Blockchain stuck in the spin cycle

In the “cycle of hype,” a non-scientific concept invented by U.S. tech research group Gartner, new technologies travel through phases on their way to market. Before the final productive phase, new ideas begin with an initial “technology trigger.” In a second phase, the idea moves through a period known as the “peak of inflated expectations.” Then, as the technology’s flaws and limits become apparent and experiments and market tests fail to deliver the promised miracles, the idea slides into a phase known as the “trough of disillusionment.”

After a couple of years at the peak of inflated expectations, the blockchain hype machine and its associated cryptocurrency bubble appear to be sinking deep into the trough of disillusionment. Will they ever recover?

The collapse of the cryptocurrency segment of the blockchain hype cycle is clear. Bitcoin Cash, to pick one example, traded Tuesday at $215, down from $4,000 about a year ago — a shift that somewhat undermines its creators’ claim that Bitcoin Cash is “The Best Money in the World” because it “brings sound money to the world.”

Cryptocurrencies are based on blockchain, which in recent years had been flying in its own state of overvaluation as the futuristic technology that would revolutionize business, government and global finance. A 2016 IBM presentation described blockchain as “an enterprise-class, cross-industry open standard for distributed ledgers that can transform the way business transactions are conducted globally.”

But blockchain in 2019 appears to be well past the hype phase and sliding into the trough phase. In a report this week, global consulting giant Mckinsey and Co. said that while there exists a “clear sense that blockchain is a potential game changer … there are also emerging doubts. A particular concern, given the amount of money and time spent, is that little of substance has been achieved.”

The bottom line, adds the report’s authors, 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.” The negative descriptions pile up through the report about blockchain’s “stuttering development,” “relatively unstable, expensive and complex” features, “lack of progress” and “a growing sense of underachievement.” (See Nota Bene elsewhere on this page.)

A few publicized blockchain applications have been identified, although they are far from the promised world-shaking disruptions of the status quo. Walmart and other food retailers say they will use blockchain to track the sourcing of lettuce, chickens and other fresh produce, for example.

Otherwise, it remains mired in the kind of problems described by U.K. blockchain skeptic David Gerard in his book Attack of the 50 Foot Blockchain. In an email note, Gerard told me “I am intensely envious of Mckinsey naming the problem so clearly. They really hit the nail on the head here. The Digital Transformation Agency in Australia said the same thing: ‘For every use of blockchain you would consider today, there’s a better technology.’”

Boosters insist “it’s definitely coming in six months or next year. Just keep giving us money!” Gerard scoffs. “Everyone says it’ll be great in the future, or it won’t work in their own industry but it might work in someone else’s — but there’s zero evidence of it working in any industry.”

I asked Matt Higginson, one of the authors of the report and a Mckinsey partner in New York, about any blowback from the blockchain-booster cult. “At the individual level, there has been barely any negative feedback but a ton of positive feedback for the honesty and candor of the tone — saying what others have been afraid to say in public (after so much investment),” he wrote in an email (the parentheses are his). I asked Higginson to what degree his assessment represents a permanent reduction in expectations — as opposed to a tempering of timelines where blockchain eventually achieves all its expectations, only slower. He said that “in their current manifestation, the blockchain protocols which currently exist offer little benefit over existing technologies for MOST applications, and further, focusing on the technology of the solution (misses) the greatest obstacle to solving some of the more persistent problems in different industries.”

Take real estate, for example. Higginson said attempting to create a blockchain for property titles, insurance, etc. might sound like a great idea, but “the tech solution alone does not address more fundamental barriers, including how to digitize all titles, how to agree (on) the data standards that are acceptable to a whole industry, and ultimately the path to adoption by the majority of participants in an industry.”

The biggest obstacle to widespread blockchain adoption, says Higginson, is what business theorists call “co-opetition,” a fancy word referring to when competitive companies and industries agree to share information. Getting there is a problem. “Resolving the co-opetition paradox and clearing a path to majority adoption seems like the most important obstacle,” said Higginson. Due to the co-opetition problem, the implementation of blockchain pilots is “plagued by either a single player pushing their monopoly solution” or there is “no single organization taking the lead to invest sufficiently to move from pilot to enterprise-scale implementation.”

In the end, though, Higginson points back to the main issue in the Mckinsey report and the need to consider the Occam’s razor principle, which is that the simplest solution to a problem is likely to be the best (and also probably the cheapest, I’d add). “We need to adequately answer the question of ‘why blockchain’ as opposed to more established existing technology solutions.” If not, the once high-flying blockchain seems destined to remain grounded in the hype cycle’s trough of disillusionment.