The blockchain is mainly popular as an underpinning technology of the cryptocurrency market. But it’s not limited to it. The blockchain has revolutionized many industries and sectors. In that way, it’s practically directly impacting our everyday lives. The application of this technology has found its place in medical, financial and smart appliances and many more. Here we will focus on benefits the blockchain brings to the trading sector.
Towards a decentralization of financial transactions
One of the areas where blockchains have a huge role is in the financial sphere. For example, the organization of corporate governance, payment systems or financial markets could change significantly. The blockchain could encourage the development of micropayments whose cost is too high to be profitable, but also international payments whose processing is still long and expensive. Thus foreign exchange transactions could be settled without going through the banking system, which has an impact on costs and delays.
The blockchain is a vector of immediacy
Trade finance operations would benefit from a simplification of the verification steps and procedures, allowing companies to use them more spontaneously. This is also the case for securities transactions which take place in three phases: trading, clearing and settlement-delivery. The last two steps require the intervention of several intermediary structures which record transactions, calculate positions and verify the successful completion of transactions. The current post-market process takes at least two days, sometimes longer, especially for international transactions, and is costly and risky for counterparties. The clearinghouse, the settlement and payment systems, the custodian must be regulated and supervised by the regulators.
The establishment of a duplicated register shared between investors and certifiers could simplify reporting, ensure the traceability of transactions, shorten deadlines, lower the costs of post-market operations and counterparty risks. In the OTC markets, previously opaque transactions would spontaneously become transparent and viewable by all. And, unlike a traditional financial market, the blockchain could operate 24 hours a day, seven days a week.
One can also consider that votes at general meetings, the payment of dividends and coupons could pass through the blockchain. Technology then implies a trivialization of financial agents who are no longer essential intermediaries in financial operations.
Crypto trading – how does it work?
Blockchain is a cutting edge technology for storing and transmission of data. It’s transparent, secure, and operating without a central control body. It is the technology at the heart of the crypto trading and decentralized web.
A blockchain comprises a database that includes the history of all the exchanges made between its users.
A cryptocurrency broker is an in-between individual or company linking the market and traders and at the same time, facilitating the trading of cryptos.
In case you are eager to start crypto trading, you must choose a good crypto broker that will be completely reliable and secured. Sound knowledge of trading processes and cautiousness in the handling of cryptocurrencies is essential when trading with a crypto broker.
Are there some risks?
The blockchain technology is maximally transparent and decentralized. However, there are some drawbacks. Beyond the expected benefits of using blockchains in financial transactions, some obstacles, including technical and legal ones, remain unresolved.
The most obvious is the operational risks. First, the risk of blocking transactions may arise. In its current configuration, the number of transactions the blockchain can validate is up to seven per second. This is not a problem in a tight market like bitcoin. On the other hand, this technical characteristic is incompatible with financial markets where the effects of congestion could lead to a blockage. Solutions are currently being tested to enable the chain to process financial market volumes.