Traditional financial markets work with a centralized banking system. With centralized systems, the system is slower, less efficient and prone to errors and failures. The integration of blockchain technology into these financial services can help reduce costs, downtime and malware in the stock market system.
Blockchain Technology is a sophisticated database that makes it nearly impossible to cheat or change the system. The decentralization not only cuts out the middleman, but since it is not stored in one single location, it is hard to hack.
With its enhanced security and decentralization, here are 4 ways blockchain technology can alter the way we trade stocks.
1. Enhanced Transparency
The main reason blockchain has become a staple in trading stocks is because this technology is open source. There is enhanced surveillance for every transaction, so if there are any illegitimate activities, they will be identified. This ensures greater trust in the stock market, making blockchain a viable surveillance system.
2. Automation and Faster Processes
Blockchain help saccelerate the settlement of trades, owing to its decentralization and automation, which removes the hassle of intermediaries. While securities traders, brokers and representatives have to go through a cumbersome and costly process to finish exchanges, blockchain technology acts as a catalyst. It makes it possible for financial institutions to settle trades within just a few minutes with real-time settlements, supply chain optimization, and improved liquidity.
3. Cost Reduction
Blockchain reduces the need for intermediaries for confirmation, making the process faster than ever before. Since there is a lower need for storing trade records, operational costs are automatically lowered. With transparent immutable records, blockchain technology eliminates the need for administrative fees, thereby reducing overall cost.
4. Heightened Security
All transactions performed through Blockchain are unable to be changed. It is practically impossible to edit the data stored inside the blocks, mitigating the threat of malware and fraud attacks, which have been a concern for brokers and traders. Due to the heightened security and verification processes, there has been a significant drop in illegal acts in the stock market.
There are challenges, too
The power of blockchain’s distributed ledger technology is attractive to regulators, thanks to its increased transaction security, enhanced transparency, and reduced risk of manipulation. However, this new technology can also raise some challenges. Blockchain is new territory for everyone, and the lack of knowledge on how the technology exactly works in capital markets can restrict its growth.
The financial market ecosystem is currently uncertain about the extent to which blockchain, particularly as applied to the stock markets, will continue to live up to expectations.
The implementation of blockchain technology in the stock exchange market offers a strong security system. While there are many advantages, the challenges that come with it cannot be overlooked. Effective control is necessary for the successful implementation of blockchain to bring about positive changes in the way we trade stocks.
Stock exchanges are showing great enthusiasm and have started to reap the benefits of blockchain technology. That said, it is very likely that this technology will soon touch every facet of the global finance industry, facilitating cross-border transactions, enhancing transparency in capital markets, and promoting financial inclusion.