Report: Blockchain Could Disrupt Capital Markets Within Decade

Blockchain technology is set to disrupt existing financial business models within the next five to 10 years, according to a new report by global capital markets consulting firm GreySpark Partners.

Entitled "The Blockchain: Capital Markets Use Cases", the report notes that distributed ledger technology (abbreviated as DLT) has the potential to reduce operational costs and counterparty and settlement risk, while also impacting payments and remittances, among other financial sectors.

Other topics discussed in the report included digitised financial instruments; regulatory reporting; clearing and settlement; reconciliation and smart contracts.

Overall, the report spoke broadly about the potential for the blockchain to impact these areas, noting:

"Since the blockchain is a proof-of-record of agreed transactions and contracts, the technology can support any sort of transaction of value. This functionality poses a number of pertinent use cases within capital markets. For example, in the near future, blockchain-applied solutions could used to bridge the gap between distributed ledger systems and the world of mainstream financial infrastructure."

The report goes on to state that despite this potential and cost-saving advantages, distributed ledgers are only used by a "handful" of major financial institutions today.

Adopting the blockchain

While speaking generally about the technology's potential, the report also speculates as to how it could reach more widespread adoption.

Toward this goal, the authors explain, most blockchain startups are currently focused on the development of ledger-agnostic business models:

"Blockchain-based solutions are fundamentally designed to create new financial markets infrastructures that, in terms of the functionality, would initially replicate existing markets infrastructure and then eventually expand on it by reducing its complexity at the margins to become suited to a distributed or shared ledger network."

As a result, it adds, there is tension between startups which have pivoted from bitcoin-orientated business models into the financial markets and the existing mainstream industry providers.

"Currently, there is a bifurcated outlook on the future of DLT and its relationship with existing financial markets ways and means of processing data," it continues.

Although mainstream capital markets participants are eager to adopt such solutions, there is currently "a misalignment of imperatives", says the report, adding that the technology's intrinsic problems must be resolved first before widespread adoption is achieved.

"For example, a fundamental problem associated with DLT is the issue of transaction throughput capacity. While some blockchain initiatives developed blockchain appliances that have the ability to process a vast amount of transactions in near real-time, they do so at some degree of cost."

The report finally argues that blockchain technology will become a "cross-industry solution" if and when it meets all of the capital markets industry's requirements.

Research image via Shutterstock