The reality of large-scale enterprises adopting blockchain technology

of Toby GilbertCEO and co-founder of Coinweb

It is important to draw a clear distinction between blockchain technology and the token economy, more commonly referred to as crypto. While the two are inextricably linked as crypto is in most cases required to pay the participants in blockchains to run them (miners and/or validators), they both exist today at different stages in their life cycle.

Crypto has been traded aggressively for the past seven or so years, fueled by speculative investors hoping that token prices will rise. This is a far cry from the intended purpose of crypto, where projects go to great lengths to prove that their tokens have real utility on their platforms.

However, the underlying technology, unlike the token economy, is in its infancy with only a handful of use cases breaking through, usually focused on tokenization, which should not be confused with the native tokens of a platform as mentioned above.

Stable tokens, NFTs and tokenization of real-world assets are being adopted by the likes of BMW, LVMH, Audi as well as a number of football clubs and other large-scale businesses. Blockchain technology is more than capable of handling this application today, albeit with pain points that include the need to hold two types of token, the one you use and a second as the underlying fee base to service the initial, varying gas fees, varying network speeds, barriers around fiat on and off ramping as well as a number of others that projects like Polygon, Circle and us at Coinweb are working to solve.

Blockchain technology promises significantly more than tokenization, which is largely an improvement on existing technologies where point systems have been widely used for decades.

The ability to automate expensive manual processes in legacy systems from supply chains to banking can deliver significant cost savings and speed up processes that today have no excuse for being slow, such as the international bank payment messaging system Swift.

But we are simply not there in terms of development, regardless of what many projects are marketing, and this is proven by the drastically low traffic volume flowing across chains today. To put it in perspective Grab, the Southeast Asian ride-hailing app has around 60 million customers, of which 30 million are active daily, and considering the wide range of services they offer, it’s not beyond the pale to guess that each user uses the platform twice a day, that’s 60 million transactions per day. Ethereum handles a total of one to two million transactions per day, in total!

There is no doubt that large-scale companies are interested in the technology of green shoots, but there is a lack of understanding and easy-to-use products in the market, crowded with protocols, few of which have been stress tested and constant news of bad actors committing fraud.

Reliable information is hard to come by, so even if companies are cautiously curious, largely driven by FOMO, they must run a deep educational process that takes time.

If the company promises a PR coup, high transaction volumes or is willing to pay fees, the protocols will give them time to educate them, with the aim of getting them to build on top of the platform. Task number 1 starts here; the teams that typically train the companies are completely biased towards their own platform which brings more risks such as regular outages as seen with Solana and even worse catastrophic platform failure as we saw with Terra. Not a big prospect if you are a large-scale business with millions of customers.

Task number 2; after an enterprise business has been educated and sold on the technology, they are left with the daunting task of not only rolling the dice on which platform to build on top of, but how to connect their legacy systems to it and build, build and ship products that support the technology. Not to mention acquiring and operating regulatory licenses in multiple jurisdictions.

This is the real barrier to entry and how many ideas die before they become reality. Developers usually specialize in a particular blockchain, and existing products (wallets, etc.) are clunky at best, and building from scratch takes time and expertise that is in short supply after being scooped up by well-funded blockchain projects that pay over the odds for a specific experience.

There is little doubt that large-scale enterprises can accelerate and deliver blockchain adoption, converting the use case for crypto from speculative investment to real utility that drives supply, demand and stability.

For this to happen, protocols must prove that they handle transactions reliably, regulation must be introduced to safeguard retail users and clarify use cases in a number of countries, especially the US, and usable products must be delivered that open up the developer space and lower the barrier to entry. In the meantime, we will continue to educate and build.