9 Reasons Blockchain Projects Fail (And How to Succeed)
At least 95% of enterprise blockchain projects end in failure. Was yours one of them, or could it be on the same path to failure? The slow death of blockchain consortia has everyone in the industry thinking the worst.
When champions of blockchain say, “There’s nothing you can do with a blockchain that you can’t also do faster and cheaper with a traditional centralized computing infrastructure,” it’s hard not to wonder whether they’re right. But people are clearly looking to solve real business problems with blockchain, and no centralized infrastructure has demonstrated the transparency and trust at such low cost that blockchains can deliver.
Here are the root causes behind blockchain project failure:
Lack of Vision and Understanding of the Purpose of Blockchain
Nobody wants to buy a blockchain just for the sake of having one; a blockchain by itself is not a solution–it is a technology that, when built upon, can deliver efficient data exchange within consortia. In some industries–health care, energy and other critical services–the value proposition of blockchains is its transparency, traceability and trustworthiness throughout the supply chain. However, the reason why some want to adopt blockchain is the same reason others are so against it: They profit from information asymmetry. Take the used car market as a prime example. A blockchain won’t stop dishonest or malicious activity, but it will make it easier to spot both deliberately dishonest actors and inadvertent honest mistakes. The solution? Stick to where transparency and accountability is wanted and needed: Critical, regulated supply chains with governance, risk and compliance requirements. Avoid uses where transparency isn’t wanted.
Building a Consortium
The choreography and stakeholder alignment involved in blockchain are hard work, particularly if not all stakeholders are aligned with your mission or members will come and go. This is perhaps the biggest problem of all for enterprise blockchains–convincing all stakeholders that the project is worth pursuing, looking beyond participants’ own self-interest and aligning with a greater good. Overcoming the tragedy of the commons is not easy, especially if there is massive infrastructure cost for all involved and everyone must take the leap of faith simultaneously. If blockchains need consortia to be successful, then it’s fair to say that the problem is not the technology but how to get it adopted–organizations need to be free to get on board when they are ready. This is where a good SaaS model can help with frictionless onboarding, infrastructure setup and maintenance. In fact, a SaaS model could remove the consortium-building step entirely!
Fear of Choosing the Wrong Technology
Nobody wants to end up spiraling into technical debt. With so many blockchain projects in active development and the complexity of the space, it’s hard to spot which technology is in the lead today. It’s even harder to predict whether something better will come along to replace it. At this point, it makes sense to use technologies that hedge against lock-in to future obsolescence and allow for quick pivots. Solutions that use open APIs and abstract away complexity with layered architecture mean you can swap components if needed when better options emerge. Also, look for solutions that let you export your data anytime and anywhere you wish.
The Expense of Blockchain
If every enterprise at every step of the supply chain needs to use blockchain to make the project successful, then all players, big and small, need to be on board. But the cost-to-benefit ratio will not be the same for all players. Blockchain architects and developers are not cheap. It takes a developer between one and a half to two years to become proficient in writing Solidity smart contracts. After becoming proficient, they spend 60% of their time mitigating security loopholes, 30% optimizing gas costs and only 10% building core functionality. Even when it’s up and running, the costs don’t decrease. Operations and maintenance of the blockchain node infrastructure do not come for free. Not all players can afford the consulting fees charged by the big integrators, and if the economics don’t make sense for everyone, then the whole project fails. Look for enhanced blockchain-as-a-service solutions that cut through complexity while making the solution accessible through a simple API that any developer in any organization can use. Also, explore pricing options that make sense for your organization’s budget.
Competitor-Led Platforms
It’s incredibly hard to build trust among businesses that compete. The IBM-Maersk project TradeLens, for example, faced so much difficulty in convincing other shipping companies to sign up and share sensitive data on their platform that it was suspended in November 2022. Even though blockchain technology promises neutrality, the optics of proprietary platforms from tool vendors will also face these same challenges when competitive tool vendors don’t trust the integration. In the same way that you and your competitor can both use Microsoft Office 365, blockchain solutions don’t require you to be friends with your competitors or even know whether you’re on the same platform. So, choose a neutral platform that poses no competitive threat to your consortium.
Lack of Cybersecurity Hygiene and Understanding of Cryptography Key Management
‘Not your keys; not your crypto’ still rings true when applied to enterprise blockchain, so it’s vital to know where your keys are located and how they are protected. As many enterprises are only just making the leap from usernames and passwords to better identity and access management (IAM) solutions using single-sign-on (SSO), two-factor authentication (2FA) and other more modern techniques, wallet key management could be a step too far for them. Look for solutions that take care of the hard work of cryptographic key management to protect your wallet keys. Since anyone with access to your keys could masquerade as you or your enterprise, it’s even better if your solution integrates hardware security modules (HSMs) to protect those keys and connect them with your enterprise identity system.
The Environmental Cost of Proof-of-Work (PoW)
The misunderstanding that blockchains are bad for the planet stems from the fact that the total energy consumed to mine bitcoins can exceed that of a nation (its entire population’s demand for light, heat and industrial power!). But not all blockchains rely on proof-of-work to reach consensus; even those that once did (Ethereum) have moved on to more energy-efficient consensus protocols. Private blockchains where the participants are known to each other need not engage in such wasteful activity. Don’t assume all blockchains use proof-of-work; in fact, the vast majority now don’t.
Unforecastable Budgets
If public blockchains are the solution, then be prepared for a host of other problems. Public blockchain networks aren’t powered by altruism – gas fees recoup the running costs for node operators, and surge pricing encourages users to delay transactions when the network is congested. Most enterprises don’t like uncertainty, and when fees are influenced by forces beyond their control, it makes financial planning incredibly hard. Tokenomics has attracted a gold rush of institutions and individuals seeking their fortune from what some now describe as the mother of all Ponzi schemes. When a token appears to have utility for genuine network participants, then speculators rush in to drive up the price. Your once useful network is now too expensive to operate and when the economics don’t add up, you’re back to square one. It would have been better to start with a blockchain without a utility token in the first place. If your blockchain network doesn’t need to use a cryptocurrency, then choose one without it.
Regulatory Compliance
Blockchain system designers must tread very carefully with regard to personally identifiable information (PII) and, in some regions, the right to be forgotten which is legislated under the European General Data Protection Regulation (GDPR). Not only that, many enterprises are uncomfortable with forced transparency that would leak information and erode competitive advantage. Private permissioned systems with fine-grained control of who gets to see what data can overcome these issues.
What Does it Take to Launch a Successful Project?
Now that you know the pitfalls, what does it take to make your enterprise blockchain project a success? First, keep it simple with easy onboarding. Not everyone in the consortium will be on the same budget cycle or have the same amount to spend, nor should they. Many SaaS offerings start with a freemium plan that significantly lowers barriers to entry, and blockchain platforms are no different. Transparent pricing can help you onboard your consortium with minimal friction as and when they are ready on a plan that suits them.
Augment existing processes by amplifying or simplifying. Blockchain should bring greater efficiency–getting the right data to the right place at the right time to help people make the right decisions. By automating the reconciliation of data, people can get on with their jobs rather than wading through paperwork or second-guessing the available data. If the process is not ongoing or automated, blockchains might not be the best solution.
You should aim to make blockchain a technology that blends into the background. There’s no point trying to explain wallet keys, nodes, consensus mechanisms, smart contracts and fungible and non-fungible tokens (NFTs) to someone non-technical who just needs to get on with their day job. Having a background chain-of-custody platform for verifying data means people can get on with their jobs with confidence. If anything, the only thing you would want in the foreground is a symbol, such as small blue tick, to show users that data is verifiable.
It’s also necessary to ensure backward compatibility; technology that plugs into legacy systems, operations and behaviors. API-first platforms are built to connect with new and legacy systems. This is vital for smooth adoption–ripping up and replacing existing tools and applications will be incredibly painful. Convincing all enterprises to adopt the same end-user-facing tool will be impossible. It is much simpler to enable verifiable data exchange directly within the different tools that each organization already uses in its operations. Blockchain platforms with open APIs should enable developers to quickly integrate any data source or destination.
Finally, you need data object alignment. Of course, it makes sense that everyone in a network should be speaking the same language when exchanging data. Look for a blockchain SaaS platform that is data object agnostic and can cope with any asset or event captured as a JSON document. Some platforms offer templates suggesting how to get started quickly rather than starting from a blank page in a command line. Internet engineering task force (IETF) standards are emerging, such as supply chain integrity, transparency and trust (SCITT), that will help harmonize witness statements recorded in ledgers.
