Web3, blockchain and NFTs for A/NZ business

Published on the 17/08/2023 | Written by Heather Wright

Web3, blockchain and NFTs for A/NZ business

Tactical experimentation, and caution needed…

Blockchain remains a long way from being ready for prime time in the business world, but it is a technology that Australian and New Zealand companies need to improve their understanding around, even if they’re not going to be using it in any real way anytime soon.

That’s the verdict from Gartner’s Adrian Leow, a Sydney-based vice president within the analyst firm’s applications and software engineering leaders group.

Leow says despite all the buzz being around generative AI at the moment, blockchain, and its aligned offerings of cryptocurrency, NFTs and Web3, are garnering plenty of enquiries and interest at events.

“Blockchain isn’t the solution. It’s the foundation on which you build the solution.”

He told iStart Gartner’s view on blockchain is very much one of a glass half full ­– and half empty.

“The glass half full part is that it will add trillions of dollars of business value impact, but the glass half empty part is that it’s not going to happen anytime soon. It’s a long run journey that will probably take the better part of this decade to achieve.”

More than 10 years after blockchain got its start, there’s still no killer app (even if it has caused some deaths, ASX’s CHESS project being one that comes to mind) with a number of issues yet to be resolved.

Leow refers to its current state as ‘blockchain inspired solutions’ because what’s available is missing core tenants such as scalability and interoperability.

Interoperability is a key issue. The different blockchains can’t directly communicate with each other and can’t directly communicate with back end systems of record without specialised customised integrations. While companies including Polkadot, Cosmos, Metronme and Quant Networks are working to solve the issue, their offerings aren’t at scale and in production yet.

He notes work by Alibaba around imports of Angus beef products from Australia into mainland China’s consumer market. The initiative required involvement of the cattle farmers, along with trucking, shipping, receiving, distribution and processing companies, among others.

“For it to work, all of them needed to be on the same blockchain right now. Once you get them all to agree on that same blockchain you need them to agree on the same format of data exchange, then you actually need to build the solution – because what I just described is a full blown ERP solution,” Leow says.

“And that’s the thing: Blockchain isn’t the solution. It’s the foundation on which you build the solution.”

Alibaba is big enough, and can have a vertically integrated supply chain, enabling them to experiment.

“But that’s all it was. It’s not existing in production. But it shows the kind of scale challenges that are holding blockchain back.”

The complexity of the user experience with the tools is also a barrier to adoption, Leow says.

And there’s something else – a reality check for many businesses: In many cases a central database or central ledger will suffice.

A Gartner decision tree for blockchain ledger technology, designed to guide businesses as to whether they really need blockchain, paints a telling picture.

Of the myriad options, the majority result in using databases, tamper proof logs with database technology or a central ledger.

A key question, Leow says, is whether the entities with write access are having a hard time deciding who should control the data store. Without the trust issues, and with just one entity in control, data doesn’t need to be distributed.

“Many of the distributed ledger systems we have looked at over the year, even those that say they have gone into production, are barely distributed. And in a lot of examples they are not Byzantine fault tolerant, they’re only run on a few nodes, so you have to ask yourself ‘what’s the point?’. Just use a central database.”

Leow also has some bad news for those looking at smart contracts.

“They are the most revolutionary part of blockchain, but they are also the most immature and therefore potentially dangerous aspect of blockchain,” he says.

“Smart contracts aren’t smart and they’re not contracts. They just act more like stored procedures in a relational database. They’re just small amounts of code – software programs that are executed in relation to a very specific transaction or event.

But because anything you deploy on a blockchain is immutable – meaning you can’t change it – if you deploy a smart contract that has a bug in it, bad luck. You can’t edit the code, but a bad actor can exploit it.”

Leow is at pains to stress he’s not saying companies should avoid smart contracts, or blockchain.

“We’re just saying be smart about it and mitigate the potential for bugs.”

He advises keeping code to just a couple of hundred lines to reduce the chance of bug.

“Smart contracts are one of the key things enterprises look at, but they need to understand it’s not as mature as they might think.”

Leow says he’s receiving a lot of questions from A/NZ businesses about what Web3 is.

Powered by decentralised apps, greased by cryptocurrencies and with non-fungible tokens (NFTs) providing digital ownership, Web3 has been hailed as ‘the next iteration of the internet’.

Some analysts aren’t so sanguine.

“Another analyst said they wish it wasn’t called Web3 as it’s not the web,” Leow notes. “And in some cases that analyst is correct.

“Web3 is just the blockchain with some constructs on top of it.”

It’s also been conflated with the metaverse, something Leow says ‘is going nowhere at the moment’.

Into the mix also comes tokens, both fungible tokens, or digital currency including cryptocurrenciees, stable coins, and central bank digital currencies, and NFTs.

“The corporate mainstream is adopting different kinds of cryptocurrency out there. Some are hiring experts, some [including Amazon, Etsy, The Home Depot, Nike, McDonald’s, Microsoft and Whole Foods Market] are actually transacting on it or using it for payments and rewards.”

Then there’s organisations like Bank of New York Mellon which has been experimenting with digital asset custody. More than 70 percent of institutional customers said they were interested in the asset custody aspect, Leow says, not because of crypto, but because of the tokenised, real-world assets aspect of it.

While examples exist, Leow admits they’re still few and far between.

On the NFTs front, he says brands are using digital art for sales and marketing, gaming NFTs such as Decentraland exist, and there are moves toward digital identity NFTs, such as Soulbound, enabling users to set up their own identity record as an NFT, and real-world asset NFTs.

JPMorgan Chase & Co acquired ‘land’ in Decentraland – while they’re calling it the metaverse, Leow is clear it’s ‘just Web3’ – and set up shop with a virtual presence. Gucci has issued purses that are NFTs. They sold for more than regular real-world purses, at up to US$10,000. What exactly you do with said purse is anyone’s guess.

“It’s a status thing. A limited edition, unique creation. I guess that makes it not necessarily that ridiculous, but still ridiculous,” Leow notes.

The NFL gave fans virtual NFT commemorative tickets, while Starbucks offered NFTs as loyalty rewards last year.

The first ‘intelligent’ NFT – yes, you can train your NFT with AI now – was a piece of artwork sold by Sotheby’s. ‘Alice’s’ owner can sit and talk to the artwork.

There are, of course, more realistic NFT options. Leow notes hotel room reservations in the Dominican Republic being sold as NFTs, enabling the hotel to receive their income immediately and the purchaser to onsell if needed.

“So the technology is being explored and used in the enterprise,” he says.

This is not a technology that is going away anytime soon.

“What happens with these emerging technologies, especially all the technology around blockchain and distributed ledger is they evolve and change and eventually become something else overtime but it will be useful, related to the original technology, it’s just that it’s final form and final use and advantages haven’t been figured out yet.”

So while Leow says it will take the better part of this decade to realise any true enterprise use out of the technologies, he’s urging local companies to not stick their heads in the sand, but instead considering experimenting.

There is, however, a caveat: Leow says that experimentation comes with a price tag and companies must understand that whatever they invest is tactical – meaning it’s money they’re willing to burn.

“None of the projects you work on in relation to a blockchain project is going to go into production in its current state. It’s going to be a pure experiment because interoperabiltiy, scalability, the core tenets

like that, need to be solved first. You’re not going to replace your existing processes yet with the technology.

“But you need to at least understand how it works because you don’t want to be the ones that wake up in seven years and find your entire market has decentralised and you’re the ones left behind, playing catchup.”

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