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Here’s What’s Holding Back Blockchain Right Now, McKinsey Says

If you haven’t quite figured out yet what—if anything—to do with blockchain, you’re not alone.

In a recent article, McKinsey laid out the business uses case for blockchain, an electronic database technology that lives on multiple computers versus a single, centralized computing terminal. That decentralization means multiple parties witness and verify transactions on a blockchain, meaning data cannot be altered without a consensus. That’s near impossible to do across so many participating users/computers and one among the factors that make blockchain’s security attractive.

Though McKinsey sees blockchain’s potential in numerous industries, the clear consensus is that for the moment, blockchain in general isn’t quite ready for primetime. Most companies that are doing anything blockchain-related today are in the “experimentation” phase, with meaningfully scaled efforts and implementations as many as five years off, McKinsey said. For one, blockchain is a technology in need of established, common standards, though global organizations have been plodding along in an effort to remedy this.

However, the “coopetition paradox” appears to be the most stubborn obstacle in the path to mass adoption, McKinsey said. It’s unnatural to expect natural competitors to want to work together but that’s precisely what some businesses will have to do in order to advance a workable industry blockchain. “Critical mass” is essential for some blockchain use cases to be feasible. “Blockchain’s major advantage is the network effect, but while the potential benefits increase with the size of the network, so does the coordination complexity,” McKinsey said.

It might be challenging to get competitors aligned with a common vision, but it’s not impossible. The R3 industry consortium of more than 70 banks and financial institutions including Barclays, Credit Suisse, Goldman Sachs, J.P. Morgan & Chase, and the Royal Bank of Scotland collaborated to build the Corda fintech blockchain. McKinsey said these kinds of platforms and working groups could be instrumental in the push toward standards.

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Because blockchain is still so new and figuring itself out, many of the startups playing in this space cannot serve the needs of a large enterprise. However, major tech providers like Amazon, Microsoft, Oracle, IBM and SAP have launched Blockchain-as-a-Service and other blockchain offerings designed to serve both the scale and security needs of major companies. Technology offered as a service also reduces the barriers to experimentation and implementation, McKinsey, enabling businesses to try out new ideas without major, risky investments.

Speaking of security, that’s one of the many blockchain myths out there.

Much has been made of blockchain’s “immutability.” Because most blockchains are decentralized (meaning they live on many computers), it’s virtually impossible to tamper with its records undetected. Many hail this aspect of blockchain as a boon for supply chain transparency. But where physical goods like apparel are concerned, blockchain must be enhanced and augmented by Internet of Things-connected sensors that communicate the item’s journey and touchpoints. But while data uploaded onto a blockchain can’t be altered, the sensor or tag can be tampered with. That means these complementary technologies “increase the assurance being provided but [do] not deliver absolute provenance,” McKinsey said.