If bitcoin is like early e-mail, is blockchain decades from reaching its full potential? In our view the answer is a qualified yes. We can’t predict exactly how many years the transformation will take, but we can guess which kinds of applications will gain traction first and how blockchain’s broad acceptance will eventually come about.
In our analysis, history suggests that two dimensions affect how a foundational technology and its business use cases evolve. The first is novelty—the degree to which an application is new to the world. The more novel it is, the more effort will be required to ensure that users understand what problems it solves. The second dimension is complexity, represented by the level of ecosystem coordination involved—the number and diversity of parties that need to work together to produce value with the technology. For example, a social network with just one member is of little use; a social network is worthwhile only when many of your own connections have signed on to it. Other users of the application must be brought on board to generate value for all participants. The same will be true for many blockchain applications. And, as the scale and impact of those applications increase, their adoption will require significant institutional change.
We’ve developed a framework that maps innovations against these two contextual dimensions, dividing them into quadrants. (See the exhibit “How Foundational Technologies Take Hold.”) Each quadrant represents a stage of technology development. Identifying which one a blockchain innovation falls into will help executives understand the types of challenges it presents, the level of collaboration and consensus it needs, and the legislative and regulatory efforts it will require. The map will also suggest what kind of processes and infrastructure must be established to facilitate the innovation’s adoption. Managers can use it to assess the state of blockchain development in any industry, as well as to evaluate strategic investments in their own blockchain capabilities.
In the first quadrant are low-novelty and low-coordination applications that create better, less costly, highly focused solutions. E-mail, a cheap alternative to phone calls, faxes, and snail mail, was a single-use application for TCP/IP (even though its value rose with the number of users). Bitcoin, too, falls into this quadrant. Even in its early days, bitcoin offered immediate value to the few people who used it simply as an alternative payment method. (You can think of it as a complex e-mail that transfers not just information but also actual value.) At the end of 2016 the value of bitcoin transactions was expected to hit $92 billion. That’s still a rounding error compared with the $411 trillion in total global payments, but bitcoin is growing fast and increasingly important in contexts such as instant payments and foreign currency and asset trading, where the present financial system has limitations.