The hype around blockchain technology reached its peak in 2015, when almost all of the leading financial institutions started realizing its potential. Gradually, the technology moved from the hype-phase to the experiment-phase, which saw formations of various consortiums and partnerships that brought together big names in the industry with the common goal – to unlock the true benefits of the blockchain technology and discover relevant use cases.

Now the question remains when the technology will move from experiment phase to real life implementation. Morgan Stanley in a new report seems to have addressed this particular question.

The report provides roadmap for adoption of distributed ledger by financial institutions. It says that currently the technology is in the “Assess Blockchain's Value for Financial Assets” phase where banks and other financial infrastructure intermediaries (FIIs) size potential efficiencies from permissioned, shared, secure distributed ledger. Also, in this phase industry groups are formed to discuss opportunities put forth by the technology.

Morgan Stanley predicts that the next phases include:

• 2016-2018: Proof of Concept:
  • Banks and FIIs tee up specific assets as a test case for Blockchain
  • POC Goal: Assess if Blockchain can scale and reduce costs
  • POC Tiering: Segment into most to least important assets to address; focus resources on most important assets, most inefficient processes; engage regulators, lawyers, auditors
• 2017-2020: Shared Infrastructure Emerges: Proven assets adopted well beyond initial POC group; develop interface for external users; leverage APIs; reduce costs with fewer heads and increased mutualization of infrastructure costs
• 2021-2025: Assets Proliferate: More assets move onto Blockchain as efficiencies prove out

The report also highlights ten roadblocks for blockchains to become a reality in banking. This includes:

• Assessing whether the use case cost/benefit is compelling
• Determining cost mutualisation/who funds the overhaul old systems
• Misaligned incentives
• Evolving to the right standard
• Scaleability/performance
• Governance
• Regulatory issues
• Legal risks
• Cryptology/security
• Simplicity/interoperability

In its tentative conclusions, the report says:

“As with any early-stage, highly complex technology that demonstrates the ability to change conduct business, we think it is too early stage to make any profound comments about winners and losers or breadth of adoption.

“We think 5-10 years off for widespread adoption and not material to 2017/18 earnings of any financial we cover. Rather as we show in our roadmap, expect proof of concept tests in 2017-18.

“Best use cases in financial services strike us as post-trade – especially for loans, CDS and securities more broadly. Payments much further off, although we keep a close watch on Ripple and its cross border payment offerings which look to bridge faster domestic payment systems between countries.”