How blockchain can revolutionise the equity market
A FINANCIAL HEALTH CHECK
It was back in January 2009, in the aftermath of the 2008 financial collapse, that blockchain first came to prominence as the underlying distributed ledger technology that powered the Bitcoin cryptocurrency. Since then, multiple global banks – including UBS, Goldman Sachs, and Morgan Stanley – have poured millions of pounds into blockchain technology in a desire to future proof their offerings.
It’s not just the banks though that are showing interest and boosting adoption of the technology. One of the reasons blockchain technology has become so popular is that it has a transparent digital ledger of transactions and records that are immune to change or deletion. By offering additional traits of increased security, lower costs, time efficiency, and error resistance, blockchain is transforming multiple industries.
AN UNDERLYING RETICENCE TO CHANGE
The global equity market is an essential part of the wider global economy. In fact, for many it provides the ultimate litmus test of the overall financial health of the world in which we live. The adoption of blockchain technology within the equity market will not only pave the way for streamlining transactions but will increase the speed of trading and settlement processes between businesses and investors. However, until now the global equity market has been remarkably slow on the uptake.
There is an underlying reticence to change within the global equity market. It is not only struggling to come to terms with blockchain, but finding a way to better align the wider cryptocurrencies trend with the paper money of old. For some reason, emerging equity such as cryptocurrencies are still viewed differently to legacy stocks, funds and securities. The situation hasn’t, of course, been helped by the fact that governments have been so slow to ensure regulations and taxation for cryptocurrencies are brought in line with traditional currencies.
It is clearly time for them to bridge this gap.
increase the speed of trading and settlement processes between businesses and investors
NEED FOR A DIGITAL TRANSFORMATION
Not only is buying and selling shares expensive and restricting, it has significantly fallen behind advancing developments within the wider financial sector. As one of the most vital areas of the market economy, it is essential the equity market drags itself into the 21st century. When the global equity market was created two hundred years ago the world was a very different place. Whilst there was something of a revolution in the 1980s when the computerisation of the trading floor caused trading volumes (along with volatility) to skyrocket, another step change is required. Whilst country-specific stock exchanges made sense once, today the world has got a lot smaller and the equity market needs to take advantage of a global investment pool.
The sector needs to ensure that trading becomes a more seamless experience and promote continued digital transformation within the industry, rather than resisting against it. The solution is staring it in the eyes. Blockchain is both transparent enough to ensure democracy and visibility, whilst being private enough to protect businesses and investors alike. The technology is an enabling force to removing the middle layers, administration and reconciliation steps currently hampering today’s global equity market.
CUTTING OUT THE MIDDLEMEN
A modern equity network needs to be built with the interests of both investors and business owners at its core. Blockchain technology can help to revolutionise the equity market, bringing influence and power back to the individual investor through decentralisation and the use of increasingly popular cryptocurrencies. Blockchain can help to remove the shackles of traditional stock exchanges, government regulation and the institutional and corporate stranglehold.
Cutting out the middlemen so that business owners, of both private and public businesses, can sell shares in their companies direct to investors not only gives them greater control to be able to steer their business forward, but ensure that businesses and investors become more indelibly linked.
removing the middle layers, administration and reconciliation steps
INTO THE 21ST CENTURY
A revolution in the equity market is needed. One that removes the barriers to entry and the barriers to investment. No more stock exchanges or trading through banks, brokers and intermediaries. No more expensive fees and slow clearing processes. Thus, promoting global innovation and reinventing the entire processes in trading shares so that it is something that is accessible to all.
There is no limit to how blockchain can improve costs and efficiency, lower risks and heighten security within the global equity market. By using blockchain to revolutionise the way we all buy and sell shares, a global equity market worth US$76 trillion can truly be unlocked. The adoption of blockchain can create a faster, effective and more reliable equity market that will unlock a new era of efficiency and innovation and bring the equity market firmly into the 21st century.
Originally published from: The Block