Blockchain is an open, distributed ledger that can be used to keep records of transactions between entities in an efficient, verifiable, and permanent manner. Blockchain is the technology at the heart of cryptocurrencies such as Bitcoin. It uses smart contracts to create digital records that are revision, deletion, and tamper proof. Smart contracts are embedded in digital code and stored in a transparent, shared database. The global finance industry is expected to experience the most disruption from this ground-breaking technology.
Global stock markets, for instance, stand to reap major benefits from the adoption of blockchain technology. For example, one of the biggest problems facing investors in developing markets is access to global exchanges. Emerging markets have limited access to global exchanges, meaning that investors in these markets don’t have the same opportunities that their counterparts operating on larger foreign stock markets have. Blockchain technology offers a valuable catalyst with the potential to unlock access to global stock exchanges for those in emerging markets.
Economic exclusion is a big problem in emerging markets. A simple comparison between the largest exchange, the New York Stock Exchange, and the Johannesburg Stock Exchange (JSE), its African counterpart, tells you all you need to know. The New York Stock Exchange has more than 3,000 listings with a market capitalization of more than$28 trillion. The JSE lists around 400 companies worth around $988 billion. There’s a massive gap in the availability as well as the accessibility of financial institutions in emerging markets, too.
As a result, a large percentage of the global population is financially excluded from formal institutions such as banks. These people are kept from interacting with international investment platforms despite high demand for capital growth in developing markets. The lack of supporting financial services — such as stock markets — that encourage investment opportunities is one of the biggest hinderance to business growth in developing nations. Exclusion from global markets leaves those in developing markets with no choice but to invest through informal ways.
Blockchain-Based Exchanges for Ease of Access
Informal savings in the form of real estate, jewelry, or livestock means a narrow pool of investment opportunities. Improving access to global stock exchanges can empower emerging markets and turn these informal savings into real capital growth. Blockchain technology can be used to develop a decentralized exchange to address barriers to growth and combat issues of financial exclusion allowing more and more people to access global stock exchanges. Here are some of the ways in which blockchain technology can unlock access to global exchanges.
A centralized governing system restricts access for low-income citizens. These systems are self-serving, expensive, and inefficient. A centralized governing body in a stock exchange strangles consumers and businesses with taxes and bureaucracy. If you are poor, the less access you have in such a system. Centralized systems further the economic disparity between the haves and the have-nots. A decentralized blockchain-based exchange eliminates the need for government and central banks.
Decentralizing markets helps democratize capital, which allows literally anyone in the world to take part in the market. Decentralization facilitates a borderless exchange by rendering the traditional bank and broker monopoly obsolete. By removing the middleman, a decentralized stock market gives hitherto excluded companies an opportunity to connect with global investor networks and at the same time, raise capital. Blockchain technology has the potential to redefine the stock exchange market and unlock access to global exchanges.
The smart contract is a programmable script living on the Ethereum blockchain with permanent immutability. It is the fundamental unit of the blockchain. Smart contracts are peer-to-peer, they eliminate the need for middlemen such as banks or attorneys. They facilitate efficient, automated, hassle-free, and secure transactions between parties. Smart contracts allow the blockchain to record transactions thereby creating a trusted economic ecosystem and eliminates the high bureaucratic costs.
Smart contracts ensure that there are no greedy businessmen and crooked politicians paying bribes, laundering money, and over-inflating projects thus ensuring equal access for all. A smart contract is also essential when it comes to providing essential legal infrastructure. Smart contracts mean that any person can transact on a blockchain platform. Objective smart contract agreements are the cornerstone of exchanges, allocations, and peer-to-peer transactions that decentralized systems thrive on.
Monetizing ‘Dead’ Assets
People in lower socioeconomic classes, particularly in developing markets, own a variety of assets most of which are classified as ‘dead’ capital because they can’t be traded or monetized. There’s lack of a good source of information on these assets or ways of verifying or quantifying them. As a result, outsiders who might be willing to lend money based on extra-legal collateral aren’t able to do so. The blockchain can help monetize ‘dead’ assets through the creation of mirror assets. Mirror assets are digital assets that represent ownership of real-world assets.
The blockchain can standardize and formalize property rights and put them in a formalized and digitized global economy. Mirror assets can be tied to stock, land, currency, et cetera. People in the network can use these mirror assets to transact. Entrepreneurs within blockchain may acknowledge certain assets in emerging markets even if banks and governments in the region don’t. By facilitating the monetization of ‘dead’ assets, blockchain can formalize the extra-legal economy and unlock access to global exchanges for those in emerging markets.
Due to archaic credit identity models, it’s difficult for a lot of people to qualify for capital under the current system. The situation is much worse for those in emerging markets. Some may qualify and slip up in their payments leading to bad credit. Consequently, they can find themselves facing restrictions, locked out of capital benefits, and unable to transact in the legal economy until they repair their credit history. By creating a more reliable identification model, blockchain can create a more reliable identification and eliminate this problem.
When it comes to the disruption and decentralization of traditional financial systems with regards to redefining stock market exchanges, blockchain technology has immense potential. The technology can help overcome barriers of inaccessible institutions and astronomical costs using initiatives such as app-based exchanges. The vast majority of these populations have access to a mobile phone. Blockchain-based exchanges can harness the power of borderless, decentralized platforms to financially empower those in emerging markets.
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