One of the leading consulting firm in the US, Boston Consulting Group (BCG) has published a detailed report on August 16, which it names as “reality check” for the use of blockchain in the commodity trading industry.
In the case of commodities trading, BCG intends that there is a solid argument for utilizing blockchain, however taking stock of “significant drawbacks on several fronts.” The report has acquired hype and also negative misperceptions which falsify people’s view of technology.
As per detailed shared by BCG, blockchain at the first glimpse looks to be “a natural fit for the commodity business.”
Blockchain has the complete power to immutably and transparently record complex transactions and track goods could help effectively to reduce physical delivery risks and enhance trust, standardization, and proficiency. Especially, Blockchain will help to handle complex, multi-counterparty transactions.
Blockchain could take advantage of regulatory errors, eliminating the requirement of manually submitted compliance reports and enable regulators to utilize “the more accurate, timely, and granular, information in the ledger [in order] to make… more effective interventions.”
Nevertheless, BCG states that whereas greater transparency “would lead to fairer prices… it could also be “bad news,” for some, in particular, those traders whose profits “rely on pricing inefficiencies to make money.”
BCG mentions stock by considering the real-world issues which could be there in the way of mass adoption as, “People have spent millions, sometimes over $100 million, on [an] IT system, do they want to do it again?”
BCG then handles some of the misperceptions which it thinks people transfer from the cryptocurrency world into the current technology. This consists of a strong desire nature of the technology that applies to the public blockchains which depend on compute-intensive consensus algorithms like proof-of-work (POW) to obtain security.
How Blockchain would be useful to Commodities Trading?
Permissioned blockchains can be utilized for commodities trading. They can “entail greater trust between participants,” hence verifying transactions would be faster, cheap and less power hungry.
BCG argues about the “Complexity shortcomings” by saying that,
“The technology allows multiple ledgers—for assets, cash positions, and securities—to interface with one another. This can result in a degree of data transparency and enrichment across value chains that would be impossible to achieve otherwise.”
Blockchain might be accepted at the global scale or not, BCG claims that the disruptive technology could definitely transform the industry by acting like a Trojan horse. Also, it will increase discussions about improving transparency and standardizing trading terms and mechanisms.