Wednesday, June 14, 2017

"Blockchain’s Got No ‘Killer App’ Yet, Says Morgan Stanley, Even as Bitcoin Soars"

From Barron's Tech Trader Daily:
Morgan Stanley writes that Blockchain, the technology for an open, verifiable general ledger, is still in a "proof of concept" phase, and it may be several years before it is used in everyday practice for financial settlements. They see incumbents such as UBS and BNY Mellon having an early advantage in testing the technology. The reason for the soaring value of Bitcoin and other crypto-currencies is less clear, they write.

Fans of the financial ledger technology known as Blockchain may be interested to know Morgan Stanley analysts today unveiled a longish (43 pages) white paper on the state of the technology in the financial services business, declaring that there is yet not “killer app” for BlockChain, but rather “we are now firmly in the middle of the proof-of-concept phase of development."

The report also offers some thoughts about why Bitcoin, the crypto-currency that took off in tandem with Blockchain, has been soaring in value.

Tech analyst James Faucette, along with several of his colleagues at Morgan, take a look bake at how things have progressed in the twelve months since they first wrote about the prospects for BlockChain to be used in financial settlements and other services.

The authors take a look at five case studies that have been done, including a government bond settlement project by BNY Mellon (BK), and something from UBS Group AG (UBS) called “utility settlement coin."

The premise of all of these experiments, they note, has generally been that "Blockchain is a tool to improve efficiency." "As the technology matures, funds and securities firms will have an opportunity to further reduce headcount and operational expense as Blockchain technology becomes more widely used to clear and settle transactions."

However, "Many proofs of concept are in the process globally, but there is no killer app yet, which we think is needed to kick-start adoption."

As a consequence, "Blockchain still hasn't had a true test," the authors write. "Early signs are that this is a promising technology, but many of the big questions have yet to be answered, and it hasn't been tested at scale in a complex, fast-moving business environment."

"It is still too early for specific investment conclusions; however, progress is being made, and we may see initial parts of the  shared infrastructure emerge over the next 12-24 months."

Translation, from now through 2018 is the “proof of concept” phase, with 2017 to 2020 being a time for “shared infrastructure” to emerge, and 2021 to 2025 being a time when “assets proliferate."

While it’s too soon to make an investment recommendations on all this, the authors opine that "incumbents are generally more likely to benefit than new entrants and are most likely to see cost benefits or possibly increased capital efficiency further down the road,” by which they mean “companies that are more involved early on in the process […] including ASX, UBS, BNY Mellon, Northern Trust, State Street, and JPM."...