Only use blockchain when it's the 'simplest solution available,' McKinsey partners say

There are three key principles that organizations should keep in mind when determining whether blockchain is a realistic solution for a problem they're facing, according to an analysis by three partners with management consulting firm McKinsey & Co.

Many industries, including healthcare, have considered how to best use blockchain — a permanent and shared ledger of online transactions or exchanges — to streamline operations in recent years. Unlike a traditional database that is centrally located and maintained by one party, a blockchain record is shared among a network of users.

"Blockchain over recent years has been extolled as a revolution in business technology. In the nine years since its launch, companies, regulators and financial technologists have spent countless hours exploring its potential," the report reads. In healthcare, developers have questioned whether blockchain will help to support data management and supply chain processes, among other areas.

However, it has yet to "become the game-changer some expected." "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 … There is a growing sense that blockchain is a poorly understood (and somewhat clunky) solution in search of a problem," according to the report.

Three key principles the authors see as "minimum conditions for progress" when pursuing a blockchain project:

1. Start with a problem. "Unless there is a valid problem or pain point, blockchain likely won't be a practical solution. Also, Occam's razor applies — it must be the simplest solution available."

2. Pinpoint a target return on investment. "Organizations must identify a rationale for investment that reflects their market position and which is supported at board level and by employees, without fear of cannibalization."

3. Commit to adoption. "Sufficient economic and technological support is essential. If they pass those hurdles, the next stage is to launch a design process and gather elements including the core blockchain platform and hardware. They must then set performance targets (transaction volume and velocity). In parallel, companies should put in place the necessary organizational frameworks."

To read the McKinsey & Co. analysis, click here.

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