Articles, Blockchain, Finance

How Blockchain is Disrupting Financial Markets

Written By: Eric Williams
Reviewed by: Mike Reyes
Last Updated May 23, 2023
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In the realm of financial markets, a disruptive force is making its presence known: blockchain technology. This revolutionary innovation is poised to transform the way we engage with and perceive the world of finance. In this article, we will explore a multitude of compelling reasons why blockchain is a necessary catalyst for change in the financial landscape. 

  • Eliminating Middlemen
  • Triple Book Accounting
  • Inclusion in Financial Markets
  • Remittance Payments 
  • Blockchain vs. Traditional Trading Platforms
  • Future Outlook

Eliminating Middlemen 

First and foremost, blockchain has the remarkable ability to eliminate unnecessary middlemen that plague traditional financial systems. To begin, investors are required to navigate through a series of steps, from opening new bank accounts to seeking out investment advisors, brokers, and exchanges. These intermediaries serve as middlemen between investors and the desired financial products, often burdening individuals with exorbitant fees and delivering subpar services.

Moreover, the situation worsens for regular investors who not only face high costs but also encounter limited access compared to institutional players. Imagine attempting to gain exposure to diverse markets such as wheat, attempting to short Facebook, purchasing Tesla stocks on weekends, or even exploring real estate prices in your neighborhood. These endeavors are far from easy for regular individuals and can even prove impossible depending on the country of residence.

“All these actors are middlemen between the investor and their product. They all charge obscene fees while providing a bad service.” – Martin Froehler, CEO Morpher

In contrast, blockchain technology simplifies investing with a single click. By eliminating intermediaries and leveraging smart contracts, blockchain enables direct interaction with assets. Fractional ownership of real estate or participation in tokenized markets like agricultural commodities becomes easily accessible. Blockchain’s streamlined approach democratizes investment opportunities, revolutionizing the financial landscape.

Triple Book Accounting

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Even though hard to believe, almost one third of all bankruptcies are caused by employee fraud. Also, even though we trust the big names of the established Audit and Accounting firms, we should not. History shows that double book accounting is flawed, and there are long lists of companies that were getting away with accounting fraud, even though they were audited at that time. 

However, blockchain introduces the concept of triple book accounting, a paradigm-shifting advancement that ensures unparalleled transparency and accuracy in record-keeping. Traditional double-entry accounting, while robust, is susceptible to human error and manipulation. However, with blockchain’s triple book accounting, each transaction is independently verified by a network of participants, rendering fraud and tampering virtually impossible. This level of trust and reliability brings about a newfound sense of integrity to financial markets. 

Inclusion in financial markets

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Another transformative aspect of blockchain is its potential to foster fairer and more inclusive markets. In traditional systems, access to certain investment opportunities or financial instruments is often restricted to privileged individuals or institutions. However, blockchain democratizes access by enabling fractional ownership, facilitating micro-investments, and opening doors to previously untapped markets. This newfound inclusivity empowers individuals from all walks of life to participate in wealth creation and asset ownership.

Remittance payments 

Remittance payments, vital for economies heavily reliant on funds sent by foreign workers, are often hindered by high costs within the existing financial system. However, blockchain technology has begun to address this issue by revolutionizing the way remittances are conducted.

Crypto remittances have gained traction, providing an alternative to traditional channels. In Africa, millions of dollars’ worth of cryptocurrency was directly transferred to the continent in 2020, offering lower-cost remittance options. Latin American foreign workers in the United States have turned to crypto exchanges, bypassing expensive international transfer companies. The region saw a significant increase in Bitcoin payments from under $1.5 billion in 2019 to over $3 billion in 2020. Similarly, workers in smaller Asian economies like Indonesia and the Philippines have embraced blockchain for cross-border payments, resulting in a tenfold increase in transaction volume for a popular blockchain platform in 2020.

By leveraging blockchain technology, remittance payments become more efficient and cost-effective. Financial middlemen, notorious for exploiting foreign workers through exorbitant fees, are bypassed. The global average fee for remittance payments is around 6.38 percent, with banks charging an average of 10.66 percent for small remittances. Blockchain-based solutions offer the potential to significantly reduce these fees, unlocking savings of billions of dollars for individuals and their families. This transformative technology empowers migrant workers, safeguarding their hard-earned salaries while mitigating foreign exchange risks.

Blockchain Trading vs. Traditional Platforms

As we delve deeper into the realm of blockchain’s disruptive influence, we will uncover a plethora of other improvements that this technology brings to financial markets. From enhanced security and immutability to smart contracts automating complex transactions, the possibilities are seemingly limitless. For example when comparing traditional trading platforms with those on the blockchain, the latter has several significant advantages. 

Traditional Trading Platforms:

  • Have limited trading hours. 
  • High transaction fees and hidden costs. 
  • Trading restrictions and limitations such as minimum investment amounts and geographic restrictions. 
  • Intermediaries such as brokers and clearing houses increase costs and introduce counterparty risks. 

Blockchain trading platforms: 

  • 24/7 trading availability 
  • Minimal transaction fees
  • The ability to trade any asset regardless of its geographic location or market availability, and no need for intermediaries. 
  • The transparency of the blockchain allows for the recording of all transactions and provides cryptographic proof.
  • No need for intermediaries, as the smart contract replaces the counter-party, reducing costs and counter-party risks.

Another interesting feature is that with blockchain trading platforms you are able to trade completely new “synthetic” assets. Theoretically, everything with a reliable data feed can be turned into a tradable market. Hence, you are able to apply your technical analysis on previously illiquid markets, which might give you an edge over traditional traders. Moreover, in some cases it is also possible to circumvent old and useless regulations and make banned markets tradable again, like the onion market. Additionally, you could recreate a fully liquid rice market and actually apply quantitative trading or candlestick trading techniques to the original market they were actually created for.

Outlook of Blockchain Disrupting Financial Markets

As you can see blockchain technology is causing a seismic shift in financial markets, disrupting traditional systems and paving the way for a new era of innovation and empowerment. By eliminating unnecessary intermediaries, reducing fees, and enhancing transparency and security, blockchain is revolutionizing how we conduct financial transactions.

Blockchain is democratizing access to financial markets, leveling the playing field for individuals and institutions alike. It opens doors to previously inaccessible markets, allows for investment in diverse assets, and enables participation in global economic opportunities. This newfound inclusivity empowers individuals to take control of their financial futures, fostering a more equitable and inclusive financial ecosystem.

As blockchain disrupts financial markets, it challenges the established norms and compels traditional institutions to adapt or risk becoming obsolete. It ushers in a future where financial systems are more efficient, transparent, and beneficial for all participants. Embracing blockchain technology unlocks a world of economic opportunities, transforming the way we interact, transact, and build wealth. The time has come for financial markets to embrace the power of blockchain and embark on a journey of unprecedented transformation and progress.

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