Why Blockchain’s Salad Days Aren’t Here Quite Yet

There’s been no shortage of excited pronouncements about how blockchain, the digital-ledger technology that makes Bitcoin work, will revolutionize everything from how stocks are traded to how Walmart Inc. keeps track of where that particular head of lettuce came from. Well, that lettuce-tracking blockchain is coming. But most of the other blockchain projects announced with enthusiasm in recent years aren’t, despite an estimated $2 billion invested by venture capitalists in the first half of 2018 alone.

1. Why so much interest in blockchain?

It’s a tool that makes it possible for a large number of people or companies to record information collaboratively in a way that doesn’t permit tampering. Business transactions now are recorded in millions of electronic databases, each controlled by the company using it. (Remember Bob Cratchit, Scrooge’s clerk in “A Christmas Carol,” slaving over paper ledgers? The integrity of the information he wrote down on the firm’s transactions rested on the fact that only he and Scrooge controlled them.) Blockchain is meant to open up that process.

2. How does blockchain work?

As a multitude of independent computers process transactions, the information is mashed together into chronologically organized blocks of data. Those blocks are then chained together with codes that show that the order has been verified by the network of computers using the system. Bitcoin’s blockchain, for instance, is used to record transactions and make sure no one tries to spend a digital token twice.

3. How else could blockchain be utilized?

Blockchain’s boosters say it can speed transaction times anyplace where information is distributed among separate databases that don’t communicate, and that such seamless sharing of data could save money. Closing on a real-estate transaction, for instance, can cost thousands of dollars, money that goes to parties like title companies. A number of startups have been working with governments in places including the Republic of Georgia and Franklin County, Ohio, to test using blockchain to record titles.

4. What is Walmart doing?

Its digital ledger, developed by International Business Machines Corp., will allow much more detailed information to be entered by suppliers than Walmart could compile and manage if it were running the database separately. Walmart wants its U.S. suppliers of fresh leafy greens to use the blockchain to trace their produce through every step of the supply chain. After several years of testing, the system will become mandatory for leafy greens next September, the company said. Among other things, it should shorten response times in cases of food-borne illnesses and recalls.

5. Which projects haven’t come to fruition?

ASX Ltd, which operates Australia’s primary national stock exchange, said it would have a blockchain-based clearing and settlement system within 18 months. That was two years ago. It now expects to have the system at the end of 2020 or the beginning of 2021. Australian mining giant BHP Billiton Ltd. said in 2016 that it would deploy blockchain to track rock and fluid samples early in 2017. That didn’t’ happen, and the company doesn’t currently have a blockchain project in progress.

6. Why hasn’t blockchain caught on more?

It’s yet to prove itself for uses other than keeping track of cryptocurrencies and digital coins issued by startups to raise money. According to a study by PricewaterhouseCoopers LLC, only 15 percent of global companies have a live blockchain project, while another 10 percent are testing the technology. Forrester Research Inc. estimated that 90 percent of corporate blockchain experiments won’t make it into corporate use. One problem is that blockchains are still slower than they need to be; Bitcoin’s blockchain processes seven transactions per second, compared with Visa Inc.’s tens of thousands. Integrating blockchain with legacy software systems can be complicated and costly. Getting companies to cooperate in an industrywide blockchain is proving a tall order. And public blockchains like Bitcoin’s — which can be viewed and used by anybody — face yet another challenge.

7. What special problem do public blockchains confront?

They’re not guaranteed to find money-making uses. Take Bitcoin rival Ethereum. It was designed to excel in so-called decentralized applications, or dApps, such as token-supported news services, social networks and games. About 2,000 dApps are already running on Ethereum alone. But they are still barely used. Even one of the more popular apps that’s emerged — CryptoKitties, a game in which players breed and collect virtual cats — usually attracts only a few hundred players a day.

8. So could blockchain be just a fad?

Is some of the money being poured into blockchain chasing its novelty? Probably. But the chances are that it will find many uses, even if it won’t replace every database out there, as some initially thought. Fields in which blockchain could reduce costs and cut inefficiencies include international money transfers and supply chains for food and pharmaceuticals. It may eventually work in the background of many new websites, such as social networks that reward their users for writing blog posts: Steemit is already one of the most successful blockchain apps, and it’s doing just that. In the corporate field, IBM and Microsoft Corp. have grabbed 57 percent of the more than $700 million market for blockchain products and services, WinterGreen Research Inc. estimated earlier this year.

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, John O’Neil, Dave Liedtka

©2018 Bloomberg L.P.

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