Most C-level executives and high-level IT managers see regulatory complexity as the primary reason more companies are not adopting blockchain distributed ledger technology (DLT), according to a recent survey.
The poll of 83 “senior professionals” from a variety of industries was done by Ernst & Young (EY) at its annual Global Blockchain Summit in San Francisco. Released this week, the results showed that 61% of respondents believe complex regulations are impeding adoption; 51% cited issues around integration with legacy technology; and almost half – 49% – pointed to a lack of general understanding of blockchain’s capabilities.
Regulators around the globe have been working on how to best handle blockchain networks and the cryptocurrencies the technology enables. For example, the cryptocurrency Ether is now under scrutiny by the SEC, which is reportedly weighing whether it qualifies as a security or a commodity.
China, the U.S and some European nations are also attempting to determine how blockchain networks may need to be regulated.
Gerry Stegmaier, a partner in the IP, Tech & Data Group of Washington-based law firm Reed Smith, said blockchain’s greatest attribute – its characteristic as an unchangeable record that creates trust and a perfect auditing trail – could also be its biggest downfall from a government rules perspective.
“Regulators are unlikely to accept the argument that somehow blockchain is exempt from GDPR strictures because a defining feature of distributed ledgers is the impossibility of deleting data, such that it cannot be deployed in a way that enables data deletion,” Stegmaier said via email. “Those kinds of arguments haven’t resonated well with regulators.”
EY-poll respondents also indicated they believe the U.S. will see the greatest adoption of blockchain within the next two years. More than a quarter of respondents (28%) expect the U.S. to see the highest surge, ahead of China, which ranked second with 18%. Japan ranked 13% and the U.K. came in at 12% for blockchain adoption ahead of other nations listed on the poll.
Businesses are making an active effort to integrate blockchain into their business functions as they look to reap the benefits of the technology; 60% expect the financial and professional services industry to see the most breakthroughs in the next two years, the poll indicated.
Sixty percent of respondents believe the finance industry will gradually adopt blockchain technology within the next year, while another 17% anticipate rapid adoption over the same time frame.
Respondents also said that increased operational efficiencies are the main advantage of blockchain technology (28%), followed by a high level of transparency (18%) and trust in data integrity (16%).
Blockchains, which include cryptocurrency applications, can reduce manual processes and replace siloed transactional systems by allowing participants in the open network to see data entries in real time; offer trust through transparency; and create an immutable audit trail.
Open blockchains – as opposed to private or permissioned blockchains – also require no middleman or central authority, such as a bank, to approve transactions; that attribute enables business transactions, such as cross-border fee-less money transfers, to be more efficient and less expensive. Trust is also maintained on a blockchain as each “block” of transactions is tied anonymously but cryptographically back to the financial institution backing a cryptocurrency, such as bitcoin.
With industry blockchain adoption expected to contunue, Brody said four upcoming transitions will drive the technology’s growth to become a standard enterprise tool.
- Transitioning from private to public networks to create an open system for all users;
- Shifting from synchronization to tokenization to improve accuracy and reduce risk;
- Moving from cryptocurrency to tokenized fiat currency to transfer value on public networks;
- And shifting from parallel separate systems to integration with laws and regulation from central banks and governments.
“With these developments, blockchain could become fully operationalized into enterprises, leading to a surge in applications across industries,” Brody said.
New research also suggests that sandbox test environments for blockchain could help cement a partnership between governments hammering out new regulations and the businesses hoping to deploy DLT networks.
Adoption may be slower than predicted
Earlier this month, research firm Gartner released the results of its own survey of more than 3,000 CIOs regarding blockchain. It found only 1% indicated any kind of blockchain adoption within their organizations, and only 8% of CIOs were in short-term planning or active experimentation with blockchain.
“This year’s Gartner CIO Survey provides factual evidence about the massively hyped state of blockchain adoption and deployment,” David Furlonger, vice president and Gartner fellow, said in a statement. “It is critical to understand what blockchain is and what it is capable of today, compared to how it will transform companies, industries and society tomorrow.”
Among 293 CIOs of organizations that are in short-term planning or have already invested in blockchain initiatives, 23% said blockchain requires the most new skills to implement of any technology area, and 18% said blockchain skills are the most difficult to find. A further 14% in the Gartner survey indicated that blockchain requires the greatest change in the culture of an IT department, and 13% believed that the structure of the IT department had to change to implement blockchain.
Blockchain development already tops some lists of the hottest skills in the IT job market, and thousands of blockchain jobs in the U.S. are now up for grabs.
Not surprisingly, salaries for blockchain positions are typically higher than in other areas of expertise since there are few qualified candidates, according to Victor Janulaitis, CEO of Janco Associates, a management consulting firm that conducts regular salary surveys.
The most promising jobs include more than just developers and engineers, and range from internships to project managers.
“As blockchain platforms become more mainstream, putting a robust governance model in place will be key,” said Brody.
Companies must also establish a process for reviewing the integrity of cryptocurrencies and their applications, which can help build trust in a company’s underlying assets, Brody said.
Martha Bennett, a principal analyst at Forrester Research, said getting an agreement on an appropriate governance model is one of the biggest challenges for any enterprise blockchain initiative. “And I know of projects that have been halted or never took off due to failure to agree on one,” she said.