Many would argue that the continued use of legacy systems and infrastructure is not only outdated but also at risk to many as incompetency. The silver lining, however, is that both blockchains as well as technologies based on smart contracts have gradually begun to supersede these foundations and have already laid the groundwork for early participants to reap the benefits.
The primary reason as to why this is happening can be traced to the simple fact that issuers are obtaining access to capital from a more diverse range of investors at a much lower cost. Not only does this allow these issuers the chance to take advantage of new and previously inaccessible opportunities, but the overall systemic risk is also being simultaneously reduced due to fund managers decreasing costs and more effectively distributing their capital.
This is precisely why forward-thinking regulators, much like the Monetary Authority of Singapore, have often required regulative frameworks for the new proposed infrastructure. This is primarily because blockchain-supported infrastructure has the potential to grow in both capability and adoption, and as a result, there will be an exciting shift towards additional property and economic investment patterns with expected long-tail social advantages.
You see, modern money markets usually rest on infrastructure that has been established in a bygone era. So, while we have made steps towards becoming more technologically advanced, one should not forget the risks associated with such a decision. To this point, the main risk will undoubtedly be the quick listing of assets among an outsized cluster of investors, which will most likely result in trust issues and potential for fraud. This may be solved via the usage of settlements; however, those still take a few operating days at least to be made usable.
But the question arises, how can blockchain reduce these risks? The embryonic technology allows for the commerce of economic assets to occur on a verifiable ledger. It will accomplish this by distributing the ledger that tracks securities possession across several nodes, with all nodes agreeing to an agreement mechanism for any changes in the ledger. This ensures both the traceability and transparency required to maintain honesty.
For these reasons, blockchain is steadily growing in adoption. It is, after all, a sublime technological answer to the old ways, and both the Australian as well as the Canadian Securities Exchange have already begun to establish a blockchain-based trading system for themselves, with others expected to follow suit in the near future.
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