Gartner: Blockchain will be nothing more than an add-on for ERP, CRM software

The distributed ledger technology has already become highly fragmented, making it difficult for companies to push ahead with real-world uses. On top of that, Gartner expects that fragmentation to collapse into no more than four dominant standards in the next few years.

blockchain in healthcare / doctor accesses one block in a chain of digital medical records
Leo Wolfert / Getty Images

During the next two to three years, all major ERP and CRM vendors will offer blockchain capabilities as an add-on feature for their software and SaaS products, according to a new report from Gartner.

During that same time, fragmented blockchain standards are likely to inhibit adoption of the distributed ledger technology in real-world systems by financial services firms, which have been rolling out a variety of test beds and pilot projects in recent years.

Until consortiums and standards groups come together on several industry standards, or de facto standards emerge, the use of blockchain will be limited mostly to proofs of concept and pilot tests. Gartner released its report at its IT Symposium/Xpo in Cape Town, South Africa today.

Without standards, businesses would have to support multiple blockchains and integrate them upstream into ERP and CRM systems, said Dale Kutnick, a Gartner senior vice president of research and co-author of the report.

"We're going to have to support five different blockchains? Who's going to pay for that?" Kutnick said. "It’s unlikely there'll ever be just one standard, but ultimately [there will be] a couple [of] standards bodies who'll adjudicate.... Ultimately, there will be one or two standards..,. but no more than four.

Kutnick expects one primary standard – and one or two secondary ones – to emerge. In the meantime, de facto standards are also likely to form, though that process is likely two years away. While Hyperledger Fabric has the potential to become a de facto standard because it's being piloted in several industries, there's no guarantee it will, he added.

As a result, companies working with the myriad of blockchain platforms available today should realize it's "highly unlikely" the one they're using now will become the industry standard in five years. "When standards come out, you're going to have to convert yours," Kutnick said.

And blockchain ledgers will need to be integrated with existing ERP, CRM, finance, and asset managment systems, Gartner warned. When SAP or Oracle announce a new version of their software, companies will have to re-integrate their blockchain platforms, according to Kutnick.

"If you're a FedEx, Alibaba or Amazon, maybe you want to stick your hat in the ring and try [blockchain], or maybe you wait," Kutnick said. "If you're a user – an insurance company, a bank, or a [consumer packaged goods] company – you're going to want to wait until your software company – Oracle, Microsoft or SAP – announce blockchain as an add-on feature for your supply chain software so you don't have to worry about integrating it."

All of the major software vendors will eventually offer blockchain as a feature; in fact, said Kutnick, most are already developing that kind of add-on. Likely the most complicated platform will be ERP, which won't see a viable blockchain feature set for anther year or two, he said.

Oracle and SAP, for example, have already announced blockchain products for supply chain tracking.

The financial services industry, in particular, is still three to five years away from mature industry standards, according to Fabio Chesini, a senior research director at Gartner and co-author of the report.

Standards are critical for financial services firms because they are constantly moving assets between clients, partners and other institutions. Today, bank CIOs can choose from numerous blockchains, available using either enterprise-grade approaches such as R3 Corda, Hyperledger, and Digital Asset, or the many public blockchain standards like Bitcoin, Ethereum, Cardano, EOS and Tezos. Each standard's consortium is trying to make theirs the de facto basis for value exchange and digital asset representation, smart contracts and decentralized applications.

Bitcoin, R3, Ethereum, Hyperledger and others often use differing implementations, data formats, data interchange and directories – making interoperability among different blockchains difficult across organizations.

"As financial services companies constantly move financial instruments and assets to other financial services companies and partners, cross-industry interoperability standards are, and will be, critical," Chesini said in a statement. "Today, they are looking to replace current banking vehicles for payments like Western Union, or international money transfers like SWIFT, with blockchain-based platforms.

"Bank CIOs must be mindful of this nascent and fragmented state of blockchain standards," Chesini continued. "It is unlikely there will be a single de facto standard like in the Open Systems Interconnection (OSI) model, at all levels. Given how new and fragmented the state of blockchain standards is, we expect no more than four standards to lead the market in the next three to five years."

For the foreseeable future, CIOs should take a wait-and-see approach to blockchain, using sparse resources to test DLT's ability to offer business efficiencies or cost savings, according to Kutnick.

"If you look at companies doing the most hyping about blockchain, it’s consultancies: IBM, Accenture, KPMG, Deloitte, and people like Don Tapscott with his blockchain revolution that hasn’t happened," Kutnick said.

While blockchain promises to create an open ledger over which businesses can share a single, immutable version of data – whether that data is for tracking and tracing goods or cross border financial transactions – it doesn't offer a competitive advantage in the end; in fact, it levels the playing field among businesses players by enabling business partners to see the same data in real time, Kutnick said.

IBM Food Chain blockchain IBM

IBM's Food Trust Ethereum-based blockchain is being piloted by more than a dozen companies, including Walmart, to track and trace produce from farm to shelf.

Additionally, while business-class, permissioned blockchains give the illusion of decentralization, in the end Kutnick said, they're centrally controlled by a single entity. So even as ecommerce/social media sites such as Facebook and financial services companies such as JP Morgan Chase talk up the decentralization and privacy benefits of blockchain, the reality is that one company still holds the network's governing reigns.

Yet another reality for blockchain in financial services is the cost associated with transferring money using bitcoin or Ethereum, which can amount ot as much as 5% to 8% in fees. Additionally, there are concerns about the volatility of the cryptocurrency, whose value has been on a roller coaster ride over the past year and a half. So if a consumer were to purchase a car using cryptocurrency, for example, the value of the digital money could rise or fall even before the purchase was finalized, Kutnick said.

Companies who've accepted bitcoin, Ethereum Eth, Ripple or other forms of cryptocurrency as a form of payment have found little interest in the tactic from their customers, Kutnick noted.

For example, more than a dozen major retailers now accept bitcoin as a form of payment, but it still represents a tiny percentage of their revenue. For example, Overstock.com began accepting bitcoin for payment in 2014. Today, it accounts for less than one quarter of one percent of Overstock.com's online payments, depending on day-to-day fluctuations; the company, however, continues to see it as an important part of its retail strategy.

A fiat-backed cryptocurrency, known as stablecoin, like JP Morgan's JPM Coin would offer a more stable crypto base, since each digital coin is tied to a U.S. dollar or other form of fiat currency.

"Gartner, in general, is skeptical right now about blockchain. Both Fabio and I are, in general, more skeptical about the short-term promises of blockchain. Neither one of us believe it will be transformational for governments or businesses," Kutnick said.

Where blockchain holds transformative promise is as a form of digital fiat currency for a sovereign nation, such as China, which is already exploring a national cryptocurrency.

"Imagine if China got a fiat digital currency and they're able get Russian and Iran and other bad actors who hate the fact that the U.S. dollar is [the world's] fiat currency because the U.S. uses it as a weapon, you could imagine...some governments choose to use a different [digital] fiat currency," Kutnick said. "That would be transformational."

This story, "Gartner: Blockchain will be nothing more than an add-on for ERP, CRM software" was originally published by Computerworld.

  
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