Editorial

Boston Consulting Group dampens down City Blockchain expectations

‘Simply put, blockchain may not be the right answer for all players,’ warns the advisory group

Posted 16 August 2018 by Gary Flood


A new report from respected advisory group Boston Consulting Group expresses quite a lot of scepticism about Blockchain in the financial sector.

In A Reality Check for Blockchain in Commodity Trading, two of the Group’s analysts, Antti Belt and Steven Kok, warn that “Commodity trading needs improved standardization, efficiency, and tracking of goods. But whether blockchain is the killer app that will deliver these benefits remains to be seen.

“Commodity trading needs improved standardization, efficiency, and tracking of goods. But whether blockchain is the killer app that will deliver these benefits remains to be seen. Industry players have yet to fully adopt the technology. There are marked benefits to blockchain technology, but also significant drawbacks on several fronts.”

The pair also point out that many of the claimed benefits of the technology have yet to to be proven, for example, and that many banks have already invested significantly in IT systems to do a lot of what the approach’s advocates are promoting:

“Companies have already invested in different mechanisms to foster trust and address other obstacles… What’s more, switching to a blockchain platform would involve an expensive and disruptive overhaul of existing systems that may not be justified.”

They also warn that more transparent systems would impact the ability of some parts of the financial system to maintain their current level of profitability – by enabling settlement in almost real time blockchain would largely eliminate clearing risk and diminish the role of clearing-houses, for example.

As a result, says the study, senior executives in financial sector firms need to carefully consider blockchain’s benefits and drawbacks before they proceed.

They should also consider ways to take advantage of the hype around this nascent technology, as “all this attention could prompt industry players to find even better ways to solve commodity trading’s poor standardization and transparency”.

But ultimately, Blockchain could end up helping the sector even if the hype proves unfounded, says the Group:

“Simply put, blockchain may not be the right answer for all players. But the technology could perform another, equally important function. It could act as a Trojan horse by enabling industry-wide discussions and aligning market participants around agreed language and standardized trading terms and mechanisms.

“In this way, it could foster commodity trading’s transition to more transparent and efficient markets and prepare the industry for hyperliquidity.”