Blockchain is the new Internet. That’s a claim we have been hearing more and more often, and that’s no accident. Blockchain was originally associated only with cryptocurrency, but it is now duly recognized as a breakthrough technology capable of fundamentally changing our existing view of the world. Amazon, Facebook, IBM, and other corporations are actively studying blockchain so that they are still in the lead several years down the line.
Financial companies, exchanges, and banks are also taking a closer look at the technology. That includes the Securities and Exchange Board of India. Market players understand that blockchain can solve many of the problems that have been plaguing the industry for decades. Implementing blockchain in the financial sector would benefit all sides, investors above all. And we’re talking both professionals with lots of experience and run-of-the-mill and beginner investors. Here are five arguments in support of this claim.
There are a lot of myths and fears associated with investing. Newbies are afraid of falling for a scam or think that working with assets is reserved for professionals. Those who already have a presence on the market are also under serious stress: they worry about their savings and whether others are acting in good faith.
Of course, to work with financial markets you have to at least get to know the fundamentals of investing, not invest everything to the last penny, and be cautious. However, established practice at least partially validates investors’ fears: transactions are not completely transparent, and in order to secure guarantees players have to turn to numerous intermediaries.
Blockchain is a huge ledger in which every operation is recorded forever, in all its detail. Everyone in the process has a copy of the ledger, so it is impossible to unilaterally change or fake the data. The information is securely protected from uninvolved third parties by a cryptographic key.
Transactions employ smart contracts, which guarantee to both sides that all specified terms will be met 100%. If needed, any operation or interaction with another participant can be verified. In addition, blockchain makes it possible to compile fair and independent ratings of contracting parties based on their actions. User identification adds an additional guarantee of reliability. All of this can not only simplify the investor’s market operations, but also significantly reduce stress.
Hold the Intermediaries
Intermediaries are a necessary evil of the financial sector, but their reliability cannot always be assessed. Transactions involve brokers, escrow agents, regulators, exchange representatives, and banks. It stands to reason that investors lost out in this long chain. Transactions drag on, while commissions and operational costs accumulate. The use of smart contracts eliminates intermediaries that provide security on transactions. Meanwhile, the basic principles of blockchain, transparency and immutability, significantly reduce the need for exchange and regulator representatives. The platform itself, whose fairness the investor can have faith in, takes on part of the regulator’s functions.
No Long Wait
Right now, to finalize all settlements and close a transaction takes several days on average. The holdup is due to limited times when banks and exchanges are open, the need to evaluate assets, acquire permits, and formalize the transfer of ownership. When transactions are concluded on the blockchain, investors wait no more than a day. Plus, the platform is not limited by geographic boundaries. Where previously you would have had to, say, use a courier service to transport documents, now all transactions are performed virtually, without wasting as precious a resource as time.
Automation, accelerated processes, and the absence of intermediaries lead to one of the main advantages of blockchain for investors: significant savings. They are made up of lower commissions for performing transactions, reduced operational costs, and not having to pay numerous contracting parties. Working with the market becomes more profitable and convenient.
Broad Choice of Instruments
Blockchain can be used to create marketplaces, platforms where market players can interact and communicate. Distributed ledger technology makes it possible to bring together everyone interested in the process. It can also include all instruments of potential interest to investors: from stocks to ICO project tokens. Blockchain platforms also provide for various methods of paying for assets, including cryptocurrency.
About the Author:
Alexey Shirobokov is the CEO of the trading platform AITrading, which is based on blockchain, artificial intelligence, and machine learning. Alexey is a serial entrepreneur and investor with 13 years experience in financial markets, IT, and consulting. Before creating the AITrading platform, Alexey worked at Microsoft and Ernst & Young and developed his own business projects. He is a successful trader with many years of verified experience.