Will blockchain technology replace stock exchange trading?

What will stock market trading look like in the future? Just a few decades ago, it was inconceivable to most market participants that trading would at some point no longer take place physically on the floor with shouts and certain hand signals. Today, there is hardly any stock exchange that still uses floor trading. Not even in the U.S., which paradoxically has long resisted innovations, especially with regard to modern trading systems.

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What has remained at present is a kind of regionality. Chinese shares are traded in China and Hong Kong. German shares are listed on the German stock exchange. Certainly, there are secondary listings, ADRs (American Depository Receipts), H-Shares (Chinese stock listings in Hong Kong) and the like. But there is still one stock exchange for each public company, on which the company is primarily listed and traded. In addition, the requirements, the regulations and the trading practices are different on each stock exchange, not to mention the various electronic systems and access requirements. A bank that wants to participate in stock exchange trading usually requires a license from the respective stock exchange and its supervisory authority, which is usually associated with an expensive membership. Exchange traders require an access examination. In addition, there are national opening hours, individual holidays and much more, which still makes it difficult for stock traders to participate in trading worldwide. This drives up the cost of many trades due to the need for many intermediaries and specialized traders, system integrations and time zones.

The importance of Blockchain in Web 3.0

Another issue is the different depositories that are also spread around the world, and their coordination and integration is a challenge for large banks

So, there is still a lot of potential for efficiency gains and modernization here. Just as the old floor exchange with physically present stockbrokers has become completely obsolete today, the current concepts of stock exchanges could soon be just as much a thing of the past. Global trading around the clock, common requirements and transparent prices and systems could emerge in the future. However, an important prerequisite for this is that this trading can be carried out worldwide in a secure manner and at the same time quickly and efficiently.

Whether this role of developing global securities trading will be taken over by the stock exchanges, which are mostly state-run or strongly under national influence, or by more privately managed trading companies, such as an association of large investment banks, remains an open question. The type of regulation is also a challenge. The technologies themselves, on the other hand, that can make a global and secure trading platform possible already exist: blockchain and Ethereum.

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Blockchain and Ethereum are relatively new and revolutionary technologies for storing and uniquely identifying data on the vast, international data network. Bitcoin has been successfully using Blockchain technology for many years, and other large Internet-based companies are also increasingly taking a liking to Blockchain as well as Ethereum-based applications. Some IT experts even speak of a discovery that can be equated in terms of its importance with that of electricity or running water. Blockchain technology will fundamentally change our lives, these experts are convinced.

Blockchain and Sustainable Growth – the United Nations

What is special about Blockchain is that it is an independent register. A kind of database, so to speak, but one that cannot be managed and thus manipulated by anyone in particular, but which exists completely independently. In the case of Bitcoin, this database is publicly accessible and can be viewed and controlled by anyone. Each entry, which is called a block, is firmly linked to the previous entry and is therefore firstly unique and secondly protected against changes and manipulation. You no longer need a central register with Blockchain, no one who would be a so-called central reporting office that has to take care of ownership rights. The blockchain database takes care of that itself. At the same time, the property rights are stored individually, uniquely and protected in the blockchain register.

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The potential applications for blockchain technology are almost limitless. The secure registers could be used wherever property rights are at stake. Be it money, stocks, bonds, derivatives, IPOs but also land, vehicles, houses, internet domains, memberships and any kind of economic asset, whether physical or abstract. With the verifiable and blockchain-based registry, all these property rights could theoretically be defined transparently and unambiguously.

Actual applications of blockchain and Ethereum are still in their infancy. But the development is progressing rapidly. The financial industry in particular is heavily involved in the advancement and is tinkering to explore novel electronic trading platforms and many other financial applications that rely on trust and efficiency. The development will certainly not stop at the stock exchange landscape and international securities trading and could fundamentally change the way we participate in the capital market in the coming years and decades.

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