The Sorcerer’s Apprentice is the story of a sorcerer who learns the hard way that it’s probably not wise to leave a young apprentice in charge of your workshop.

Rather than getting on with tasks set by his master, the apprentice grows tired of having to fetch water by pail. To ease his burden, he enchants a broom to do the work for him, albeit with magic he doesn’t fully understand yet. The problem is, the broom ends up being so effective it floods the entire workshop. When he tries to intervene by splitting the broom with an axe, the Apprentice ends up with a decentralised liquidity broomchain nightmare he can’t control. Each piece becomes a whole new broom and begins to fetch water independently, now at twice the speed.

When the master sorcerer gets back he sees the chaos and unleashes his own superior magic to bring things under control.

The moral of the story is that a little knowledge can be a dangerous thing and, of course, to be careful what you wish for.

Alas, this is not a lesson anyone in the fintech world is seemingly aware of.

Blockchain for now remains the fully sung hero of the Davos World Economic Conference, with anyone who is anyone desperately trying to associate themselves or a press release to the technology, despite its still entirely untested nature.

There have been announcements about investments in blockchain companies by exchanges. There have been IMF papers. There have even been calls that blockchain is the biggest of all the unicorns, ever. The simple post-Davos consensus is that absolutely anything can be improved if attached to a blockchain.

And yet, a core economic truth here is largely ignored: Blockchain “incorruptibility” is fundamentally based on doubling up on work ad infinitum.

Take the latest white paper from the DTCC — the key centralised industry-owned back-office utility being challenged by post-trade blockchain initiatives — on the potential of the technology in its area. And while yes, you could argue the DTCC has a vested interest in protecting the “old way” of doing things, it’s also worth thinking of the DTCC as the “master sorcerer” in this equation. They’ve been doing this stuff for much longer than any of the start-up fintech crowd.

So when they say:

“The disruption and expense of a distributed ledger conversion project may not bring any substantial benefit and may in fact increase costs and risk,”

…it probably makes sense to listen.

Some more from the DTCC:

The premise of the Bitcoin platform – a decentralized, trustless, replicated ledger of transactions – is the virtual opposite of the centralized, trusted, guarded, model of modern securities processing, which has long relied upon DTCC, among others, as a central authority. The trust model, along with the economies of scale of centralizing common back-office processes and the strict controls and regulatory oversight of DTCC, has ensured the safety and soundness of securities trade processing through periods of extreme volumes and systemic market shocks. It has also created the most cost efficient post-trade processing infrastructure in the world.

We’re drawn to DTCC’s point about efficiency because it’s the key word being forgotten by the hype squad. Blockchain, by nature, is less not more efficient. And where it is efficient (the security front) it’s still subject — if rolled out in a private capacity — to being overridden by the master sorcerer and/or prone to over-delivering on the task in hand.

But there are other equally worthwhile points being made.

One, there exist more logical and cost efficient ways to improve the settlement system:

…a mature, supported, integrated distributed ledger technology has the potential to help improve a number of existing financial market infrastructure limitations. However, it may not be the solution to every problem because there may be alternative opportunities to lower the costs and risks of current infrastructure by standardizing industry workflows and expanding the use of cloud technologies.

Two, blockchain has scaling limitations*:

The current state of distributed ledger technology today has its own challenges: it is immature, unproven, has inherent scale limitations in its current form and lacks underlying infrastructure to cleanly integrate it into the existing financial market environment. Improvements will come with time as they have with every new technology and as the industry learns from successes and failures of marketplace experiments.

(*we’d add, scaling limitations are mostly being ‘solved’ with centralising processes like sidechains.)

Three, can we please keep experimentation away from important systems we might mess up by accident and focus them on markets currently under-served by digital systems:

DTCC’s unique ownership and governance can enable industry use of this technology by providing focus on the best foundational building blocks and business use cases. Proofs of technology and small pilots targeting asset classes that are not fully automated provide a way to validate the viability of the technology to solve industry-wide challenges. These “white space” opportunities should be prioritized because they will provide the best conditions to learn the advantages and lessons of this alternative model without adding redundant costs to existing infrastructure. They will also minimize integration and co-existence challenges without trying to address problems that are already efficiently solved. This path will help establish the standards, the infrastructure and ecosystems needed to support an industry standard distributed ledger

Four, there’s a distinct gold rush “every man for himself” feel to the whole thing which contradicts the essential collaborative nature of the system:

The current financial technology venture funding environment, along with the media frenzy over the next industry to be disrupted, has created a chaotic gold rush of new vendors, partnerships and existing firms all looking to leverage this technology. Many financial institutions are experimenting in private with a technology that uses consensus protocols to provide transparency. This mirrors the history of financial innovation beyond the few points in time where an industry mandate or regulation forced the industry to cooperate. The current path will result in a new jumbled, disconnected maze of distributed ledger silos.

Though, to avoid being an absolute killjoy, DTCC does offer this as a closing thought:

This is the opportunity to create an industry-wide initiative to develop the right architecture, prioritize the infrastructure building blocks and support focused and collaborative experiments to help the technology mature.

But don’t confuse DTCC’s desire to not be dubbed anti-innovation as an endorsement for the technology itself.