One of the most hyped technologies in recent years, blockchain has so far fallen well short of its grand promise to transform businesses, industries and even society as we know it around the world.
As a quick recap, blockchain is effectively a decentralised peer-to-peer ledger technology, allowing for unlimited versions of a database to exist and be connected via a network, meaning that transactions of information or assets can occur without the need for intermediaries.
Assets can be anything tangible like a car or land, or intangible like IP, patents or even corporate branding.
The hope is that blockchain will make it easier and faster for organisations, industries and people to share and verify assets and information, while making this data ‘immutable’, i.e., unable to be changed or tampered with if multiple people have access to multiple versions of what is deemed the one true record.
Removing duplication – a major source of inefficiency and cost – is another problem blockchain might be able to fix, as well as countering fraud and cyber-crime.
Its supporters argue further that as data volumes continue to rise exponentially, with technologies like IoT expected to add significant further impetus, the need for distributed ledger solutions will become even more acute, especially as they are considered extremely scalable.
But the fact remains, there are very few – if any – successful, significant deployments of blockchain anywhere in the world (except as a platform supporting crypto currencies like Bitcoin) with Gartner and other authoritative sources reporting in recent years that over 90 percent of blockchain projects die young.
Last week was Australian Blockchain Week, hosted by industry body Blockchain Australia, which consisted of several virtual sessions featuring a who’s who of local organisations – big and small – sharing their experiences and perspectives on the technology. Among them was the Australian Securities Exchange (ASX), the company that runs Australia’s primary trading bourse.
The poster child for blockchain in Australia, the ASX started work in 2015 on a blockchain-based solution called ‘CHESS Replacement’ to replace its long-standing computer system for managing the trading and settlement of financial products.
Standing for ‘clearing house electronic sub register system’, CHESS effects the settlement of trades by transferring the title or legal ownership of say, shares, as well as managing the exchange of money. In addition to the settlement, it also registers the titles (ownership) of shares on its sub register.
Initially scheduled for completion in April 2021, the deadline for ASX’s ‘CHESS Replacement’ was pushed out to April 2022, and then most recently to 2023, with the company citing concerns following large spikes in trading volume at the height of the COVID-19 pandemic, and a desire to give stakeholders more time to prepare.
Trading volumes in some periods last year were extremely high, yet there appears to have been no serious issues on the current CHESS platform slated for replacement.
CIO Australia asked the ASX why then did it think it necessary to replace the existing system with a blockchain solution. Its response stressed the benefits of upgrading what is a long standing system with newer technology that better serves the ASX and its customers into the future.
“Notwithstanding CHESS’s high standard of performance in delivering post-trade services since 1994, its replacement with contemporary technology and global messaging standards provides a significant opportunity to deliver greater operational efficiency and service enhancements to customers,” a spokesperson for the ASX told CIO Australia.
“With the rollout of CHESS replacement over the coming two years, ASX is well placed to have a highly contemporary end-to-end cash equity platform, with the average age of our equities technology stack – from datacentre to website – falling by more than 50 percent (11 years in 2019 to four years by 2023).”
The spokesperson went on to stress that while all technology changes carry some level of risk in the short term “upgrading and introducing new technologies is unquestionably a positive for reducing long-term risk and delivering value to the market.”
Misunderstood or hard to understand?
Blockchain supporters call for patience, arguing that the technology is still maturing, and that when it’s fully grown, get ready to witness a total revolution in how countries, entire industries, organisations and individuals approach everything from transacting money, to managing contracts, verifying the provenance and quality of things like food and wine, trading renewable energy and even how we vote and manage elections.
With digital transformation occurring apace within the public sector, there’s been much excitement about the potential for blockchain to help governments better manage huge data sets being collected about citizens and businesses to remove inefficiencies and deliver better services.
In early 2019, the Department of Industry, Science, Energy and Resources announced plans to create the National Blockchain Roadmap, publishing a 50-page document outlining how Australia should position itself to harness the technology moving forward.
In April 2021, the department put its money where its mouth is and announced two $3 million grants for organisations or groups that can build blockchain solutions addressing regulatory compliance burdens for Australian businesses, in either the ‘critical minerals’ or ‘food and beverage’ sectors.
It’s important to note, however, that the government’s own Digital Transformation Agency (DTA) appears to be somewhat wary of blockchain, aligning itself with the US Government’s National Institute of Standards and Technology (NIST) which states blockchain “is not well understood”, “is not magical” and “will not solve all problems”.
“As with all new technology, there is a tendency to want to apply it to every sector in every imaginable way,” according to NIST.
More specifically, and crucially, NIST says “there are operational and governance issues that affect the behaviour of the network. For example, in permissioned blockchain networks .. there are design issues surrounding what entity or entities will operate and govern the network for the intended user base.”
For some in the industry, this is an understatement, with a substantial coalition of technology and business experts cautioning against large-scale deployment of blockchain anywhere other than for very simple transactions, such as in the area of digital currency.
Next up: Tiptoe through the tulips
Tiptoe through the tulips
Recently there’s been huge hype around so-called non-fungible tokens (NFT), the latest blockchain craze, whereby artists, celebrities and sport stars are creating – and signing – digital records of images, music and key events as a new means of verifying authenticity and value.
In mid-March 2021, renowned digital artist Beeple – real name Mike Winkelman – pocketed $US69.4 million when an NFT of his work titled ‘First 5,000 Days’ was sold at auction by Christies. The sale made Beeple the third richest artist living today.
If that seems a little crazy, 10 days later an NFT of Twitter founder Jack Dorsey’s first tweet sold for US$2.9 million following excited bidding on a platform called Valuables by Cent, which lets people make offers on tweets ‘autographed’ by their creators.
The idea behind this NFT trend is that artists – or whoever – create a single digital version of a piece of work – or tweet as the case may be – the ownership rights to which go to a sole buyer. The owner is then able to sell that asset on, often through one of a growing number of NFT ‘exchanges’, most of which return 10 percent of every subsequent sale to the creator.
NFTs have been heralded as a saviour for the creative industries which were hit hard during the pandemic.
However, within tech and business circles there are many who see them as offering more proof that blockchain – and those driving it – remains something of a gimmick, incompatible and incapable of handling the more serious technology and data challanges facing business and government today.
Questions are starting to be asked about how secure these new NFT blockchain platforms are, and how all the different components of the digital asset are stored and managed.
Such concerns about blockchain pre-date NFTs, ever since what has been a spate of crypto currency heists began several years ago, while some estimate as much as 20 percent of all bitcoins have actually been lost, with little or no prospect of recovery.
“I believe this [blockchain] is the greatest, most potent and most damaging digitally facilitated scam the world has ever seen,” says Jonathan Kempe, CEO and founder of supply chain security specialist, Verifai.
Kempe compares it with the now infamous ‘Tulip Craze’ which is considered the first bubble-and-bust market in history, whereby huge sums of money were being paid for tulip bulbs in Holland during the first half of the 17th century.
It’s not that Kempe sees blockchain as serving no purpose whatsoever, rather he warns that it shouldn’t been seen as some kind of digital panacea.
“The constant refrain is ‘blockchain will take care of that’ but blockchain is not fit for purpose in the enterprise,” he notes.
Importantly for CIOs and other tech leaders trying to rationalise investing in blockchain, Kempe adds: “Looking historically, socially and technically at how blockchain evolved, in nearly every instance when a blockchain solution is proposed, there’s a readily available alternative that’s cheaper and more functional.
“In many instances blockchain is sold as the solution to a problem but often the nuanced solution is not actually blockchain, with customers often get something ‘blockchain like.’”
What’s the problem?
Robert Hillard, Deloitte’s APAC head of consulting, notes the last time people were making comparisons with the Tulip craze was back in 2000/01 during the dot com boom.
“There was value in the internet but it wasn’t mature enough at the time,” he says.
Hillard feels part of the reason blockchain has failed to live up to all the hype is that it has in large part been a solution looking for a problem, and that its fate rests with CIOs and organisations gaining a clearer understanding of what that problem actually is.
Hillard suggests, for instance, that blockchain might find its place as a tool supporting development of first-generation business models, or proof-of-concepts.
“If you think about CIOs trying to stand up a new product, it may well be that blockchain is a more effective way to prototype for internal or external solutions. Blockchain could handle that.”
Once the POC is complete, it might be that an organisation moves to a platform that is perhaps more proven, particularly in terms of capacity to scale.
“Is there a point where it becomes more efficient to transition from blockchain to a managed database platform?” Hillard asks.
Laszlo Peter, APAC head of blockchain services at KPMG, says while the tulip craze was certainly an asset bubble, it was more a socio-economic event than some sort of financial catastrophe threatening the Dutch Republic.
“[Rather] this mania significantly contributed to the advancement of futures trading (analogy to smart contracts), on the world’s first stock exchange (analogy to blockchain) and making the Dutch East India Company a new type of organisation rivalling the monarchs of the time (analogy to crypto exchanges and new crypto specialised organisations).”
Peter believes that while any crypto asset might be compared to tulips – “tulip NFT anyone?” – the underlying technology will give rise to new industries and solutions predicated on “trust, transaction transparency, third party validated assets and immutable registries.”
“These solutions can be implemented as either permissionless or permissioned environments, however in my opinion the emergence of economic communities are mostly triggered by advancements in these new types of distributed technologies,” he says.
Peter and his team operate within KPMG Origins, the firm’s vehicle for progressing deployment of blockchain technology in Australia and around the world. Several interesting local projects are currently underway, including helping rice grower SunRice (Ricegrowers Ltd) use blockchain to improve sustainability, quality and market branding.
KPMG Origins is also working with Canegrowers Australia to use blockchain in ways that would encourage and reward farmers for embracing more sustainable practises, while it’s also engaged with a “red meat exporter and a large international supermarket chain” to fully digitise the export corridor of red meat from Australia to Taiwan.
“The buyer [in Taiwan] was keen to receive a data that is standardised, fully digitised and across the whole value chain in order to comply with their quality standards and convey the message that the product they sell is not only genuine – from Australia – but complies with ethical standards, animal welfare credentials and maintained quality – like temperature – throughout the whole journey,” Peter explains.
Meanwhile, last week blockchain supporters likely cheered the announcement by Lygon, a tech company backed by IBM and ‘Big Four’ banks CBA, ANZ and Westpac, that it helped Piper Alderman become the first law firm in Australia to execute a blockchain-based ‘payment guarantee’ in a commercial contract.
It’s clear there’s still a great deal of support for blockchain amongst those in tech and business circles who genuinely believe there’s a role for distributed ledger solutions to make business and life vastly more efficient, cheaper, safer and fairer than it is today.
But several years past peak blockchain hype there really is very little in the way of tangible evidence of its efficacy, at least at any meaningful scale.
Peter told The CIO Show podcast last year that KPMG Origins was working with the Australian Federal Government on a blockchain solution for distribution of COVID-19 vaccines approved for use in Australia. But that initiative is no longer in operation, he confirmed last week, without providing further details.
Now, more and more questions are being asked by tech leaders wanting to better understand what blockchain can do and what it can’t.
For instance, Deloitte’s Hillard poses a scenario whereby a CIO releases an app powered by data on a blockchain, sometime after which new privacy laws are enacted which require organisations to delete that ‘immutable’ data. Or say someone is accused of a crime – details of which are entered into a blockchain – only to be proven innocent afterwards.
“Something erroneous can become immutable,” he states.
So then, who is responsible? Who has authority to make changes in a distributed system designed to be immutable?
Even with acceptable answers to these and other questions, there’s still a long road ahead for blockchain with many hurdles to be faced before it becomes anything like a must-have technology for CIOs and the enterprise.