When Blockchain’s Greatest Assets Were Its Undoing

With apologies to Paul Simon, there must be 50 ways to resist innovation. Nitpicking, turf protecting, risk avoiding, lollygagging — these are just a few of the active and passive strategies to stop new technology from getting its tentacles established in an organization. 

And then there is smiling and being outwardly supportive while quietly undermining the project. Erica Pimentel would call this last form “tacit resistance.” It is something she noticed when she and her fellow researchers did a postmortem on an ambitious yet ill-fated blockchain supply chain project in the marine industry.

Working with Mélissa Fortin (Université de Québec à Montréal) and Kai DeMott (Concordia University), Pimentel, an assistant professor at Smith School of Business, spent two years on a case study of SeaLedger, a joint venture between a major technology company, DigitalChain, and an international shipping venture, BlueWave (all pseudonyms).

SeaLedger represented an enterprise or “permissioned” blockchain solution that promised to simplify transactions among manufacturers, shippers, government authorities and ports. It sought to leverage blockchain’s greatest selling points: immutability and transparency. But, after a deep dive and 31 interviews, the researchers could see that SeaLedger never had a chance. Given the inherent shortcomings of enterprise blockchains combined with the need for competitive anonymity, key participants in the chain could offer only half-hearted buy-in.

For Pimentel, the lesson isn’t that blockchain is flawed — it’s that technology designers too often underestimate the social fabric they’re disrupting. Efficiency and transparency are powerful selling points of blockchain technology, but they can also strip people of autonomy, ambiguity and the informal workarounds that make organizations actually function.

As Pimentel discussed with Insight senior editor Alan Morantz, the SeaLedger story is a cautionary tale of introducing an innovative solution that is tone-deaf to human behaviour and competitive dynamics.

What did your study of the SeaLedger case reveal about resistance to innovation, a kind of resistance driven more by social and institutional dynamics than by individual concerns or organizational barriers?

For us, it was the idea that people could resist, but very slowly. It was almost like death by a thousand cuts. So if I resist in very micro forms over and over, eventually the technology will not be able to move forward. 

Some of the resistance was because blockchain makes everything transparent. It doesn’t allow people to engage in the shenanigans that are possible in an analog world, like backdating or redoing journal entries. With blockchain, every time you make a correcting entry, it’s visible to everyone. So they just said, ‘We can’t have this. We need that obscurity.’

And some of it is that they didn’t want to share their secret sauce with competitors. They were compelled to participate in the SeaLedger system because the partners on the project — one was one of the largest shipping firms in the world — said, ‘If you want to use our shipping lines, you must give your data to SeaLedger. Otherwise you can’t participate using our shipping lines.’ So that’s how they populated the data of the blockchain.

People were resistant because they didn’t see the commercial benefits but were compelled to participate in the network. So they found these more subtle ways to resist the technology, by not submitting data on time or not integrating all parts of the system — just complying in name but not in spirit. Ultimately, the project failed because it couldn’t get the critical mass.

So what our study shows is that projects can die not just because it’s a bad use case — it could be the best use case in the world — but because people behind it find reasons to want to evade or not participate. Those behind-the-scenes human dynamics are really important. 

Ironically, blockchain emphasizes transparency and immutability, and that’s what actually triggered the resistance. 

One person told us, ‘My market is a duopoly, so if I put all my information on the blockchain, automatically my competitors will know exactly what I’m doing.’ They said some markets in Canada in particular are too concentrated for full transparency to work.

When you put something in computer code, it doesn’t allow discretion. It’s a programmatic set of rules. It’s an algorithm. It takes away the potential for human discretion. In innovation resistance research, the studies are often very micro; they focus on individuals. What we were actually seeing were these larger dynamics at play, such that SeaLedger was dead before it even started.

In this case, how could data in a blockchain be used for competitive gain?

This is the difference between a public and private blockchain. With a public blockchain like Bitcoin, the protocol is public; you can come in and go out when you want. SeaLedger was different in that it was a decentralized network but centrally controlled by SeaLedger and Digital Wave. So the power structure of this arrangement was very different. They controlled what everyone saw. They controlled who was allowed to come, who was allowed to go and how the protocol would change, which is not what blockchain was intended for. 

Blockchain is antagonistic to centralization. It’s supposed to be fully open, where everyone gets to participate. This is why enterprise permission blockchains don’t work, because you end up with these closed systems and imbalances in power that are antagonistic to why blockchain began in the first place.

Does blockchain expose pre-existing power imbalances or create new ones?

It’s an interesting question. Blockchain architecture concretizes the power imbalances that are coded into the algorithm. So in the case of Bitcoin, you get to vote on the protocol based on the amount of computing power that you provide. The code prescribes who has more voting rights than the others.

In an enterprise blockchain, the architecture mirrors the power structures that exist in the real world. They centralize the nodes, who has the right to read versus write to the blockchain, who can see but not change the data. So the architecture and real-life commercial relationships need to be understood together to understand how that limits or provides opportunities to the technology.

It makes sense. If SeaLedger and Blue Wave were putting up the capital to develop the system, of course they were going to monetize people’s data. They were going to run analytics. They were going to sell industry insights. People knew they were giving up their data and that it wasn’t for free. Yes, they needed access to those maritime waterways. But they also knew they were giving up commercial data, and how much were they willing to give up?

SeaLedger was created by maritime insiders who must have known the industry dynamics going in. Why did they not anticipate the problem of tacit resistance to an enterprise blockchain?

The project started around 2017-2018. There was a ton of hype around blockchain and everyone felt they needed to do something. The ports were saying, ‘We need to appear high tech, so we want to show we have a blockchain system in place. Whether or not it’s actually helpful, whether or not we actually use it, whether or not it’s actually better than our traditional IT system, doesn’t matter.’

There was a lot of that at the beginning. Everyone jumped on board out of fear of missing out. The thinking was that if SeaLedger didn’t do it, their competitor was going to do it. A lot of folks told us they ran their blockchain in parallel with legacy systems because they weren’t really sincere about transforming everything to a blockchain. They just needed to market that they had it.

Could SeaLedger have been a success if they had just made it an open ledger rather than a permission-based?

Maybe if they had managed the properties differently but, honestly, people would not have participated. They wouldn’t want competitors to know what their shipments are, when they’re happening, who’s receiving them, where they’re coming from. What it shows is that blockchain works in systems where there’s anonymity. That's No. 1.

And No. 2, it works when I have no reason to care what everyone else is doing. With Bitcoin, I don’t care if you’re transacting with someone else because it’s none of my business. But if you’re my competitor, sure, I want to see who you’re shipping to. It’s the anonymity piece that matters. So transparency and anonymity have to go hand in hand. Transparency and non-anonymity between competitors can’t happen.

Are there lessons here that can be generalized to digital transformation in general? 

To me, the big takeaway is that we can’t get excited just about what the technology says it can do on paper. We have to understand how people are going to interact with it and what baggage people bring in. 

In the case of blockchain, there are different groups that will work together either to make the network succeed or not succeed. To understand those social networks, you have to look at the real-world interactions of these people. It’s not in the code. It’s not in the consensus mechanism. It’s understanding the networks of people in real life that are logging onto the system.

So if we don’t think of the strange ways that human beings are going to push and pull and prod and manipulate the technology, both alone and in concert with others, then we’re never going to fulfill the full potential of the technology or understand their risks before they’re implemented.