The first theory of blockchain technology was brought by two computer enthusiasts Stuart Haber and W. Scott Stornetta in 1991, which paved the way for Bitcoin's proof of work protocol to be invented by Satoshi Nakamoto. This technology keeps evolving with time bringing more features and enhanced security parameters to its users.
Since Blockchain is a typical type of Distributed Ledger Technology, which works on a consensus mechanism and transforms the ledger to become immutable, keeping the database secure and unchangeable.NYSE: Source Pixabay
Equity Trading and Middleman
Equity markets or Stock markets allow traders to invest in shares of listed companies using a broker or brokerage firm, which takes the order from the investors/buyer, finds a seller, and then hands over the shares in the form of a certificate or receipt, but this process involves a certain percentage as a commission to be taken from both parties, that means if a buyer opens an order to buy $100 worth of shares, the broker may charge a small amount of percentage usually 0.15% to 2.5% from both buyer and seller for the services rendered.
With the advent of the internet, brokerage firms started to offer online trading and services to other trading platforms. It was indeed a breakthrough, the equity trading became more accessible to any device that connects to the internet, but it did not remove the middleman, rather it increased the trading fee and associated charges for traders because the trading platforms were not only charging brokerage fees but they were also charging additional fees such as trade execution fee, spreads, and overnight fee.
Stock Markets on Blockchain Technology
A typical stock market uses a central data center managed locally to store pricing and other financial data, which is then stored on a cloud-based server for additional data protection.
First of all Equity market's central ecosystem should be reproduced on The blockchain-based Distributed Ledger Technology (DLT), which will create many distributed repositories, a sort of decentralized in nature but also in compliance with the regulatory framework. This way the financial and pricing data will be shared on various network nodes and a larger consensus mechanism will take place, and pricing verification will become more accurate and instant because it will no longer depend on a central data center's response.
On the other hand, CFD, stocks, futures, commodities, and other securities may readily be converted into smart contracts, and become available for trading on Decentralized Exchanges.
- The major advantage of the blockchain-based stock exchange is to facilitate trading for investors, the dismissal of brokers and middlemen may reduce the trading fee or virtually no fee due to P2P trading.
- It will provide exclusive transparent data to anyone who wants to check immutable on-chain information for verification.
- A secure and trusted environment for making trades, all the transactions will be trackable and traceable.
- Better accessibility to the equity markets, anyone who likes to trade stocks will simply open a decentralized app (dApp) for trading, it will also remove having an account with a brokerage firm or a trading website.
- Companies can raise funds by putting their IPO on DEXs or even creating their DEX.
- Removal of time barrier, usually stock trading occurs between 9:30 AM to 4:30 PM except on holidays, but the blockchain-based stock market can be accessible for trading round the clock, traders can use dAPPs and may trade any time of the day.
Examples of Blockchain-Based Stock Exchanges in The Near Future
Back in 2015, NASDAQ introduced its Linq ledger for settlement of securities transactions as an experimental move towards the adoption of blockchain technology.
Australian Stock Exchange (ASX) has been working to replace its legacy system namely Clearing House Electronic Subregister System (CHESS) with a VMware based blockchain architecture since 2016, and has developed its distributed ledger technology known as Synfini. It is currently in the testing phase and soon this will become a forefront stock exchange for the adoption of blockchain technology.
Many more Equity Exchanges are eyeing transforming their services with blockchain technology and running extensive studies and research to explore more ways for adaptation and producing confidence in the market.
The adaptability of blockchain technology in the traditional financial system has yet to fill more gaps, be it sentimental or regulatory, it will bring more clarity in near future with the adjustment in the attitude of the capital market toward distributed ledger technology and its adoption.
Since NASDAQ and ASX are in lead to change the course of the equity market with this emerging technology, it is evident that they will also prove to be role models for other financial institutes around the world.
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