According to a new report by business management consultant firm McKinsey & Company, the rollout of the technology will occur in four steps, with a distributed ledger first uniting all of a financial institution’s legal entities.In this scenario, each of a companys legal entities would act as a node and bookkeeper on the distributed ledger, a development that would provide the organization the chance to rewire its existing platforms.
From this point, blockchain technology can scale up by replacing the manual processes at a subset of banks, providing what McKinsey called a solid testing ground for the tech.
This stage would be followed by the conversion of inter-dealer-dominated markets and finally the large-scale adoption by buyers and sellers in public markets.
McKinsey contends the adoption of blockchain technology will have significant near-term benefits, bringing faster clearing and settlement to the capital markets, while reducing the number of ledgers needed to be maintained by financial institutions and ensuring audit trails are more precise.
However, McKinseys chief finding is that the financial industry needs to move in unison to unlock the benefits of the blockchain, a conclusion that supports recent efforts by major banks to back efforts like distributed ledger consortium R3.
Roadblocks to deployment, the report suggested, include the irreversible nature of blockchain databases, which would require that those who participate in running such a network agree on mechanisms to resolve conflicts.
Other areas where blockchain solutions are likely to proliferate, the report said, are in asset-backed securities, precious metals, repurchase agreements, syndicated bank debt, title insurance and unregistered securities.
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