Summary. Contracts, transactions, and records of them provide critical structure in our economic system, but they haven’t kept up with the world’s digital transformation. They’re like rush-hour gridlock trapping a Formula 1 race car. Blockchain promises to solve this problem. The technology behind bitcoin, blockchain is an open, distributed ledger that records transactions safely, permanently, and very efficiently. For instance, while the transfer of a share of stock can now take up to a week, with blockchain it could happen in seconds. Blockchain could slash the cost of transactions and eliminate intermediaries like lawyers and bankers, and that could transform the economy. But, like the adoption of more internet technologies, blockchain’s adoption will require broad coordination and will take years. In this article the authors describe the path that blockchain is likely to follow and explain how firms should think about investments in it.
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In Brief
The Hype
We’ve all heard that blockchain will revolutionize business, but it’s going to take a lot longer than many people claim.
The Reason
Like TCP/IP (on which the internet was built), blockchain is a foundational technology that will require broad coordination. The level of complexity—technological, regulatory, and social—will be unprecedented.
The Truth
The adoption of TCP/IP suggests blockchain will follow a fairly predictable path. While the journey will take years, it’s not too early for businesses to start planning.
Contracts, transactions, and the records of them are among the defining structures in our economic, legal, and political systems. They protect assets and set organizational boundaries. They establish and verify identities and chronicle events. They govern interactions among nations, organizations, communities, and individuals. They guide managerial and social action. And yet these critical tools and the bureaucracies formed to manage them have not kept up with the economy’s digital transformation. They’re like a rush-hour gridlock trapping a Formula 1 race car. In a digital world, the way we regulate and maintain administrative control has to change.
A version of this article appeared in the January–February 2017 issue of Harvard Business Review.
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