advocates will need to convince their organizations to take the kinds of risks, form the kinds of relationships and make the kinds of tradeoffs that are common in other areas of business.
Given the benefits that organizations are already deriving from blockchain and the increasing calls for visibility and transparency across and between organizations, blockchain can be a powerful solution once adopted.
About the author
Marisa Brown is senior principal research lead at APQC, a member-based nonprofit that offers expertise in benchmarking, best practices, process and performance improvement, and knowledge management.