The Boston Consulting Group (BCG) has sent a chilling warning about the Blockchain technology; the benefits of the Distributed Ledger Technology are over-exaggerated, especially regarding commodities trading. Per a report published on August 16, the US-based management consultancy’s report dubbed the “reality check” comes when dust is settling on the Blockchain technology and banks, stock exchanges, and the commodities industry are adopting the technology.
Blockchain Hyped Out of Proportion?
The market had seen Blockchain as a panacea for all its problems including inefficiencies, fraud risk reduction and enhancing transparency. Unfortunately, the report pours cold water on all that, saying its benefits in commodity trading are still foggy, at least for now. Commenting, a co-author of the report told Reuters:
“There are so many pilot schemes but none have become real production scale systems yet. One problem is that it’s not designed for physical trades. The fundamental issues: how do you track a physical entity in a virtual world? Its two worlds colliding.”
The greatest problem, according to the report, is the massive financial investment involved in making the switchover since it requires investing in new IT infrastructure. Besides, migrating to a Blockchain platform will succeed if the entire industry switched concurrently as they can only realize the full benefits if the entire industry played ball. The report further spells bad news for merchants should the industry switch to Blockchain, since it would create transparency in pricing and eliminate unequal information dissemination that merchants use to make profits.
Trade volumes via Blockchain are still insignificant thus making it difficult to give an accurate estimate of the best time to implement the technology en masse. Integrating terminologies and determining its financial viability are also holding back the implementation of the Blockchain technology. Commodity trading can enjoy improved efficiency, standardization and tracking of goods but it remains to be seen whether Blockchain will deliver.
Blockchain Makes Inroads in Other Industries
BCG’s report may deem blockchain ineffective for commodity trading but leading banks and corporations have tried the technology for food, diamonds, and oil focusing on product origin verification and supply chain management. Transactions recorded on a blockchain would lead to less arbitrage and more uniform prices but it’s the existing differences that merchants use to make profits making the technology counter-intuitive. The BCG report concludes that; “Simply put, blockchain may not be the right answer for all players.”