Can Blockchain Technology Change the Face of Online Trading?
Technology can often produce massive levels of change in a short time. Consider the internet. Within a few short years, it went from a neat toy in a college lab to a global phenomenon that changed the way information is transferred.
With this technology in hand, other industries like stock trading changed as well. Online trading sites have now been around for years. As early as 1985, companies like Trade Plus and others were offering forms of online stock trading over dial-up networks. But as the industry became more complex, the sites required increasing improvement.
New Tech, New Changes?
The most recent technological marvel is blockchain technology. The system underlying cryptocurrencies like Bitcoin, blockchain technology is fast being hailed as the next internet. While an interesting suggestion, this is something of a tall order, given the internet’s ubiquitous power for change.
Nevertheless, while it may not change life the way the internet has, blockchain technology may just change the way online trading functions. In fact, companies are already using blockchain technology to trade cryptocurrency assets now, and changes appear to be coming that will increasingly help the way trading works.
Improving the Model
For starters, trading cryptocurrencies can be somewhat dangerous. A host of hacks and fraudulent exchange business practices have left online traders with a bitter taste in their mouths.
Take, for example, the now-bankrupt QuadrigaCX. The Canadian cryptocurrency exchange shuttered this year after revealing that founder Gerald Cotten died, taking the location of the company’s reserves with him to the grave. And the most recent news of Bitfinex’s indictment by the New York Attorney General’s office for undisclosed losses and commingling of funds hasn’t helped the matter.
But some exciting exchanges have come online to take the place of these problematic ones. For example, FT Exchange (FTX) has created a model where these types of events cannot occur. What’s more, the company is backed by Alameda Research, a company trading more than $1 billion per day. With strong backing and better models in place, exchanges like FTX offer hope for traders.
Decentralize the Demons?
What’s more, other exchanges are taking the decentralized model to a whole new level. Bitcoin, billed by its creator Satoshi Nakamoto, as a peer-to-peer payment system, provides direct payments without trusted third parties.
The removal of these middlemen promised to allow transactions to take place a smooth and streamlined way without centralized control. Hence the term decentralized.
But some exchanges have taken the blockchain technology benefit of decentralization and applied it to the way all trades occur. For example, Binance has recently released its Decentralized Exchange (DEX for short), and is allowing trading to begin.
If traders are willing, they are able to interact directly with other traders in a ‘trustless’ environment. The technology provides trust, since all trades take place on the decentralized database that the technology creates. Trades must be validated by the entire platform. This means that the exchange is no longer the trusted third party – the technology is.
This sort of system provides solutions to other problems facing online traders and creates a system where trade fees, corporate profits, and centralized manipulation are impossible. Traders effectively take control back into their hands, and with that control come vastly reduced costs.
Whether these new models will change the way that trading occurs forever is not certain. What is clear, however, is that blockchain technology and cryptocurrencies are beginning to offer more robust and helpful systems which may someday change the way online trading happens.
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