A new report finds that the question in capital markets is no longer whether to explore the blockchain, but how.
That’s the sentiment of this sector of enterprise finance toward the emerging technology, according to research and advisory firm Aite Group. Released in late December, the impact note is the result of interviews with technology and business strategists conducted from June to August 2015.
But while optimistic in its assessment of the industry’s views on the technology, the report identified six challenges toward its adoption in the marketplace, including, perhaps most pressingly, entrenched legacy systems and a lack of expertise in the field.
Author Gabriel Wang found that there is a “huge lack of talent” that understands both blockchain technology and capital markets, writing:
"The market is desperately looking for individuals who can bridge the two worlds so that realistic blockchain technology implementations can take place within the context of capital markets opportunities."
The statement comes at a time when capital markets participants such as Nasdaq and the New York Stock Exchange (NYSE) are moving forward on delving into the technology, either through proofs-of-concept or strategic investments.
Further, Wang stated that the blockchain potentially threatens the IT infrastructure of these firms, stressing that this problem is compounded by the "hundreds of millions" in investments made into the platforms.
"Blockchain technology’s inability to play nice with existing legacy systems can become a huge hurdle in overall capital markets adoption," Wang wrote.
Other challenges mentioned in the report were the potential high electrical consumption of blockchain-based systems; the lack of regulatory clarity surrounding the technology generally; and questions about the scalability and latency of the technology.
Wang notes that there are still “many questions” about whether blockchain-based systems could handle hundreds of millions of daily transactions, wording that appears in sharp disconnect to conversations ongoing in bitcoin, where the public blockchain’s enthusiasts are locked in debate about how to increase its capacity up from seven transactions per second.
Still, Wang noted that even without impacting existing IT systems, the blockchain could still provide "millions, if not, billions" in savings to enterprise institutions by automating processes that are paper-based.
However, he noted that the total savings remains unknown given that no live examples of the technology have been implemented.
“There is also a huge question mark over how much it would actually cost to build a robust enough blockchain platform to handle the trillions of dollars that are going through the capital markets ecosystem each day,” he wrote.
But given four key market trends, Wang concludes the investment is likely to continue.
Wang cited the push for transparency following the financial crisis, the escalating costs of compliance; the downward pressure on IT spending; and a broader movement to retire legacy systems as reasons why there is institutional interest in the technology.
Overall, Aite Group projects that blockchain technology spending could reach $130m in 2016, potentially rising to as much as $400m by 2019.
Talent visualization via Shutterstock