Research powerhouse Gartner Inc. recently announced their “Hype Cycle for Emerging Technologies, 2016,” which shows that “Blockchain” is in the Peak of Inflated Expectations phase.
According to the Hype Cycle, it will be another 5 to 10 years before blockchain reaches mainstream adoption. The industry specific “Blockchain Technologies and the Programmable Economy” Hype Cycle shows Bitcoin is further ahead.
“Gartner Hype Cycles provide a graphic representation of the maturity and adoption of technologies and applications, and how they are potentially relevant to solving real business problems and exploiting new opportunities.”
Founded in 1979 and headquartered in Stamford, Connecticut, Gartner is a leading information technology research and advisory company. As of December 31, 2015, the company had 7,834 associates, including 1,731 research analysts and consultants. According to the company’s annual report, the company has clients in over 90 countries, representing 10,796 distinct enterprises.
Gartner publishes approximately 160 Hype Cycle research notes that are updated throughout the year. “Clients use Hype Cycles to get educated about the promise of an emerging technology within the context of their industry and individual appetite for risk,” the company explains.
Each Hype Cycle shows five key phases in a technology's life cycle. The "Technology Trigger" represents early, unproven proof-of-concept stories with no real applications. The second phase, "Peak of Inflated Expectations," is where "Early publicity produces a number of success stories — often accompanied by scores of failures. Some companies take action; many do not," the company explains.
The “Trough of Disillusionment” is where “Interest wanes as experiments and implementations fail to deliver.” In this stage, many technology providers will fail and exit the market, while survivors score more investments with satisfactory products. Survivors then enter the “Slope of Enlightenment,” with second and third generation products, and more funding. The final phase is the “Plateau of Productivity” which is where mainstream adoption starts to take off.
"The Hype Cycle for Emerging Technologies is unique among most Hype Cycles because it distills insights from more than 2,000 technologies into a succinct set of must-know emerging technologies and trends that will have the single greatest impact on an organization's strategic planning," said Mike J. Walker, research director at Gartner. "This Hype Cycle specifically focuses on the set of technologies that is showing promise in delivering a high degree of competitive advantage over the next five to 10 years.”
Walker explained some reasoning behind the Blockchain position to BraveNewCoin. “There is still considerable misunderstanding of the blockchain, which this Hype Cycle puts into perspective,” he said, citing progress and problems within the industry.
“We are convinced that adoption of the programmable economy in the longer term (by 2035) is highly probable, but we advise C-level executives and technology leaders and government policymakers to exercise extreme caution in the shorter term (through 2021).”
- Mike J. Walker, Gartner Research Director for Enterprise Architecture & Technology Innovation
Last year's Hype Cycle for Emerging Technologies listed two emerging technologies in the blockchain space, cryptocurrencies and cryptocurrency exchanges. Neither were present in the update.
“The decision was that blockchain represents more than just financial services but a whole host of industries,” Walker explained. “In addition, the emerging technologies hype cycle is industry agnostic and these technology profiles are specific to financial services.”
Both Cryptocurrencies and Cryptocurrency Exchanges are still available on the other financial services hype cycles in 2016, but have been renamed to “Cryptocurrency Wallets.” In the “Hype Cycle for Digital Banking Transformation, 2016,” both Blockchain and Cryptocurrency Wallets are listed as "At the Peak.”
On the industry specific "Hype Cycle for Blockchain Technologies and the Programmable Economy", in 2015, Blockchain and Distributed Ledgers were “On the Rise." In 2016, they have progressed further in the technology lifecycle, to “At the Peak.” Cryptocurrencies were "At the Peak" in 2015 and they are now "Sliding Into the Trough." Bitcoin and Cryptocurrency Exchange were already "Sliding Into the Trough" in 2015, where they remain.
Distributed Autonomous Organizations, Smart Assets, Smart Contracts, Digital Currency/Blockchain Regulation, Sidechains, and Cryptocurrency Hardware Wallet, were among technologies listed as “On the Rise” in 2016, a phase preceding the Peak.
Gartner explains that the programmable economy, enabled by ‘smart’ distributed computational resources, evolving from the blockchain and distributed ledgers, represents a massive transformation of global economic systems, industries and businesses. “Business and IT leaders and policymakers must begin preparing now.”
Walker states that commentators and technology vendors have “latched on to blockchain and distributed ledgers as ‘the answer’ to all kinds of legacy processes, operating models and technologies.”
The World Economic Forum recently published a report examining nine financial use cases of this technology. In July, Moody's Investors Service published a report detailing 25 use cases, as well as listing 120 blockchain projects undertaken by various Moody’s rated companies.
“Many factors continue to inhibit adoption of the underlying [blockchain] technologies, including disagreements about the applicability of permissioned (private) and permissionless (public) ledgers, the appropriateness of consensus mechanisms, the lack of standards, a chaotic startup market, unproven core technologies and unproven security (especially from a device standpoint).”
- Mike Walker
Morgan Stanley published a report in May, exploring the use of blockchains in banking. "In short, Wall Street sees an opportunity to hack its own complexities using this new tool," the firm wrote.
The firm highlighted 10 challenges to widespread blockchain adoption, including the high cost of building a blockchain system. The cost is often shared by different entities with conflicting priorities for a shared blockchain. The system also has to deliver a positive return on invested capital before financial institutions are motivated to change the existing infrastructure.
Other factors outlined by Morgan Stanley include lacking standards, scalability, governance, regulations, legal risks, security, as well as the simplicity of the system so everyone can understand and use easily.
“The practical applications of the blockchain will take time—as well as regulatory blessings and long-term industry adoption—but clients and investors could benefit significantly, as would the financial industry itself, via streamlined and less costly operations, as well as better products and services for customers."
- Morgan Stanley
Oliver Wyman published a report focusing on capital markets in February, in collaboration with Euroclear, outlining six major areas that need to be addressed before widespread blockchain adoption will become feasible.
The international management consulting firm named scalability, the need for a robust cash ledger, managing anonymity, operational risks of transition, regulation and legislation, and common standards and governance as hurdles that need to be overcome.
Walker offered a similar sentiment, “the lack of robust frameworks for regulatory, legal and accounting treatments should make enterprises wary of major investments.” Referring to senior executives, he added “The confusion in the C-Suite, and the lack of definitional understanding of many technologies and their implications for business, is creating a dangerous and volatile market.”
“Gartner client inquiries reveal significant skepticism about the immediacy and size of returns from such investments, especially compared with proven, well-understood technologies that could improve automation levels, decision-making speed and analytical capabilities.”
- Mike Walker