A new Morgan Stanley report poured cold water on some of the wilder claims about how and when distributed ledger technology will transform the financial services industry.
Major financial institution around the world are exploring how the blockchain technology made famous by Bitcoin can be used to overhaul post-trade settlement, trade finance, international payments, reference data and regulatory oversight - improving efficiency and slashing costs.
In its in-depth report, Morgan Stanley's research team highlight plenty of benefits that blockchains can bring, including increased speed, security and visibility, as well as lower costs and the potential for fraud reduction.
However, the report also stakes out ten key hurdles - related to economics, technology, cooperation and policy - to adoption: the use case cost/benefit; cost mutualisation; aligned industry incentives; getting the right standards; scalability; governance; regulation; legal risk; security; and simplicity.
With this in mind, the researchers argue that there is no chance of widespread adoption of distributed ledger technologies for at least five to 10 years and that they are not going to be material to earnings in 2017/18.
The report concludes that post-trade is the best use-case for blockchains, especially for loans, CDS and securities more generally, with the authors saying they do "buy into the concept" that technology could cut costs in this area "dramatically".
On the timing, the report says: "We expect the financial institutions and their customers will adopt blockchain technologies asset class by asset class for validated proof of concepts (POC) efforts over the next 2-5 years in an iterative process that will likely last decades."
However, the enthusiasm is not as great in other areas and the report dismisses some of more ambitious claims made for the distributed ledger.
The authors have bad news for the "quite a few" blockchain firms that have business models centred on a T+0 settlement timeframe, noting that the reason this won't happen is not technological but regulatory.
In addition, the report stresses that, despite the Bitcoin association, blockchain technology will not be centred on payments. And KYC and AML requirements means that blockchains will not mean non-permissioned networks, meaning new startups are unlikely to be able to "disintermediate entire value chains".
Summing up the case for distributed ledger technology's effects on the financial services industry, the paper says: "The bullish case is that sharing and decluttering of infrastructure could radically reduce costs and provide much needed boost to RoEs...
"The bearish case is that dramatic reduction in margins at the same time as higher IT spend is destabilising and disruptive. It also risks profit pools leaking to other players."
The authors, stressing that their conclusions are "tentative", come down somewhere in the middle.
Morgan Stanley Blockchain Report by CoinDesk