Investing in Distributed Ledger Technologies (DLT)
Investing in distributed ledger technologies, like blockchain, should be approached with a degree of caution. The Chief Internet Evangelist at Google, Vint Cerf (also one of the coauthors of TCP/IP), recently said, "I think that the claims that blockchains will change the world are hyperbolic for the most part."1 Whether Mr. Cerf is right or not remains to be seen, but his position should remind us that there are numerous risks that need to be considered before pursuing a blockchain initiative.
Some of the more acute risks include:
- Scarcity of skilled blockchain practitioners
- Fluidity of changes in the core technology.
- No established standards or technology leaders.
Fear-of-missing-out (FOMO) has compelled many to begin investing in this important, but still risky, area of technology.
Balancing the risks with the potential of this technology requires a measured approach.
Measured Approach to Blockchain Adoption
If considering investing in DLT like blockchain, a gradual approach over the next three to five years would be prudent. As addressed by Harvard business school professors, Marco Iansiti and Karim Lakhani, this approach allows lessons learned in early adoption phases to be incorporated and leveraged in later phases2 . The goal should be to begin this process, outlined in Phase 1 below, so that an organization can gradually increase its capabilities aligning with the cadence of blockchain adoption and opportunities in its markets and industry (Phases 2 and 3).
Phase 1: Exploration
Early investment should be motivated by a willingness to explore, learn and adapt to DLT. Additionally, companies should be looking to identify one or more existing industry based or vertical DLT networks with which to collaborate. Any proof of concept investments should focus on learning and acclimating to DLT. One way to accomplish this would be to develop a single-use application, thereby minimizing the complexity and risk of coordinating with third-parties.
Given the rapid evolution of blockchain technology, explorers should expect investments to have a relatively short useful life.
Phase 2: Limited Deployment
The last area of investment would be in transformational opportunities - which are still estimated to be several years away from viability. Transformational opportunities will be associated with new business models.
Distributed ledger and blockchain technologies have enormous potential – whether creating efficiencies in supply chain, automating financial transactions or offering better workflows and record-keeping processes for governments, insurance carriers and healthcare entities. Yet, the emerging nature of this technology, complexity of implementing it and scarcity of expert resources should give businesses pause. Any potential implementation of distributed ledger or blockchain should be a well-thought-out process involving detailed use cases, evaluation against existing business factors, recognition of associated risks, and consideration of how the technology could change as new models emerge. Organizations would be well-positioned to benefit from this technology in the future by researching existing DLT consortiums in their industry and taking advantage of collaborative learning opportunities in this space.
- Fortune, Why Big Business is Racing to Build Blockchains, August 22, 2017.
- Harvard Business Review, The Truth about Blockchain, Jan-Feb 2017.