‘Blockchain the most overhyped technology’

LONDON: Commodity firms and banks have been diving into blockchain pilot schemes over the last two years but the new technology’s application for most trading has likely been overhyped, according to a report by Boston Consulting Group (BCG).

Blockchain is viewed by some as a solution to inefficiencies, improving transparency and reducing to the risk of fraud. But BCG believes its potential has been exaggerated.

A high-tech ledger, blockchain uses a shared database that updates in real-time and can process and settle transactions in minutes without the need for third-party verification.

“There are so many pilot schemes but none have become real production scale systems yet. One of the problems is that it’s not designed for physical trades. The fundamental issue: how do you track a physical entity in a virtual world? It’s two worlds colliding,” said BCG report co-author Antti Belt.

Among the obstacles to scaling up the technology include reconciling terminologies and whether the switch to a blockchain platform is financially justifiable.

“The industry is very old and everyone uses a different language. How do you define quality, shipment schedules ... a lot of reconciliation is currently needed for both sides,” said Belt.

Furthermore, it is uncertain to what degree traders will want to adopt a technology that will erode already razor-thin profit margins.

BCG said that as the platforms take shape, it would be “bad news” for merchant traders as the price inefficiencies and unequal dissemination of information that they rely on to make profits would disappear.

“The use of blockchain solutions would improve transparency... It would also create a more efficient and liquid market, moving commodity trading away from bilateral deals struck between two parties to transactions on electronic platforms matching buyers and sellers.”

Co-author Steven Kok said interest in the wider adoption of blockchain technology would start where the primary driver is certifying the source of the asset rather than efficiency.

“Simply put, blockchain may not be the right answer for all players,” the report concluded.