This Could Be the End of Enterprise Blockchain

While cryptocurrency was always a dubious proposition, in my opinion, the blockchain technology that underlies Bitcoin and the many thousands of other digital tokens held some legitimate promise. A distributed ledger with entries that can't be altered after the fact and with no need for a central authority could conceivably be useful in certain applications.

One of those applications was global trade. The process of moving cargo from one country to another, often through multiple transportation modes, is a nightmare of paperwork and manual processes. In 2018, tech giant International Business Machines (IBM 0.13%) and shipping juggernaut Maersk (AMKBY -1.87%) launched TradeLens, a blockchain-based platform, to tackle this problem.

Early success, but an ultimate failure

TradeLens scored some early wins. During a trial of the platform prior to its launch, the system effectively reduced transit times in some cases by eliminating tedious steps in the process of moving cargo from source to destination. By mid-2019, five of the world's six largest ocean carriers were using the platform and it was covering more than half of all ocean container cargo. It appeared to be reaching a tipping point.

While TradeLens was co-developed by Maersk, competitors jumped on board due to the nature of blockchain. Each carrier could operate its own nodes on the network, as could other participants. Everyone benefited from the digitization of paper-based processes, and no single entity held more power than any other.

Unfortunately, even with that initial traction, TradeLens failed to win over enough of the industry. IBM and Maersk announced in November that TradeLens would be shutting down by the end of the first quarter of 2023. While the platform was viable, "the need for full global industry collaboration has not been achieved," read the joint press release. TradeLens worked, but not as a commercially viable business.

The global shipping industry may eventually shed its old-school practices, but TradeLens won't be the catalyst for that change.

Little hope for blockchain

Global shipping seemed like the perfect application for blockchain technology. The industry features a large number of players all over the world exchanging information and paper documents, making it a situation ripe for digitization. While TradeLens worked on a technical level, it just didn't work as a business.

Any blockchain project is working against network effects. A blockchain-based network is mostly useless until it attracts a large enough number of participants. Among the things that make that difficult are technical complexity and upfront costs. The Wall Street Journal, citing experts, reported in December that blockchain adoption was hitting roadblocks due to the complexity of companies adopting the technology, increased computing power requirements compared to traditional solutions, and higher costs compared to standard databases.

The Journal article cited a few projects other than TradeLens that had run into serious problems. Walgreens Boots Alliance was toying with the idea of using blockchain tech to manage vaccine distribution, but it was much faster and easier to get something simpler up and running. In another IBM initiative, the tech giant and retailer Walmart used blockchains to track produce through the supply chain. That effort has added only one additional product over the past four years as it ran into issues getting suppliers without digital record-keeping systems on board.

Whether or not blockchain is the best technology for these applications isn't clear. But the best technology doesn't always win. What wins is the technology that gains widespread adoption and hits critical mass. Given the experience of companies that attempted to roll out blockchain-based solutions over the past few years, those solutions appear to be too complex and costly to really work in any real-world environment.

While the crash in cryptocurrency prices has probably contributed to the cooling of interest in blockchain technology, it's also becoming clear that the technology isn't a game-changer after all.