While blockchain-based solutions are mushrooming in many different fields including logistics, financial services, government and utilities, a new report joins a growing chorus suggesting a shakeout of current efforts may be looming.

The report, released Wednesday by GlobalData, suggests that over the next two years, many current efforts in the space will either be “quietly shelved in favor of more traditional approaches” or reduce their dependence on blockchain technologies.

“Over the next 24 months, the more outlandish claims made by proponents of blockchain will be debunked,” Gary Barnett, the data and analytics firm’s chief analyst, said in a release. At the same time, however, few observers doubt its long-term viability for some use cases and as part of broader technology plans.

Hype vs. Reality

Separating hype from reality is nothing new in the sector, and this weeks GlobalData report is just the latest in a series of research suggesting the majority of enterprise blockchain projects may be badly misaligned with corporate goals.

Technology providers and users are looking with clearer eyes at the narrow but significant set of use cases where blockchain and distributed ledger technology can add real value.

According to Gartner, 90 percent of enterprise blockchain projects dont need the technology. “You can get your project done more quickly at a lower cost with a better quality result with more efficiencies, better performance, more compatibilityif you dont use blockchain technology and instead use proven mainstream enterprise application platforms,Ray Valdes, a Gartner vice president and fellow, said during an October webinar.

Several high-profile blockchain experiments have, in fact, been shelved in recent months, including projects by the Depository Trust & Clearing Corporation (DTCC) and BNP Paribas SA, according to Reuters. And reality checks about the technologys practicality could be found even at Consensus, the blockchain sectors largest gathering, in May. In a bet enshrined on Twitter, Blockchain Capital’s Jimmy Song predicted that most projects will fail in the next five years.

“Blockchain isnt very useful for most of these businesses,” Song said. “You cant sprinkle magic blockchain dust and make your problems go away.”

What Will Work

The GlobalData report suggests that blockchain will ultimately serve a narrower set of purposes more effectively.

“Technology providers and users alike will begin looking with clearer eyes at the narrow but significant set of use cases where blockchain and distributed ledger technology can add real value,” Barnett said.

According to the report, the three main use cases involve asset registries, where blockchain platforms could eliminate intermediaries; financial services, which could see widespread changes in back-end systems and broader markets; and industry, where manufacturers could tap the technology to address distribution and supply chain issues.

Barnett said that consortia of multiple companies within an industry working with each other and with technology providers would lead the most successful initiatives, a theme repeated by others in the space who are skeptical of standalone and internal efforts.

Those companies, Valdes said in the Gartner webinar, are “trying to implement a centralized system of record on a radically decentralized platform. The platform is useful for many purposes, but not what [those] enterprises are trying to do with it.”

Tying It Together

Nor will blockchain initiatives stand or fall on their own. According to GlobalData, the lions share of benefits from blockchain projects will come from the parallel efforts to modernize and integrate existing IT infrastructure that will be required to support them.

“For every dollar spent on blockchain technology, between five and 20 dollars will be spent on transformation and modernization,” Barnett said.

Deloittes annual report of technology trends for 2018 echoes the importance of integration. “Blockchain alone is only one component in a dynamic, interconnected new core stack,” the report states. “It will be critical to understand how digital innovations can work in concert with existing capabilities to drive business value.”

Mark Toner
Mark Toner is a Washington, D.C., writer and editor. He has covered business, technology, media, education, and healthcare for a wide range of trade and industry publications.