Globally-renowned consulting firm McKinsey has released an article that describes the blockchain industry as not having met its expectations or “struggling to emerge from its pioneering stage.”
Titled “Blockchain’s Ocean Problem,” the article takes a deep dive into blockchain’s applicability in several use cases, particularly financial applications, stating that blockchain should only be used when it is the simplest solution available.
The article reads:
…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…evidence for a practical scalable use for blockchain is thin on the ground.
The authors apply the economic life cycle theory to the industry, saying that blockchain is still in the phase where return on investment is negative.
According to them, many applications remain in the Proof-of-Concept stage and improvements from competing technologies – such as SWIFT, which Ripple sees itself as an answer to – are making blockchain less of a stellar solution than it initially appeared to be.
Given the range of alternative payments solutions and the disincentives to investment by incumbents, the question is not whether blockchain technology can provide an alternative, but whether it needs to? Occam’s razor is the problem-solving principle that the simplest solution tends to be the best. On that basis blockchain’s payments use cases may be the wrong answer.
FinTech in general is indeed a rapidly growing and attractive field that is receiving as much focus, if not with the same pomp as blockchain.
Blockchain’s Infancy Undeniable, But So is Application Potential
While blockchain does indeed have many hurdles to overcome, not the least of which is its technical capabilities, the argument that blockchain may not be the simplest solution also requires further qualification.
From one perspective, there is nothing simpler than being able to directly transact with anyone in the world without relying on an intermediary service. Incumbent entities may indeed lose a portion of their revenue from the emerging technology, but a lack of adoption of what clearly could be a better system would do much more harm.
Furthermore, the evidence of the practicality and usability of blockchain platforms grows by the day. As the technology matures and sensible regulation arrives, this can only grow, and perhaps established entities will see that blockchain can greatly enhance speed, efficiency and customer satisfaction.
Namechecking Cardano, the report says that incremental addition of value as the technology grows is key to investment:
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…If they can do all that, and be patient, blockchain may still emerge as Occam’s right answer.
Time and effort will showcase the ability of blockchain to simplify financial transactions, while also bringing increased activity in other use cases.