Blockchain technology is one of the biggest buzzwords of the decade. Due to its perks, logistics, banking, and finance sectors are already making use of this groundbreaking tech. It seems like it has already changed the future of finance. If early adoption is a sign of what’s coming next, stock markets around the globe indicate that stock trading is next in line for a revolution.
The Basics of Blockchain Technology
People rightfully associate blockchain technology with Bitcoin and other digital coins. It’s the engine behind such digital assets. But, many would say blockchain itself is much more valuable than digital coins.
Blockchain allows people and organizations to make instant transactions on a network. There are no middlemen and the system is decentralized. Everyone involved maintains the ledger.
No one can alter the records because everyone in the network has to agree on a single shared ledger. The network is resistant to hacking and tampering. The way blockchain maintains consensus is its greatest aspect.
Trust, Fairness, and Transparency
Fragmented market systems of today suffer from transparency, compatibility, and trust issues. Operational trade clearance, regulatory processes, as well as middlemen, often impede stock exchanges. They can be a problem for traders, brokers, and regulators.
Blockchain, as an automated and decentralized system, can smooth things out. All transactions may fall under one automated surveillance system. Blockchain-based exchanges will be able to track all activities automatically. The system can be designed to detect and block malicious activities.
Blockchain can implement policies and standards on its own. Everything can be made crystal clear, as the ledger can provide a full record of transactions to everyone who takes part in the market.
Post-Trade Events
Blockchain enables self-executing smart contracts. They can be useful for post-trades activities. Smart contracts can eliminate the need for middlemen. Moreover, they can reduce counter-parties and operational risk, and serve as a platform for fast trade settlements.
Blockchain can allow parties involved to settle securities in a matter of minutes. Supply chain optimization, streamlined real-time settlement, and improved liquidity are some other key benefits. A ledger that works as a single source of truth for everyone taking part in the system can improve post-trade events processing.
Brokers, Trading, and Digital Assets
As mentioned, blockchain is the foundation of the world’s most valuable digital assets. Bitcoin, ETH, Ripple, and other digital coins are popular among traders. The main reason is the volatility of the market. Traders can turn a profit on price moves, thanks to these swings.
Some traders have turned to the futures market. Through futures, a trader can use leverage to hike up profits. It can be a more attractive way of playing the volatility of the market. Traditional brokers offer a variety of investible securities, which sets them at an advantage. But, you cannot buy coins directly.
Exchanges, allow you to buy Bitcoin, Ripple, Dash, ETH, as well as other flagship coins. Ripple itself is pretty interesting as RippleNet connects corporate entities, payment providers’ digital-asset changes, and even banks.
But, with a general broker, you can only buy ripple or ripple futures or bitcoin and bitcoin futures and that’s it. So, some online brokers have started to specialize in digital asset-trading in order to give more options to traders. Many expect Robinhood, Charles Schwab, IQ Option, ETFinance, and other crypto-friendly brokers to bridge that gap soon.
Nasdaq
Nasdaq is one of the first exchanges that has adopted this innovative tech. The firm is at the intersection between tech and finance. It enables investors to employ the power of blockchain and safely navigate financial markets.
The firm is famous for developing innovative means of securities transactions. They’ve been doing it since 2013 and are one of the industry leaders. They were among the first ones to incorporate blockchain into its applications.
Four years ago, for the first time, an issuer was able to complete a private securities transaction using the firm’s blockchain ledger. Since then, the company has also launched several indices related to the tech.
Luxembourg Stock Exchange
LuxSE is another stock exchange that’s already using blockchain. They use it in their new security system. Their Officially Appointed Mechanism (OAM) relies on blockchain to ensure the proof of existence and genuineness of all files.
India’s National Stock Exchange
NSE has rounded up the country’s leading banks, IDFC, ICICI, RBL, and HDFC Securities to take part in a trial. NSE is testing the technology through a know-your-customer data trial.
London Stock Exchange
It seems like LSE is also looking to become a leader in innovation. This UK exchange has invested $20 million into Nivaura, a capital markets startup. The startup’s goal is to “make markets run like vending machines,” according to their own words. They are building a platform for corporate equity issuance. If they get their way, humans won’t have to touch anything. Everything will revolve around self-service issuance.
Conclusion
Lower transaction costs and the possibility for swift transactions make blockchain appealing to exchanges worldwide. We are yet to see which exchange will be the first to successfully make the full switch to blockchain-based transactions. But, it seems like the race is in full swing. Without a doubt, blockchain is indeed capable of changing stock markets worldwide.
