Morgan Stanley: The hype around blockchain is a bit over the top

Wall Street is increasingly enthusiastic about blockchain technology, but in the view of Morgan Stanley, the growing enthusiasm has gone too far.

Morgan Stanley analyst Huw van Steenis said in a report that some of the excitement about blockchain technology is reasonable, but the current hype is a bit excessive and the technology still has a long way to go before it can be widely used.

He said that some misunderstandings in the outside world may exaggerate the disruptive innovation brought about by blockchain technology:

We expect financial institutions and their clients to adopt blockchain technology on an asset-by-asset basis through proof-of-concept over the next 2-5 years, but the entire iterative process could take decades.

At the same time, regulatory requirements will prevent blockchain startups from disrupting the banking industry. Steenis said that neither banks nor policymakers will support unregulated blockchain networks. The report wrote:

This reduces the risk of new startups disintermediating the entire value chain. How many tech companies would want to vertically integrate into a regulated financial institution? It seems more likely that they would want to retain their tech expertise and serve the financial industry as a software and service provider rather than becoming part of a regulated financial institution.

This also means that for blockchain technology to be applied, it must be integrated into the existing technology systems of large banks. Startups cannot subvert the status quo of the banking industry, and the banking industry will not be able to complete the reshaping of existing technologies unless the application of blockchain is actually verified.

Steenis listed a large number of obstacles to the application of blockchain technology in the report, but he also said that these obstacles are not insurmountable, but each of them is not easy to deal with. "In our view, the impact on the profits of banks, custodians and market infrastructure will not appear in 2017 or 2018, but far after that."

Obstacles faced by blockchain technology applications:

The blockchain technology behind Bitcoin is a decentralized ledger system that records every transaction of the cryptocurrency in the Bitcoin application. All transactions are shared and verified by a peer-to-peer network of computers. This "distributed ledger" model monitors the transfer of Bitcoin funds.

The banking industry is very optimistic about the application prospects of blockchain or blockchain-related technologies in traditional businesses. At a time when the global economy is in recession and many international banks are forced to lay off employees, banks see the possibility of directly trading with each other in blockchain technology to significantly reduce costs. Goldman Sachs is one of the most active advocates of this technology.

Wall Street Journal previously mentioned that in a report last month, Goldman Sachs said that in addition to Bitcoin, the application of blockchain technology has unlimited room for imagination in financial services, sharing economy, Internet of Things and even real estate, and blockchain technology will subvert everything.

Goldman Sachs said that blockchain technology can significantly improve the efficiency of capital markets and financial institutions, and may even lead to the disintermediation of some market functions. The transaction settlement of stocks, foreign exchange and leveraged loans may be completely changed by the introduction of blockchain technology.

In February this year, Zhou Xiaochuan, governor of the People's Bank of China, also mentioned that blockchain technology is an optional technology and the People's Bank of China has deployed important forces to study and explore blockchain application technology.