McKinsey & Co. Report Batters Blockchain’s Progress, Future

Blockchain, FinTech, News | January 16, 2019 By:

A new article by McKinsey & Co. takes a skeptical and cynical look at blockchain’s progress, concluding that its breakout is not the slam dunk many once believed.

Titled Blockchain’s Occam Problem, the article claims some industries are already downgrading their expectations.

“Companies set on taking blockchain forward must adapt their strategic playbooks, honestly review the advantages over more conventional solutions, and embrace a more hard-headed commercial approach. They should be quick to abandon applications where there is no incremental value,” says McKinsey.

The skepticism first arose in late 2017. “Many people working at financial companies felt blockchain technology was either too immature, not ready for enterprise level application, or was unnecessary,” claims McKinsey. “Many POCs (proof of concept) added little benefit, for example, beyond cloud solutions, and in some cases led to more questions than answers. There were also doubts about commercial viability, with little sign of material cost savings or incremental revenues.”

Creating a dedicated network that would benefit an entire industry was something most companies had little appetite to accept. “In addition, many banks have been distracted by broader IT transformations, leaving little headspace to champion a blockchain revolution,” McKinsey said.

The firm claimed that some financial institutions “have begun to recalibrate their blockchain strategies. They have put POCs under more intense scrutiny and adopted a more targeted approach to development funding. Many have narrowed their focus from tens of use cases to one or two and have doubled down on oversight of governance and compliance, data standards, and network adoption. Some consortia have shrunk their proof of concept rosters from tens in 2016 to just a handful today.”

As we enter 2019, blockchain’s practical value is mainly located in three specific areas:

  • Niche applications: There are specific use cases for which blockchain is particularly well-suited. They include elements of data integration for tracking asset ownership and asset status. Examples are found in insurance, supply chains, and capital markets, in which distributed ledgers can tackle pain points including inefficiency, process opacity, and fraud.
  • Modernization value: Blockchain appeals to industries that are strategically oriented toward modernization. These see blockchain as a tool to support their ambitions to pursue digitization, process simplification, and collaboration. In particular, global shipping contracts, trade finance, and payments applications have received renewed attention under the blockchain banner. However, in many cases blockchain technology is a small part of the solution and may not involve a true distributed ledger. In certain instances, renewed energy, investment, and industry collaboration is resolving challenges agnostic of the technology involved.
  • Reputational value: A growing number of companies are pursuing blockchain pilots for reputational value; demonstrating to shareholders and competitors their ability to innovate, but with little or no intention of creating a commercial-scale application. Arguably blockchains focused on customer loyalty, IoT networking and voting fall into this category. In this context, claims of being “blockchain enabled” sound hollow.

While McKinsey doesn’t totally write off blockchain, it notes that “little of substance has been achieved. Of the many use cases, a large number are still at the idea stage, while others are in development but with no output. 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.”