Taking Stock: Blockchain Technology And Exchanges
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Blockchain technology has received its fair share of skepticism recently, as some contend that its transformative potential is a long way from real life application. They argue that the hype is just that – hype – and that the revolution of decentralized systems and transparent democracy is just a utopian ideal.
It is easy to point to blockchain as an example of a new technology that has yet to live up to its potential. However, while blockchain technology is maturing at a slower, more methodical pace than some might like, its real-life applications are incontrovertible.
Blockchain is already bringing new levels of security, efficiency, and accessibility to capital markets. By eliminating intermediary costs, transaction delays, and convoluted systems of business, the blockchain is disrupting and decentralizing outdated structures, while providing immediate platforms for growth in new and existing markets.
Cutting cost, keeping security
Some 90 percent of blockchain experiments probably won’t make it into corporate use. In the world of stock exchanges, blockchain is unveiling groundbreaking initiatives with practical solutions to industry issues. The costly and exhaustive nature of intermediary involvement, through banks or brokers, is one area that blockchain is revolutionizing on a use-case basis.
Until recently, trading through third parties seemed indispensable. By verifying transactions, and payments, intermediaries add value while simultaneously building relations between buyers and sellers.
However, these services – while vital – incur expensive fees and high commissions. As a result, smaller players are excluded from accessing traditional stock exchange models, as they are unable to meet these costs.
Blockchain is uniquely positioned to resolve this issue and is already being deployed for long-term solutions. This new technology enables self-executing transactions, without the need for broker oversight. Once a transaction is made through a smart contract, it is immutable and can’t be altered. This offers users security and verification, without the cost of intermediaries.
In this way, the decentralized principles of blockchain technology are saving both time and money. While there are groundbreaking opportunities for smaller traders and emerging markets, it also impacts the wider trading ecosystem. Removing an expensive investment process can positively affect market growth and liquidity.
This example not only disproves blockchain’s skeptics but also demonstrates the sustainable and far-reaching impact of one application on a global level.
Introducing Speed and Efficiency
According to a report on ‘Blockchain in Capital Markets’, IT and operations expenditure cost banks close to $100-150 billion per year, with post-trade and securities servicing fees estimated at $100 billion.
Although stock trades are typically made in milliseconds, they take much longer to complete and they also incur extra expenses. It currently takes most stock exchanges over three days to process and complete transactions, as they balance intermediary involvement, operational trade clearance, and regulatory processes. In big financial centers, trades take two full days to settle.
These long and costly transactions hinder stock market traders and players, who are in a fast-paced and ever-changing market environment. Blockchain provides automated, decentralized platforms on which trade settlements can be addressed directly, making exchanges more cost-effective and accessible for global markets.
Navigating a maze of databases, records, and regulatory procedures is cumbersome and costly, and yet a crucial necessity. Now, distributed ledger technology can streamline and accelerate transactions to the benefit of all parties, introducing faster payments than centralized systems.
This acceleration is not exclusive to the world of trading. Traditional systems can adapt these applications to answer their own individual needs. This is demonstrated across the traditional financial services sector, as industry heavyweights take these practical use-cases and apply them to their own enterprises.
JP Morgan, in an initiative to address cross border currency transfers – one of the most glaring issues confronting the banking sector – recently outlined a landmark blockchain payments plan as part of the Interbank Information Network (IIN). In the same way that blockchain technology is accelerating and simplifying stock exchange transactions, it can also streamline traditional financial services and reduce associated costs.
Accessibility
From late January to early September, the MCSI Emerging Market Index fell 20%, drastically affecting emerging market equities. However, blockchain technology offers emerging traders another exciting possibility – accessibility.
On top of using cost-effective smart contracts and time-efficient DLT frameworks, blockchain technology is actively working to bridge the gap between traditional and emerging markets by removing economic, geographical, and logistical barriers.
With some blockchain exchanges offering fiat onboarding options, these digital asset platforms are providing new levels of market engagement and making trading more accessible. By increasing the ways in which previously excluded players can access these platforms, fiat onboarding offers the chance to partake in a borderless exchange in a way that ensures the best utility and most robust trading experience.
This brings new levels of reassurance and accessibility to exchanges, as new players and markets are granted more efficient, inclusive access to capital markets.
Ripples of change in financial services
Detractors claim that blockchain’s ascent is unrealistic or simply taking too long. However, one look at the transforming landscape of asset exchanges shows that blockchain transformation is taking place and making a significant impact. It is vital to remain cognizant of this point when discussing the supposed delays.
While some may contend that delays in blockchain implementation signal the sector’s decline, the reality couldn’t be more different. Implementation is only beginning, and each use-case is merely a new precedent as development evolves. The growing role of this disruptive technology in improving user experience, security, and accessibility on stock exchanges is just one example, that is evolving daily. Remaining committed to sustainable development, high standards of practice, and collaborative community engagement will safeguard a future in which blockchain innovation continues to prosper.
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