Commercially viable blockchain solutions deployed at scale are still at least three to five years away, according to a new report from McKinsey.

While many companies are already experimenting with the technology, several factors stand between pilot projects and realising the strategic value of blockchain.

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McKinsey analysed 90 use cases for the distributed ledger technology and concluded feasibility will depend on the type of asset, technology maturity, standards and regulation, and ecosystem of each industry.

The biggest barrier to adoption, the consultants argue, isn’t the emerging technology itself, but “coopetition” paradox. That’s because a functioning ecosystem is needed to achieve the critical mass required for a blockchain use case to be deemed feasible.

“Natural competitors need to cooperate, and it is resolving this coopetition paradox that is proving the hardest element to solve in the path to adoption at scale,” the authors write.

The distributed ledger technology requires agreement on how the system, data, and investment will be led and managed.

“Overcoming this issue often requires a sponsor, such as a regulator or industry body, to take the lead. Furthermore, it is essential that the strategic incentives of the players are aligned, a task that can be particularly difficult in highly fragmented markets,” the authors write.

The lack of common standards and clear regulations is another major limitation on blockchain application’s ability to scale, McKinsey argues.

“Standards can be established with relative ease if there is a single dominant player or a government agency that can mandate the legal standing. For example, governments could make blockchain land registries legal records.”

And the “immature” technology must also advance, the consultants argue.  However they note that the “constraints are diminishing as the technology rapidly develops.”

“The misconception that blockchain is not viable at scale due to its energy consumption and transaction speed is a conflation of Bitcoin with blockchain.”

“In reality, the technical configurations are a series of design choices in which the levers on speed (size of block), security (consensus protocol), and storage (number of notaries) can be selected to make most use cases commercially viable.”

The final hurdle the consultants identify is the ability to digitise assets.

“Asset type determines the feasibility of improving record keeping or transacting via blockchain and whether end-to-end solutions require the integration of other technologies,” the authors write.

While assets like equities, which are digitally recorded and transacted, can be simply managed on a blockchain system, physical goods will need to be connected via IoT sensors and biometrics.

“This connection can be a vulnerability in the security of a blockchain ledger because while the blockchain record might be immutable, the physical item or IoT sensor can still be tampered with.”

Read the full report: Blockchain beyond the hype: What is the strategic business value?

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