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Occam’s blockchain shaver | FT Alphaville

As the world knows, the fairest and smartest of all the management consulting firms is McKinsey & Company.

So profound is their reputation for being ahead of the curve they need publish only one report to ensure a fledgling trend becomes an established norm.

Lucky for the world, back in December 2015, McKinsey’s attention turned to blockchain. At this point the wisest of them all asserted:

Blockchains have the potential to dramatically reshape the capital markets industry, with significant impact on business models, reductions in risk and savings of cost and capital. 

But the truly wise also know it’s never clever to make forecasts without caveats. Accordingly there were plenty.

So yes, blockchain was going to truly revolutionise the world, increasing transparency and efficiency while reducing cost, but it also remained “largely unproven in complex markets” and faced many “adoption challenges”.

Hedging its bets further, McKinsey forecast adoption would be marked by four stages:

  1. single-enterprise adoption across legal entities
  2. adoption by a small subset of banks as an upgrade to manual processes
  3. conversion of inter-dealer settlements;
  4. and, finally, large-scale adoption across buyers and sellers in public markets. 

The conclusion nonetheless was clear; once challenges had been resolved rapid uptake would follow.

By June 2018, McKinsey was proud to report (albeit with ongoing caveats) that:

The insights from our analysis suggest that, beyond the hype, blockchain has strategic value for companies by enabling both cost reduction without disintermediation as well as, in the longer term, the creation of new business models.

Fanning the fomo more, they added:

Venture-capital funding for blockchain start-ups consistently grew and were up to $1 billion in 2017. The blockchain-specific investment model of initial coin offerings (ICOs), the sale of cryptocurrency tokens in a new venture, has skyrocketed to $5 billion. Leading technology players are also heavily investing in blockchain: IBM has more than 1,000 staff and $200 million invested in the blockchain-powered Internet of Things (IoT)

But pity the fool who believes the top-line message of a McKinsey report but overlooks the caveats.

Fast forward to January 2019 — from hereon known as the post-Blythe blockchain era — and the caveat has become the top-line, while the top-line has become the caveat: “Blockchain has yet to become the game-changer we some epected,” they note.

So now we hear the following instead (our emphasis):

There is a clear sense that blockchain is a potential game-changer. However, there are also emerging doubts. A particular concern, given the amount of money and time spent, is 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.

And:

McKinsey’s work with financial services leaders over the past two years suggests those at the blockchain “coalface” have begun to have doubts. In fact, as other industries have geared up, the mood music at some levels in financial services has been increasingly of caution (even as senior executives have made confident pronouncements to the contrary). The fact was that billions of dollars had been sunk but hardly any use cases made technological, commercial, and strategic sense or could be delivered at scale.

If McKinsey says it is so, it must be so. So read the report and weep.

One thing we can be sure of, if Occam’s razor is to be believed, there must now be good money in advising people not to invest in blockchain. (In which case can we have some? Thanks.)

Related links:
Why blockchain is a belief system — FT Alphaville
Blockchain insiders tell us why we don’t need blockchain — FT Alphaville
The diminishing returns of blockchain fetishism — FT Alphaville


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