Blockchain is slowly changing the business world and its invention has seen numerous tech ideas being developed on the technology. In the marketing world, blockchain-backed solutions such as IOU in monitoring customer satisfaction in the e-commerce space, Noiz Chain in interactive marketing and Qupon in digital coupon advertising, are changing the way businesses market.
In the social media space, ideas such as family smart contracts spearheaded by URAllowance and security for social interactions initiated by ONe Network are taking center stage. But the biggest innovations are taking place in the financial sector. In this space, BlockVest is changing the way that people manage their portfolios of digital assets and while BQT is facilitating hedge fund and cryptocurrency trading in a peer-to-peer environment. At the same time, Gath3r is enabling web mining optimization while LiveTradr is improving portfolio optimization.
Application of blockchain technology is being tested in different industries, commodity trading is one of the areas that the technology has been piloted. There is no doubt that this industry has grown in leaps and bounds since the days of barter trade. Despite having an estimated annual potential value of $70 billion, the industry is still characterized by market inefficiencies such as time lags and lack of openness among various players in the chain.
As such, utilization of blockchain technology in the industry was expected to iron out these inefficiencies as commodity banks and firms pursued pilot schemes. However, a recent report released by the Boston Consulting Group (BCG) suggests that blockchain's potential in commodity trading industry may have been overhyped.
The report paints a picture of two broad aspects that hinder the utilization of blockchain technology in the commodity trading industry. These challenges are largely industry-related and are specific to blockchain technology.
One of these challenges is the fact that companies had already invested in other IT systems and questions whether they would be willing to forego previous investments to adopt blockchain. This is because switching from existing systems to blockchain technology would be an expensive and disruptive task.
According to the report, the other big challenge that could be hindering blockchain's mass adoption is determining its financial viability once it is implemented. According to James Lopez, co-founder and CEO of HFC Coin, certain issues must be addressed to facilitate mass adoption of blockchain technology in the commodity trading industry.
He says, “Financial viability of blockchain is hindered by two things, the perception that blockchain is cryptocurrency and the volume of failed startups that have tried to use blockchain as a gimmick to differentiate themselves from other business models."
Changing the Optics
For many people, blockchain, cryptocurrencies and Bitcoin are one and the same thing. This points to a need for public education to enable the masses differentiate between these three terminologies.
"Many people view blockchain's financial viability through the lens of Bitcoin and it's roller coaster price ride. To address blockchain technology financial viability, leaders of blockchain have to change the optics of blockchain by distancing itself from cryptocurrency and loudly celebrating the successful companies that use blockchain,” Lopez notes.
But differentiating these three terminologies isn't the only challenge facing the industry. According to the BCG report, there are difficulties in reconciling the terminologies used in the virtual blockchain world with those in the physical world.
Antti Belt, one of the authors of the BCG report notes that everyone in the blockchain industry is using a different language and asks how defining terms such as shipment schedules and quality can happen in the industry. According to him, 'a lot of reconciliation is currently needed for both sides.'
For Varun Mayya, founder and CEO of Avalon Labs, blockchain has specific use cases.
He says, “Blockchain has very specific use cases and while the community has been attempting to tokenize everything, we've seen that the successful projects often involve systems internal to a company that are susceptible to internal fraud. That and smart contracts seem to be hot use cases of the blockchain. It's limited scalability in its current incarnation is also a drawback."
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.