Y These guys are pretty pumped. REUTERS/Jeff J Mitchell ou may have noticed that Wall Street has gotten pretty excited about blockchain.

Blockchain is the technology behind bitcoin. Wall Street wants to use blockchain to simplify the way it processes transactions.

It promises to improve security, lower costs and increase the speed of transaction settlement. You can read a fuller explanation here.

Goldman Sachs says the technology "has the potential to redefine transactions" and can change "everything." A bunch of financial firms have signed on with R3, an industry-wide body trying to bring blockchain to finance. Autonomous Research has called the technology a "game changer."

According to a big report by Huw van Steenis over at Morgan Stanley, some of that excitement is justified. Blockchain, also known as distributed ledger technology, is an interesting development, and could help banks reduce costs.

But some of the current buzz is a little over the top, according to Morgan Stanley, not least because widespread use of the technology is some way away.

"There are a few misconceptions that may overstate quite how disruptive distributed ledgers could be," the report said.

For example, the widespread rollout of this kind of technology is years away. Here is Morgan Stanley:

We expect the financial institutions and their customers will adopt blockchain technologies asset class by asset class for validated proof of concepts (POC) efforts over the next 2-5 years in an iterative process that will likely last decades.

Morgan Stanley Regulation means that new blockchain startups are unlikely to usurp banks, meanwhile. Here is MS:

Not one bank nor policymaker that we have met with on blockchain gives even a second thought to an unpermissioned public network. KYC, AML and other considerations means it has to be a permissioned network. This reduces the risk that a new start-up will be able to disintermediate entire value chains. How many tech companies want to vertically integrate into a regulated financial institution? It seems more likely that they will want to retain their tech-oriented multiple as a supplier of software and consultants to the financial services industry rather than as a regulated financial.

In other words, distributed ledgers will need to plug in to existing tech inside the big banks. Startups aren't going to disrupt the establishment, and financial firms aren't going to completely reinvent their existing tech, or take a "massive punt," as Morgan Stanley puts it, on blockchain tech until it is proven.

Let's be clear, whenever we meet C-suite of financial institutions, we see the hurdles and limitation of blockchain technology.That's not to say they are insurmountable – but to take a view of quite how disruptive blockchain technology could be and how long it could take to be realized, you need to understand the hurdles and roadblocks.This is not to say any of the below are not solvable, but non is trivial and suggests to us we are not talking 2017 or 2018 impact on bank, custodian or market infrastructure profits, in our view. Rather materially beyond this.

Here are the challenges facing blockchain: