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Morgan Stanley: Blockchain’s Still In ‘Proof Of Concept’

Last Updated March 4, 2021 4:57 PM
Lester Coleman
Last Updated March 4, 2021 4:57 PM

Despite all the investment in blockchain technology, Morgan Stanley claims the technology remains in a “proof of concept” stage, according to Barrons . The financial services firm believes its use in regular financial settlements could be years away. Institutions like BNY Mellon and UBS have an early advantage by testing the technology. As for the surge in bitcoin’s value, Morgan Stanley is uncertain.

The bank’s white paper maintains no “killer app” has been developed for blockchain technology.

The time frame for the technology’s implementation charted in the white paper shows 2014 to 2016 as a period of assessing blockchain’s value for financial assets. 2016 to 2018 is the proof of concept phase; 2017 to 2020 is when shared infrastructure emerges; and 2021 to 2025 is when assets proliferate.

Blockchain Rises With Bitcoin

The paper hypothesizes on the reasons for bitcoin’s surge in tandem with the interest in blockchain technology.

James Faucette, a technical analyst, explores blockchain’s progress the year after he and some Morgan Stanley colleagues first examined the possibility of its use in financial settlements.

The report also examines five case studies that include a “utility settlement coin” from UBS Group and a BN Group government bond settlement project.

The tests are based on the premise that blockchain improves efficiency. As it matures, securities firms and funds will be able to reduce labor and operating expenses. The firms will realize these benefits by deploying blockchain technology to settle transactions.

No ‘Killer App’ For Blockchain

While there are many proofs of concept being tested for blockchain, no killer app has emerged that is needed to spur widespread adoption. Hence, the technology has not faced a true test. Many of the “big questions” are yet to be answered.

The white paper claims it is too soon to make specific investment conclusions. But since progress is under way, parts of the shared infrastructure could emerge in the next year or two.

“Incumbents,” companies that have invested in blockchain’s use, are more likely to benefit from the technology and reap cost benefits or better capital efficiency in the future. These companies include ASX, UBS, BNY Mellon, State Street, JPM and Northern Trust.

Reasons For Soaring Cryptos

As for bitcoin and other cryptocurrencies like Ripple and Ethereum, the paper stated it is not clear why they are appreciating in value as fast as they are. It noted certain factors such as the rising popularity of ICOs. ICOs are funded with cryptocurrencies, pushing an appreciation circle whereby investors trade an existing currency for a new one.

Another factor is China’s inexpensive servers. A large concentration of bitcoin mining takes place in China since has cheap electricity and access to cheap servers. Fortune and The Wall Street Journal have noted the possibility that bitcoin is being used to avoid monetary controls in China.

There is also growing demand from Japan and Korea. The recent legalization of bitcoin in Japan has resulted in more bitcoin exchanges. There is no clear explanation for the surge in Korea, however.

Featured image from Shutterstock.