Blockchain is a technology that will transform everything from the finance industry to global supply chains, and the companies that build it will get very rich. But not all of them.
According to Arvind Krishna, director of research at IBM, 90% of the firms now building blockchain—a new type of record-keeping software—will tumble into the “chasm of death,” and vanish before the technology goes mainstream.
Speaking to Fortune after an appearance on Monday at Consensus, a major blockchain conference in New York, Krishna shared his thoughts on the “chasm.” The term (along with “valley of death“) is a popular metaphor that tech investors use to describe the fateful period when early innovators have embraced a technology, but before it starts to go mainstream. During this time, many companies run out of cash and die.
In the case of blockchain, Krishna predicts the chasm will claim companies trying to introduce new protocols. These protocols serve as a base layer or operating system for blockchain, and Krishna says the existing options—including Hyperledger, Ethereum and the bitcoin protocol—are already too entrenched for a new entrant to displace.
Meanwhile, Krishna adds that it will be a tough slog for those building tools for blockchain, which he describes as useful but difficult for companies to make money from.
So who will survive the shakeout and be around when blockchain goes mainstream? Krishna says it will be the companies that create software that makes it easy for businesses and consumers to actually implement all of blockchain’s possibilities. He likens it to the early days of email: even though email technology had been around for years, it still took the likes of AOL to package it in a way that got lots of people to use it.
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The good news is blockchain applications could soon be as ubiquitous as email. The bad news, of course, is companies must cross the chasm, and that could take many months (if they make it).
Krishna, meanwhile, isn’t the only one who sees a chasm period for blockchain. David Treat, managing director of financial services at Accenture, told Fortune that he thinks that one group of blockchain builders—those serving the financial sector—are just beginning to emerge from the chasm, while everyone else is just heading into it.
Shipping and suppliers: Who will be first?
Accenture may be optimistic about a blockchain breakthrough in banking, but finance is hardly the only sector that may be on the cusp of harnessing the technology, which relies on multiple computers to create permanent, tamper-proof ledgers.
Last October, Wal-Mart and IBM announced they are using a blockchain built on Hyperledger to track pork chops through the supply chain in order to improve food safety.
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Meanwhile, shipping giant Maersk sees blockchain as a way to keep track of goods as they move around the world. Krishna says shipping accounts for 5% of the cost of doing trade, and that blockchain-based record keeping could lower those costs by 20%.
These examples have been tossed around for a while, however, raising the question of how long it will take blockchain in these fields to go from an experiment to everyday practice.
Krishna says in one sector, the diamond industry, the use of blockchain has become commonplace but that the industry is not big enough to create a ripple effect in the larger economy.
He adds, though, that blockchain will have a breakout soon among either among shippers or food retailers, and that this breakout will come in the next 12 months.
