The stock market employs some of the most sophisticated financial technologies to ensure accuracy and timeliness. But even with this, it can take many days to complete a transaction. This is simply too slow for a market that is of enormous value, and time is indeed money here. As is the case with several other industries, stock markets are turning to blockchain technology to gain an edge and boost efficiency and accuracy.
In this article, we’ll see how the development blockchain solutions can positively affect stock market and why it is even necessary, as well as explore real-world applications that have already been developed.
How Blockchain Fits In Trading
The primary hindrance in the speed and efficiency of the financial services industry stems from the centralized processes that are employed. They are less secure, slower, and more expensive – and it creates a snowball effect that can quickly derail services.
However, by implementing Distributed Ledger Technologies into these financial services, stakeholders in capital markets can reduce costs, downtime, and errors.
Agreeing with this idea, James Giancotti, CEO of Alluva, says,
“Blockchain technology has the unprecedented potential to disrupt the stock market in terms of accountability, security, and transparency. Settlement times, a major pain point for traders all over the world, can be reduced to mere seconds by leveraging the decentralized and scalable nature of blockchain networks.”
Blockchain technology in some way can be seen as the crowning achievement of the FinTech space – the final piece in the puzzle of an economy that aims to include everyone. By the year 2023, the industry is expected to be worth $305.7 billion at a CAGR of 22.17% between 2018–2023. Blockchain technology, which is cementing itself in the banking, real estate, investment management, and trading sectors, is partially responsible for the explosive growth in trading in recent times. The applications are staggeringly large, and through automation, anonymity, and cheaper cross-border transactions, blockchain is set to boost the global economy.
Blockchain Technology Shows Rapidly Increasing Adoption
More than a few stock markets have already made investments for the development of blockchain-based solutions, which we detail further down this article. The line has been crossed – it is only a matter of time before we the technology in every aspect of the traditional financial market.
The following reasons are only a few as to why the world of finance and trading is set to be disrupted by blockchain technology.
A popular term in the space is that of “disintermediation.” This refers to the removal of middlemen, humans would have to verify data and processes to ensure that things would move smoothly. This is time-consuming, expensive, and prone to human error. However, the self-checking and self-validating nature of blockchain applications and smart contracts means that transactions can be executed automatically. Pre-programmed logic automates the process.
The blockchain is both transparent and immutable. The ledger on which all transactions are recorded are viewable by anyone, at least in the case of public blockchains. Furthermore, this data cannot be changed without the use of resources that is practically impossible to possess. This makes it ideal for ensuring that transactions are legitimate and trustworthy.
Centralized systems, like those employed by financial institutions today, are quite vulnerable to attacks, as there is a single point that attackers can target and subsequently compromise the entire network. It is also slow and expensive, requiring one entity to verify transactions. The several data breaches that have occurred over the past few years is evidence of how vulnerable our data is.
Blockchain networks, like that of Bitcoin, have no central point of failure, and are much quicker as multiple nodes work together to verify data. It is also demonstrably cheaper.
London Stock Exchange
LSX is working with Nivaura to create a blockchain-based solution that cuts out middlemen from transactions. According to them,
“the time to market for issuing bonds, loans, and equity will be cut by at least 60%”.
Japan Stock Exchange
JPX is working with IBM to develop a test environment based on IBM’s fabric blockchain technology to build blockchain-based applications that attract new investors.
Australian Stock Exchange
The Australian Stock Exchange partnered up with American blockchain firm and developer, Digital Asset Holdings, to explore blockchain-based applications, specifically for clearing and settling trades.
Stock markets are only just beginning to see what blockchain technology is capable of, and as time passes, there will be several more integrating the technology to improve the experience for traders. The arrival of decentralized applications (DApps) will also introduce them to the emerging asset class of digital assets.
Blockchain technology is poised to revolutionize every aspect of the global finance industry, frp, facilitating cross-border transactions, to improving transparency in the stock market and enabling greater financial inclusion. This is already happening, and will pick up speed as we head into the future.