Author: Lily Smithson
Blockchain’s increasing proliferation across many industries like healthcare, insurance, banking and the government, show why many consider it to be the definitive 21st-century innovation. We discussed previously on CupertinoTimes how blockchain technology can be used to create cryptocurrencies, improve voting systems, and streamline taxes.
Blockchain Technology and FOREX Markets
The next industry blockchain technology can help disrupt is the foreign exchange (FOREX). With the immense growth in Forex markets over the past few years, blockchain implementation could help save billions for traders by eliminating fees for ticketing, licensing, and record handling.
In its present form, the foreign exchange is slow and costly with extraneous involvement by middlemen. By using a decentralized and transparent digital ledger, middlemen can be eliminated from transactions, thereby increasing efficiency and lowering costs. News BTC describes how entry-level Forex trading platform Lykke are aiming to do just that; provide a single, global marketplace where traders can invest transparently. It also aspires to reduce the costs of trading and optimize market access by storing all relevant data within a single, decentralized and distributed ledger. The end result is a system that provides real-time settlement for trades while driving greater accountability and transparency.
An Over The Counter Market
In stark contrast, the opacity and fragmented nature of currency trading means that there is no single decentralized option for currency prices on the market. The Banking Exchange state that the key aspect to note is that FOREX is an “over the counter” (OTC) market where every bank and financial institution offers different market prices. While the differences are indeed small, they nevertheless have an impact when very large sums are involved. By moving Forex pricing from a central bank to a decentralized ledger, this would allow all Forex traders and market participants, from the largest global corporations to a single individual, to receive the same price quotes instantly.
Liquidity is key in the FOREX market and that liquidity is currently maintained by central banks, be they the Federal Reserve or the European Central Bank. As such, information has to flow through a single source where tangible and intangible external variables like human error and direct manipulation are not easily mitigated. Due to the OTC nature and vast depth of the Forex market, corruption and error at any level of a centralized, linear organization can cause massive disruption across all points.
The logical solution, therefore, is a decentralized system of record keeping and transparency of information. FXCM detail how Forex’s trading volume exceeds $5 trillion daily, more than all the combined global markets. A staggering sum, especially when considering the seemingly endless fee series which make up the independent trade mechanism of the Forex systems; auditors, accountants, repositories, clearing houses, and insurance are all part of that series. Because all these sections are independent, it makes the FOREX market seem erroneously decentralized, which it is not. However, imagine how the FOREX market could be simplified into one block of information, that is, immutable, transparent and always available, through blockchain technology.
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