BCG Report Offers ‘Reality Check’ for Blockchain in Commodities Trading

Major U.S. consulting firm Boston Consulting Group (BCG) has released an in-depth report August 16, which it dubs a “reality check” for the use of blockchain in the commodity trading industry.

For commodities trading, BCG argues that there is a strong argument for using blockchain, while taking stock of “significant drawbacks on several fronts.” The report tackles both the “hype,” but also many of the negative “misperceptions” that distort people’s view of the technology.

According to BCG, blockchain at first glance appears to be “a natural fit for the commodity business.”

Its power to immutably and transparently record complicated transactions and track goods could both significantly reduce physical delivery risks and improve trust, standardization and efficiency — particularly for complex, multi-counterparty transactions, the BCG report notes.

Blockchain could also benefit regulatory oversight, removing the need for manually submitted compliance reports and allowing regulators to use “the more accurate, timely, and granular information in the ledger [in order] to make… more effective interventions.”

Nonetheless, BCG notes that while 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 also takes stock of the real-world hurdles that could stand in the way of mass adoption, as the report’s co-author Antti Belt told Reuters:

“People have spent millions, sometimes over $100 million, on [an] IT system, do they want to do it again?”

BCG then tackles several misperceptions that it believes people transpose from the cryptocurrency space onto the underlying technology itself. These include the power-hungry nature of the technology, which it notes mainly applies to public blockchains that rely on compute-intensive consensus algorithms such as proof-of-work (PoW) to achieve security.

Permissioned blockchains — those that would be used for commodities trading — by contrast  “entail greater trust between participants,” so that verifying transactions would be faster, less expensive and less power-hungry.

BCG also punctures perceptions of “complexity shortcomings” relating to blockchain applications, arguing instead 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.”

Whether or not blockchain will be adopted at scale, BCG concludes that the disruptive tech could nonetheless shape the future of the industry by “act[ing] as a Trojan horse” that would spark discussions around improving transparency and standardizing trading terms and mechanisms.

A recent report issued by “Big Four” audit and consulting firm Deloitte made a similar broad assessment of blockchain’s potential impact, this time for the retail and consumer packaged goods (CPG) industry.

While similarly emphasizing that individual players should assess whether their strategic objectives truly warrant blockchain investment, Deloitte proposed that those who do not at least consider it are “at risk of falling behind.”