Ever since Bitcoin was introduced in late 2008, the blockchain code that underpins the cryptocurrency has been the source of hope and fear—and much hype. In theory, agile startups could create software built on blockchain protocols with the hope of providing a safer, faster, cheaper and more transparent alternative to traditional financial intermediaries, such as banks, brokers and complex clearance processes. The opportunities, much of which is currently focused on post-trade processing, could compete with, and potentially threaten, financial incumbents.

In practice, incumbent financial institutions are investing in building permissioned blockchains—a digitally distributed ledger where authorized users can record, process and verify transactions—to streamline their own operations and costs, according to a recent Morgan Stanley Research report, "Global Insight: Blockchain in Banking: Disruptive Threat or Tool?" In short, Wall Street sees an opportunity to hack its own complexities using this new tool. Blockchain technology could help banks reduce the clutter and cost of numerous complex processes, say co-authors Huw van Steenis, head of European financial industry coverage, and Betsy Graseck, who covers U.S. Large Cap Banks. While broad-based adoption could take as long as a decade, exchanges, custodian and central depositories should see changes come quicker, in the next 12-18 months.

The practical applications of the blockchain will take time—as well as regulatory blessings and long-term industry adoption—but clients and investors could benefit significantly, as would the financial industry itself, via streamlined and less costly operations, as well as better products and services for customers.