Nitin Seth

Keynote address at the Blockchain Summit organized by IIM Lucknow, Noida Campus, February 22, 2019

Blockchain is one of the most important disruptive technologies that promises to be a key building block of the digital economy. This technology has gone through massive hype and irrational exuberance over the past 2-3 years largely driven by the Bitcoin frenzy. That hype is now subsiding, which is perhaps the best thing that could have happened for Blockchain, as we can now shift focus from ‘get rich schemes’ to more sustainable value creation.

In my talk today, I will share perspectives on the following topics:

1. How the hype around Blockchain is dissipating
2. Opportunities with Blockchain Technology
3. Challenges in implementation
4. “Two-Speed” strategy for Blockchain implementation

1. How the hype around Blockchain is dissipatingA recent survey reported that advertisers believe the word “blockchain” to have been the most overrated of 2018. This is hardly a surprise as many companies from fields completely unrelated to cryptocurrency claimed to use or test blockchain technology last year with little to show for it.The results of the survey seem to confirm that advertisers know that many companies abused the term “blockchain” just to get free media hype. Last month it was reported that management consulting firm McKinsey determined that of over 100 supposed use cases for blockchain presented, the vast majority of pilots and proofs of concept were still stuck in “pioneering mode” or were being shut down.Further, Blockchain has dropped to the bottom of Gartner Inc.’s annual list of the most disruptive data and analytics capabilities for enterprise IT – replaced by tools that leverage artificial intelligence and machine learning.We can see the hype dissipating in India as well. I am just coming from the NASSCOM Technology & Leadership forum in Mumbai where there was just one session this year on Blockchain compared to 5-6 last year.Is this the end of Blockchain?  There is certainly a reality check for Blockchain, but by no means is it curtains for this technology. However, we need to recognize that Blockchain technology is still in a pioneering phase and it will be several years before it become dominant.
2. Opportunities with Blockchain TechnologyThe Distributed Ledger technology underpinning Blockchain facilitates both record keeping and transactions. It’s fundamental value is to enhance Trust. It does so by increasing the transparency and veracity. Higher trust helps reduces multiple layers and processes for control, therefore dramatically improving speed and efficiency.Improving trust in record keeping and transactions is of relevance in variety of industries and functional areas. Two areas where I see most intensive application of Blockchain Technologies in the coming 2-3 years are Financial Services and eGovernance.
   • Financial Services – Blockchain has wide applications in banks especially on the Payments side. Use cases range from Trade Finance, Derivatives Netting & Processing to Remittances. I see number of Banks now experimenting with Blockchain PoCs (Proof of Concepts). This is similar to the nature of activity we were seeing with AI and Machine Learning couple of years back. I expect some of these Block Chain Use Cases in Banks to go mainstream in the coming 2-3 years
   • eGovernance – Digitisation is an important objective for many Governments including in India and Blockchain has a very important role to play in that by creating more transparent and accessible public records. For example, Blockchain could play a key role in land records and most areas where certificates need to be issued. Government’s focus in India on “Digital India” provides a good opportunity for entrepreneurs to develop Blockchain Use Cases, and I already see may start-ups coming up in this space

   In addition to Financial Services and eGovernance, Healthcare and Supply Chain are two other industries which are seeing significant experimentation around Blockchain Technology’s distributed ledger applications.

3. Challenges in Blockchain ImplementationThere is a big gap today between opportunities with Blockchain and their realisation. A recent survey showed that out of 61 percent of organizations that are already researching blockchain, only 28 percent have chosen a blockchain provider. According to the survey, the majority of decision-makers are still investigating the technology and comparing vendors, and have not yet defined their stance on blockchain tech.A TD Bank survey revealed that 90 percent of treasury and finance professionals think that blockchain and distributed ledger technology (DLT) will positively affect the Payments industry. However, Per the survey, only 14 percent of the respondents said that their organization has training strategies for blockchain.A survey by the Global Blockchain Business Council published last January revealed that 63 percent of respondents believe that senior business executives have a poor understanding of blockchain technology. 30 percent consider their knowledge of the emerging technology as “average.” The remaining 7 percent described senior executive understanding of blockchain as “good.”The above examples highlight that Blockchain is a technology that is still under development and there are a number of challenges in its implementation. I believe the following 6 key challenges need to be addressed to derive sustainable value from Blockchain implementation:
   • Integration with existing technology – Many of industries where Blockchain Technologies are being applied are traditional industries with legacy IT infrastructure. This implies investments in integration efforts that can be time consuming and expensive.
   • Change management – Understanding of senior executives of Blockchain Technologies is often low therefore sustained evangelization and awareness building is required within the organisations
   • Digitisation of physical records – Underlying records in cases are still in physical forms (e.g., land records in India) and need to be digitised for Blockchain technologies to be applied
   • Blockchain technology getting to scale – The blockchain infrastructure is not ready for mass adoption. It requires significant investment and thus the costs of Blockchain adoption are not competitive in some Use Cases compared to other technology options. This has been particularly true in the Payments industry where despite proven use cases of Blockchain, they have not been commercialized at scale because of the costs especially when compared with the value some of the FinTech’s have been able to bring
   • Talent – There is a shortage of professionals trained on Blockchain Technologies, therefore investment is required in training and in building partnerships
   • Ecosystem development – The vendor and partner ecosystem required to support Blockchain technologies and their applications is still developing, therefore it requires a reality check on Use Cases that can not only be implemented but also supported and also careful consideration in choice of partners.

   Challenges above are significant but they are worthwhile to solve given the size of the prize. While the future of Blockchain is still hazy there is a way out to sensible implementation!

4. “Two-Speed” strategy for Blockchain implementationGiven the stage of maturity of Blockchain Technology (which is still in early stages) and the challenges that we have discussed above, I recommend a two-speed strategy for Blockchain implementation.
   • Speed 1: Use Case implementation – Blockchain sometimes feels like a technology searching for problems to solve. It is important to anchor Blockchain programs in well-defined Use Cases where the business pain point and the KPI to be impacted are very clear. That will ensure engagement of business users and provide focus on end-to-end implementation to deliver tangible results.
   • Speed 2: Progressive development of Building Blocks – While Use Cases are the right way to focus and start a Blockchain Program, they alone are not sufficient. Underlying Blockchain technology infrastructure and other key building blocks (e.g., digitisation of physical records) have to be developed for sustainable and scalable impact.

   Speed 2 of Building Blocks should go in parallel with Speed 1 of Use Cases, with every sprint of Use Case implementation further helping progressively develop the Building Blocks to a next level of maturity.

Blockchain is a nascent technology but one with tremendous potential with its promise to enhance Trust in both record-keeping and transactions. Blockchain had got hyped up well before its time because of the meteoric rise of Bitcoins. Dissipation of the hype around Bitcoins is a good thing so focus can come back to the underlying Blockchain technology. Many challenges remain, but focused and balanced implementation approaches can help unlock the potential of this powerful technology.