It can be said without much hesitation that the current exchange system needs a change, a boost that satisfies new trade necessities. There is a technology supporting a new model that just needs a little push to start working. We are talking about Blockchain technology and how it can begin a revolution in the old exchange schemes.
Until now and since the mid 1500s where exchange markets started to happen, all the exchanges and trades must be made ‘locally’. This means in a physical place, under the watch of lawyers, bankers, brokers, clearinghouses, and governments. All of these players are part of the trading equation and, of course, the local jurisdiction. Even international transactions have to be done at the physical emplacement where the buy-sell assets action is set to take place.
So, in this Digital World, that means barriers, putting up walls that voids the natural evolution of current thinking possibilities. Nowadays, everything happens in real-time, with no borders between peers, instant communications are the common law among the citizens in the world, yet it is not taken to the exchange market, at least, for now.
Removing the middlemen: The Blockchain System
But the question is, if we can communicate peer-to-peer, why do we need all those middlemen to being able to trade in a exchange market? One of the answer must be found in the Blockchain System. Here can be seen how Blockchain works.
In a blockchain, transactions are verified by distributed nodes, and anyone can join or leave the network as they please without disrupting the network’s ability to form consensus on transactions. Instead of using a single computer to manage transactions, like we do now, we could leverage a global computer.
Bitcoin was the first example of a blockchain being used to communicate value globally, with trust and without middlemen, and Ethereum extends the power of the blockchain.
More importantly, exchanges done through a Blockchain do not need to be logically centralized since the code is open-source and free for anyone to audit. Decentralized exchanges can communicate across borders. They’re not located in one specific location like Hong Kong or New York because they live on the global network, the blockchain. For example, users in Kuala Lumpur can trade directly with users in Berlin or Chicago, while their assets remain local and free of unnecessary intermediaries.
The Smart Contract
One of the main codes that the Ethereum platform set out is the called smart contracts. These works as applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference. It allows for decentralization to take hold in a much more meaningful way, as Ethereum users can exchange anything atomically and, most importantly, with trust.
This model allows the peers to contact directly between them,without middlemen, and thus set the conditions to trade or exchange. Both parts of the trading can even fund each other, so a smart contract could remove the Venture Capital/Angel Investor figure. Possibilities are open widely as users can take the wheel, including investing in ideas or software development instead of business plans.
So far, a smart contract is run by tokens given to the peers. So a part, when starts a new smart contract can give crypto tokens to whomever it wants, no intermediaries of course, for a price they have set before. With a simple text string and the click of two buttons, users can participate in these new business models from anywhere in the world. People have the opportunity to invest in the protocol and not the company directly, and this new way to create and finance business models has been a runaway success.
The Future of trading schemes
According to Co-Founder of Airswap, Michael Oved, a globally accessible exchange, without intermediaries, provides new access and liquidity to assets. The global, frictionless nature of these new blockchain-based exchange models will propel them to succeed at the same scale that tokens have succeeded.
Therefore, “the current exchange system is antiquated and burdened by unnecessary costs. Decentralized exchanges are a foundational piece required to break apart the current system, and once we do, we’ll be able to communicate value without borders. Far more assets will be digitized and traded on decentralized exchanges than could have ever been traded on centralized exchanges. Middlemen will be removed, trust will be maintained, and value will be transacted globally.” he added.
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Hernaldo Turrillo is a writer and author specialised in innovation, AI, DLT, SMEs, trading, investing and new trends in technology and business. He has been working for ztudium group since 2017. He is the editor of openbusinesscouncil.org, tradersdna.com, hedgethink.com, and writes regularly for intelligenthq.com, socialmediacouncil.eu. Hernaldo was born in Spain and finally settled in London, United Kingdom, after a few years of personal growth. Hernaldo finished his Journalism bachelor degree in the University of Seville, Spain, and began working as reporter in the newspaper, Europa Sur, writing about Politics and Society. He also worked as community manager and marketing advisor in Los Barrios, Spain. Innovation, technology, politics and economy are his main interests, with special focus on new trends and ethical projects. He enjoys finding himself getting lost in words, explaining what he understands from the world and helping others. Besides a journalist, he is also a thinker and proactive in digital transformation strategies. Knowledge and ideas have no limits.