This post examines how SWIFT gpi and EDI could slow Blockchain adoption through Hybridization & the Sailing ship effect.
Furthermore, it also shows (or reminds) that blockchains will not evolve in a vacuum, that they will not replace established technologies overnight, and that established technologies – when improved – could slow down the adoption of Blockchains.
Based on this, it is important to keep in mind that Blockchains will not solve everything; not only are they inappropriate for some use cases but most importantly alternative technologies exist that must be considered. As so often with new technologies, there is no use in adopting them for the sake of adoption. Resisting this urge of “blindly” following innovations is difficult as companies are pressured from all sites (shareholders, media, competitors…) to “innovate”. This is a somewhat ironic situation; whereas it is often claimed that companies must do whatever they can to implement blockchains, in some situations they must do whatever they can to not implement them.
Several theories exist that try to explain the diffusion of innovations. Rogers’, for instance, is one. In The Diffusion of Blockchain Innovations In The Adult Industry, I have examined parts of his theory in the context of the Adult Industry. Another one is Carlota Perez’s Technological Revolutions and Financial Capital which Fred Wilson from USV likes to write about. See his post „The Carlota Perez Framework, for instance. Frank W. Geels’ multi-level perspective 1 is yet another one.
Two of the many aspects of Geels’ multi-level perspective is the emergence of innovations in the context of existing technologies (hybridization) and the Sailing ship effect. Hybridization is the co-existence of new and old technologies, and the Sailing ship effect describes the paradigm that existing technologies improve when challenged by innovations. Below they are used to examine the impact of EDI and SWIFT gpi on Blockchains.
Hybridization: how the co-existence of new and old technologies can slow down the diffusion of the new one
Hybridization describes the phenomena that new and old technologies coexist in the beginning; the innovation does not replace the incumbent suddenly, but gradually over time. Furthermore, especially in the beginning, the innovation can serve as an ancillary technology to the established one.
An example provided by Frank W. Geels is the transition from sailing ships to steamships in the 18/19th century. Initially, steamships did not compete with sailing ships, both co-existed and at first, steamships were only an addition to sailing ships by helping those sail into ports.
More recently, we can observe this with EDI and the Internet.
EDI vs. the Internet: How the Internet improved EDI instead of replacing it
EDI (short for Electronic data interchange) is a technology for transmitting business-specific information between enterprises. EDI is fifty years old (first applied in the aviation industry in 1970) and the first EDI standards were designed in the 1980s in the Automotive Industry. A common use is the transmission of purchase orders. Before the Internet became prevalent, EDI documents were, among other things, transferred through VANs (short for value-added networks; networks set up specifically for a group of businesses for the exchange of dedicated data such as EDI documents). With the emergence of the Internet, it was believed that Internet-enabled technologies such as the markup language XML will replace EDI completely. However, although XML is used, EDI is still dominating but now transmitted through the Internet instead of VANs (or other alternatives). What happened was hybridization; the Internet is supporting EDI by making the transfer of EDI documents easier instead of fully replacing it.
EDI vs. blockchains: Improving EDI or replacing with Blockchains
However, EDI has shortcomings such as limited supply chain visibility caused by incompatible data formats, P2P communication instead of common databases across all participants, and costs for EDI-infrastructure hosting. With Blockchains the question is how they will influence EDI. A common answer is that blockchain-based supply chain solutions will replace them. However, even although blockchains offer solutions here, EDI is still being used and continually improved. And this improvement of an established technology when faced with could slow down the adoption of blockchains in general. Among other things, the improvements of sailing ships in the steamship-example from above slowed down the overall transition from sailing ships to steamships which, by the way, took over 100 years.
Another term for such technological improvements in the face of alternatives is the Sailing ship effect. The following section examines the Sailing ship effect in the context of SWIFT and blockchains.
Sailing ship effect with SWIFT: How the improvement of SWIFT through gpi can slow down the diffusion of Blockchains
As mentioned above, the sailing ship effect describes the paradigm that existing technologies improve when challenged by innovations. In the cross-section of FinTech and blockchains, we can observe that with SWIFT gpi. SWIFT gpi (short for Society for Worldwide Interbank Financial Telecommunication Global Payments Innovation) is an improvement to the SWIFT payment network focusing on faster payments and large-scale transactions. As such, in February 2018 SWIFT (one year after their launch in early 2017) reported that SWIFT gpi handled more than $100 billion daily and that half of all gpi payments are settled in less than 30 minutes 2. In essence, something blockchain-based payment networks are (yet unsuccessfully) trying to establish as well. As such, Commerzbank, for instance, assumes that payments will (for now) be processed via SWIFT gpi instead of blockchains;
- see Technological Transitions and System Innovations A Co-Evolutionary and Socio-Technical Analysis ↩︎
- https://www.swift.com/news-events/press-releases/swift-gpi-reduces-cross-border-payment-times-to-minutes_even-seconds ↩︎
- https://www.commerzbank.de/media/institutions/fi_newsletter/FI_News_1_18_final.pdf ↩︎