By: Isaac Brown
Blockchain is moderately useful. It’s good for buying drugs on the internet, laundering money, avoiding fees on currency exchanges, and perhaps a handful of semi-legitimate (albeit really boring) enterprise financial use cases.
For years, people have talked about blockchain as a revolutionary technology for industrial use cases. One of the early hype cases was Walmart leveraging an IBM Hyperledger blockchain framework for traceability across its food supply chain. Walmart (and IBM, of course) published articles on the value of the technology, in one case for tracing an E. coli outbreak.
I applaud Walmart for trying to be innovative, especially for something as important (and unglamorous) as food safety – but for this use case, blockchain is just a stunt for media attention, it provides minimal value beyond other database technologies.
Let’s take a look at the E. coli article on the Walmart website and discuss all the purported blockchain advantages. The first claim is that they can improve food traceability because blockchain is not paper-based – neither is any other computer database. They go on to laud the fact that nobody can change records on the blockchain – can people change records on a read-only spreadsheet?
Then they say they can search the blockchain to trace the source of salmonella in a few seconds, while it would have taken a week using paper-based systems. Again, you could search up and down a spreadsheet in seconds. Sidenote: it’s funny that halfway through the article they switched from E. coli to salmonella, but hey, I’m not a bacteria expert.
My favorite line is: “But blockchain changes everything.” Nope… computers change everything. Digitizing an archaic process changes everything. Blockchain is probably just a more complicated and expensive way of doing something relatively simple with basic existing IT. And it still doesn’t solve the most important problem – bad data. Bad actors can still enter false or inaccurate information, and worse, it’s now more difficult to change that information if it’s discovered to be wrong in the future.
Beyond food supply traceability, people hype up blockchain for traceability across complex automotive and aircraft supply chains, but I’ve heard of precisely ZERO deployments in this category. Blockchain is supposed to automate the execution of “smart contracts” when shipping containers change custody at ports – it’s a cool idea, but the efficiencies gained are eclipsed by the many potential failure modes for the approach. The list goes on…
In 2016, I co-authored a report on blockchain’s potential impact on the power sector. Our analysis was that “Blockchain has a lot of potential to modernize wholesale electricity transaction processes as well as the financial markets that support them. However, it faces an uphill battle against influential, conservative stakeholders, who will take a wait-and-see approach to the technology.” That was many years ago – there has been a whole lot of waiting and minimal seeing.
So why does blockchain matter for industrial use cases? Someday there will be a more robust portfolio of enterprise financial use cases. Crypto investment is a serious industry now and plenty of people have made a lot of money. But at this point, it seems that blockchain will never be a game-changer for industrial enterprises.
Broadly speaking, blockchain does not solve many problems across industrial operations that traditional database technologies can’t solve. A database is only as good as its data, and blockchain does nothing to prevent bad actors from entering bad or dishonest data, or no data at all.
Many industrial organizations will invest in blockchain in areas where it provides negligible operational improvement, they’ll do it because it’s trendy. Many IT departments will use blockchain as an excuse for budget to upgrade database infrastructure – infrastructure that works perfectly well without blockchain. They’ll use it as an excuse for new gear, whether it solves a problem or not.
I’m not predicting that we won’t see industrial blockchain deployments – I’m saying we won’t see many deployments where blockchain provides any additional value, and in fact most deployments will be ROI-negative.
PS – for some fun additional reading, I recommend checking out the hack on The DAO. The DAO was an ambitious smart contract project launched in 2016, which was essentially an Ethereum-based investment fund. Participants could contribute Ether into a centralized platform for investment. A hacker found an error in the contract code and managed to steal $50M in Ether. Smart contracts can be pretty stupid.