Blockchain and its cryptocurrency application – Bitcoin are still in their nascent stage but are all set to become the biggest revolution in the finance industry.
Just as search engines like Google have disrupted the Internet and peer-to-peer file sharing has transformed the face of the recording industry, bitcoin and its blockchain technology with its associated ecosystem will eventually force financial organizations to review and alter their traditional roles, infrastructure.
Ethereum is one such company that came out of the blockchain ecosystem passed the $1 billion benchmark and became the first independent non-affiliated Unicorn. Average people are still skeptical about this tech-driven utopia, but big investors already have their money on it.
Blockchain is far more holistic and much bigger than Bitcoin. It can create a global infrastructure to leverage our needs for big data and create a digital identity that can power the present issues of cybersecurity. Many tech companies and banks are coming to terms with the fact that sooner or later, blockchains will become a critical part of the technological and financial system.
Current Scenario of Stock Market
Stock market involves a wide array of investors willing to buy and sell previously issued shares. Stock market exchanges, brokers, etc. facilitate this exchange. It encompasses multi-layered processes- pre-trade, post-trade, custody and security servicing that are very complex and risky.
Intermediaries play a pivotal role in today’s capital markets. There are various complex transactions that involve network and chains of intermediaries at different levels. It becomes imperative to keep vigil on such group of intermediaries. This makes a room for experimentation with blockchain technology.
Many stock exchanges are finding ways to leverage distributed ledger technology to overhaul the traditional capital market system.
How will Blockchain Technology revolutionize the Stock Market?
Stock markets across the globe are embracing the capabilities of blockchain for tracing securities, repo and margin financing and monitoring of market risk.
It takes around 3 days for stock market participants like broker, traders and stock exchanges to process transactions due to the presence of intermediaries. Blockchains have the potential to reduce this cumbersome process through automation and decentralization.
Rule and regulations are inbuilt with the smart contracts that would reduce the cost of customers buy in terms of commissions and faster transaction settlements. It can also resolve the issues like trust, transparency in a fragmented market system.
Through this technology, financial institutions can settle transactions within minutes with real-time settlements, supply chain optimization, improved liquidity.
The blockchain is a public distributed ledger, a single source of truth jointly owned by all the participants in the system. Blockchain-based exchangers can track, block and report any illegitimate activities made by anyone across the network to maintain security policies and standards.
Committee on Financial and Regulatory Technologies (CFRT) formed by SEBI, is conducting research on blockchain platforms and other technologies that have revolutionized the sphere of fundraising, post-trade settlements, and asset management.
Despite all these advantages over the traditional stock market, it is still in its inception especially in countries like India. There are many obstacles to be overcome before it supplants the existing infrastructure. Scams, fluctuations, insider trading and trade spoofing are the unfortunate realities of this digital technology. Nevertheless, stock exchanges are showing great enthusiasm and have started to reap the benefits of blockchain technology.
Let us know what you think about Blockchain’s role in the Stock Market!