7 challenges with blockchain adoption and how to avoid them

Blockchain technology is often surrounded by a lot of hype, which makes many business leaders very interested in adopting it, but also concerned about blockchain challenges and risks.

At its most basic, blockchain refers to peer-to-peer distributed ledger technology that can efficiently record transactions between two parties in a verifiable and permanent way, enabling tracking and traceability. This emerging technology has game-changing potential for a wide range of applications that go far beyond its roots in cryptocurrency.

Consider the following examples:

Pharmaceutical companies have developed blockchain applications to secure medicine supply chains and confidential test data. In collaboration with IBM, Walmart has developed a blockchain system that reduces product tracking times from seven days to 2.2 seconds. Microsoft has secured around 40 patents for blockchain-based payment gateways and secure storage.

Along with the benefits some early-adopter organizations are getting from blockchain, broader awareness of the technology is growing rapidly. Data from a 2020 APQC survey of supply chain professionals showed that 66% of organizations were familiar with blockchain in 2019 – a number that grew to 80% within a year. That said, the majority of organizations were still in the early stages of adoption.

Why did only 12% of participants report being alive with either blockchain or blockchain as a service? What was holding back the 34% of respondents who hadn’t even explored the use of blockchain?

The top five blockchain challenges organizations faced, according to the APQC survey, were lack of adoption, skills gaps, trust between users, financial resources and blockchain interoperability.

While newer Gartner research from 2023 indicated that many blockchain challenges have yet to change, it also pointed to two other common themes: the speed at which blockchain products reach the market, and lack of regulatory clarity.

Read on to explore why these blockchain challenges persist, along with ideas on how to address them.

1. Lack of adoption

Blockchains are ecosystems that require broad adoption to work effectively. For example, track-and-trace capabilities in supply chains require not only that an organization adopt a blockchain network, but that its suppliers do as well. APQC found that only 29% of organizations are piloting or have fully deployed blockchain.

At the time, there was hope that the adoption of blockchain would grow. Organizations have come together and formed collaborative blockchain working groups to address common pain points and develop solutions that can benefit everyone without revealing proprietary information.

However, research from Gartner indicated that these challenges will continue into 2023. In the research firm’s 2023 “CIO and Technology Executive Survey”, 8% of respondents said they had deployed blockchain, a figure expected to increase to 46% by 2025 . Despite the expected growth, numerous business, technical and organizational obstacles remain.

The business issues are mainly related to customer education and hesitation. Blockchain vendors face their own problems, including partner reluctance, lack of network effect, limited skills, and financial difficulties. Among the technical challenges are performance and limited interoperability with the necessary systems.

However, Gartner offered some solutions, saying that prioritizing education and marketing initiatives are essential steps for product leaders. Showing practical uses of blockchain is also critical to winning over skeptics.

2. Skills gap

Blockchain is still very much an emerging technology, and the skills needed to develop and use it are in short supply. As the figure shows, 49% of respondents to the 2020 survey cited the skills gap as a major challenge. The market for blockchain skills is highly competitive and has been for some time. The cost and difficulty of talent acquisition in this area only adds to the concerns organizations have about adopting blockchain and integrating it with legacy systems.

Gartner’s 2023 data indicated that limited technical experience remains a challenge. Vendors often cite this as a problem in product development. This leads to difficulties in creating user-friendly interfaces and adding blockchain applications to existing systems.

However, one way to counter the skills gap is to use blockchain as a service (BaaS). Such services allow organizations to reap the benefits of blockchain without investing significantly in the technical talent behind it. IBM, Amazon Web Services and Oracle are just a few of the many BaaS providers.

This model has already narrowed the skills gap in the context of other technologies, such as robotic process automation (RPA). Rather than developing bots and writing code in-house, organizations can now look to numerous vendors who have the expertise to implement RPA and customize it for each organization’s needs. Users only need to know the basics of the technology and do not need to be programmers to take advantage of its benefits. Similarly, users will need to understand how to execute smart contracts, which use blockchain to automatically perform certain actions once the terms of the contract are met, but they will not need specialized knowledge about the intricacies of distributed ledgers . BaaS has the potential to mitigate the blockchain skills barrier.

3. Trust among users

Lack of trust among blockchain users is the third major obstacle to widespread implementation. This challenge cuts in two directions: Organizations may not trust the security of the technology itself, and they may not trust other parties on a blockchain network.

In theory, every transaction in a blockchain is considered secure, private and verified. This is true even if there is no central authority present to validate and verify the transactions, since the network is decentralized. A core part of any blockchain network are the consensus algorithms that drive common agreement on the current state of the distributed ledger for the entire network. This is intended to ensure that each new block added is the only version of the truth agreed upon by all the nodes in the blockchain. If it is a public – as opposed to private – blockchain, anyone can participate. Despite all the mechanisms intended to guarantee trust on public blockchains, business leaders have placed greater trust in private blockchains where there are no unknown users.

Gartner research has shown that a lack of standards is also a problem. The novelty of this technology is a major reason for this problem.

4. Financial resources

The fourth barrier to the widespread adoption of blockchain, according to APQC’s research, is the lack of financial resources. Implementing blockchain isn’t free, and for many organizations the pandemic and disruption of 2020 has left budgets tight. However, one other lesson learned from the pandemic is that organizations, and especially IT departments, can change faster than previously thought possible.

A closer examination of this barrier reveals that it is related to an underlying lack of organizational awareness and understanding of blockchain. APQC has found that as awareness of new technology becomes more widespread, the ability to effectively make a business case for its adoption improves accordingly. This will also be true of blockchain, provided blockchain proponents focus on building a business case that demonstrates how the benefits of the technology will offset the resources required for implementation.

Vendors also face financial challenges in financing blockchain applications and the runtime infrastructure needed to support them, along with the inherent complexities.

5. Blockchain interoperability

As more organizations begin to adopt blockchain, many tend to develop their own systems with different features — governance rules, blockchain technology versions, consensus models, etc. These separate blockchains do not work together, and there is no universal standard to enable different networks to communicate with each other.

Blockchain interoperability includes the ability to share, view and access information across different blockchain networks without the need for an intermediary or central authority. The lack of interoperability can make mass adoption an almost impossible task.

With the impact of the pandemic, in a business environment where collaboration across functions and with suppliers and customers is more important than ever, blockchain interoperability will be critical. This is the only way organizations will truly get the most value from their blockchain investments. Since 2019, researchers have reported seeing an increasing number of interoperability projects intended to bridge the gap between different blockchains. Many of them aim to connect private networks to each other or to public blockchains. These systems will ultimately be more useful to business leaders than previous approaches that focused on public blockchains and cryptocurrency-related tools.

However, as of 2023, interoperability remains a major roadblock to the widespread adoption of blockchain-based tools. In fact, Gartner cited interoperability as a top technical challenge, especially with legacy systems.

Gartner noted encouraging steps to improve interoperability across networks, including the development of cross-chain communication protocols and standardized data formats.

Along with the five issues that emerged from the APQC survey, the Gartner report noted two other common challenges related to blockchain technology.

6. Slow rate of development

Blockchain technology is complicated. New products often require extensive research, development and validation. For this reason, products can be slow to get to market.

However, ancillary and post-production suppliers do not face these problems as often. Gartner researchers assumed this is because the tools they use are more advanced.

7. Lack of regulation

According to Gartner, some blockchain vendors have indicated problems due to limited regulations during certain parts of the process. Regardless, a lack of clarity about the regulatory requirements creates significant risk for blockchain providers and consumers.

Looking forward

It would be naive to claim that these blockchain challenges are not significant barriers to its adoption. Broadly speaking, however, many of blockchain’s biggest challenges are just the growing pains common with any new technology. To make the business case for adoption, blockchain advocates will need to convince their organizations to take the kinds of risks, form the kinds of relationships, and make the kinds of tradeoffs that are common in other areas of business.

Leaders can also take steps to ensure that their products are developed in the most efficient way possible. This includes publishing case studies to highlight the benefits of blockchain and forming strategic partnerships to navigate the blockchain ecosystem.

Given the benefits organizations are already reaping from blockchain and the increasing calls for visibility and transparency between organizations, blockchain could one day be a powerful solution to some long-standing problems.

Marisa Brown is senior principal research leader at APQC, a nonprofit organization that provides expertise in benchmarking, best practices, process and performance improvement, and knowledge management.