Blockchain Is Still Stuck in Phase One, Says McKinsey Report

After the crypto winter of 2018, many investors in blockchain technology have been hoping to start 2019 with a pinch of optimism. Unfortunately, they won’t find it coming from global consulting firm McKinsey & Company.

In an article on the company’s financial services blog, three McKinsey partners paint a largely negative picture of blockchain’s progress and perception so far, writing that the technology has an “Occam problem.”

The title refers to Occam’s razor, the logical principle that the simplest explanation for an event—more precisely, the explanation which relies on the fewest unproven assumptions—is likely to be correct.

Blockchain’s “Occam problem” is that it is rarely the simplest way to solve a problem to which it can be applied, like tackling fake news, trading carbon credits, rewarding gamers for gaming, or any of the other use cases that emerged from the “blockchain for X” craze of 2017-18.

Bitcoin and other virtual currencies are rare cases that pass the razor test: Blockchain-based cryptocurrency is currently the most appropriate way to anonymously (or pseudonymously) transfer value online, and the bitcoin network has proven to be a highly resilient way to achieve consensus in a distributed network without central authority. Elsewhere, though, such examples are hard to find.

“Of the many use cases, a large number are still at the idea stage, while others are in development but with no output,” write authors Matt Higginson, Marie-Claude Nadeau, and Kausik Rajgopal. “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.”

An early stage technology

Yes, blockchain technology is still in its infancy, the authors concede—the problem being that it shows little sign of maturing. 

On the typical lifecycle of a new technology, blockchain is still in the “pioneering stage,” they contend: Various prototypes have been built, but there is still a high degree of uncertainty over whether the technology can scale. And although a range of proof of concept applications exist, most of these have yet to scale, with projects often struggling to reach a series C funding round.

image: McKinsey & Company

The authors do point out that there are areas where blockchain has shown promise, like tracking asset ownership, verifying data integrity, and following goods through global supply chains. What remains to be seen is whether this narrow set of uses will eventually be generalized to a technological shift across multiple industries.

Regardless of McKinsey’s position, there are many corners of the industry that remain bullish on blockchain. But for some of the legacy technology and finance companies that have poured hundreds of millions of dollars in developing and deploying blockchain technology, hard questions are now being asked as to when and how the investment will be recouped.