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McKinsey Reports Honeymoon Period for Blockchain Is Over—Companies Want Results

By:
Chris Gaetano
Published Date:
Jan 8, 2019
bitcoin-blockchain-business-730569 (1)

Enthusiasm for blockchain may be cooling as companies wrestle with the complexities and contradictions inherent in adapting the technology for mainstream commercial use, with many concluding that while it might hold promise in the future, it's just not yet ready for prime time, according to a recent McKinsey & Company report

"Of the many use cases, a large number are still at the idea stage, while others are in development but with no output," said the report. "The bottom line is that despite billions of dollars of investment, and nearly as many headlines, evidence for a practical scalable use for blockchain is thin on the ground... From an economic theory perspective, the stuttering blockchain development path is not entirely surprising. It is an infant technology that is relatively unstable, expensive, and complex. It is also unregulated and selectively distrusted."

McKinsey said that one reason for lack of progress is that competing technologies have emerged, also aiming to address the problems that blockchain is meant to solve. For example, it said that the SWIFT system's global payments innovation initiative is centered around increasing transaction speeds and increased transparency, similar to what blockchain is meant to do. 

Another reason, though, is not technical but psychological. Incumbent firms are excited about the possibilities on the one hand, but on the other, they know they are essentially investing in an upending of traditional business models, which may cannibalize their own revenues. Further, blockchain requires a large network to operate at its best. Yet, the report notes that "few companies had the appetite to lead development of a utility that would benefit the entire industry." 

Further, companies have found that the applications that do exist "added little benefit" and had "little sign of material cost savings or incremental revenues." 

However while feelings may have cooled on blockchain, they are not gone entirely. Companies have responded to doubts by increasing scrutiny and demands on projects. Proofs of concepts have become more narrow, focused more on one or two applications versus dozens before. Right now, McKinsey said, the practical value of blockchain seems to be located in niche applications, modernization efforts, and reputational value. 

"An emerging perspective is that the application of blockchain can be most valuable when it democratizes data access, enables collaboration, and solves specific pain points,"said the report. "Certainly, it brings benefits where it shifts ownership from corporations to consumers, sharing 'proof' of supply-chain provenance more vertically, and enabling transparency and automation. Our suspicion is that it will be these species of uses cases, rather than those in financial services, that will eventually demonstrate the most value."