Blockchain - virtual distributed ledger technology - is associated with digital currencies such as bitcoin but its uses are far wider than that. A study suggests its potential for investment management is seen as big.

A survey of asset managers and owners of wealth shows more than half expect the distributed ledger technology of blockchain – associated with digital money such as bitcoin – to be widely used in the investment sector over the next five years, but only a tiny fraction are so far taking action to develop it.

Blockchain technology, which comprises a virtual distributed ledger of transactions shared peer-to-peer, can record ownership across a public network of computers rendered tamper-proof by advanced cryptography. It could potentially be a low-cost replacement for a system that tracks who owns cash securities (such as shares or fixed income instruments) or collateral, with the potential to disintermediate unnecessary parties in the value chain (source: EY).

According to State Street, the US-based financial services firm, some 57 per cent of those it surveyed expect it to be adopted in the investment sector in five years’ time, but only 7 per cent are taking active steps to support it.

The survey, conducted in partnership with Oxford Economics, found that 74 per cent of asset owners think blockchain will achieve the scale needed for adoption compared to only 42 per cent of asset managers. Despite asset owners’ optimism, 48 per cent said they don’t know enough about it, and asset managers are even less confident, with 78 per cent noting that they need more education.

The survey was comprised of responses from 50 asset owners and 50 asset managers, inclusive of asset management firms, private pension funds or retirement funds, and public pension and retirement funds. Some 40 per cent of respondents were from North America, while 30 per cent were from EMEA and 30 per cent were from APAC. Results are as of January 2016.

“A majority of institutional investors are well aware that blockchain, an ‘emerging technology’, could become an everyday application in the near future,” said Antoine Shagoury, global chief information officer at State Street. “What’s clear from our research is a lack of readiness and uncertainty for how to best plan for this disruption, and a need for more education,” Shagoury said.

Most respondents (80 per cent) agree that this technology will have the greatest impact on IT departments, demonstrating that institutions recognise the need to introduce talent with the skills necessary to adapt to new technical demands. Additionally, 81 per cent of asset managers agree that the adoption of blockchain will equally disrupt their own jobs on investments teams.

While cryptography is a core component of the blockchain infrastructure, nine out of 10 respondents worry about how security implementation will deal with existing and future requirements, an issue that the industry needs to tackle in order for wide-scale adoption. 

Blockchain is one of a number of fintech areas that are seen as driving private banking, wealth management and other sectors in the coming years, along with cloud computing, Big Data, biometrics, mobile platforms and artificial intelligence.