How Blockchain Technology Can Improve Capital Market Inefficiencies
Adoption and implementation of the blockchain technology in capital markets are expected to grow in the next few years but it would be slow owing to the fact most use-cases differ with industry complexity. Other than that, most institutions will adopt blockchain-based capital markets technology only after clearly defining its practical application and assessing its adoption feasibility and cost-benefit analysis.
The biggest drawback of blockchain technology in capital markets is the difficulty to integrate it into existing systems and scale across other systems. But still, blockchain-based Capital markets technology is at a very early stage, enormous developments are yet to happen which will ease the issue with integration and scaling.
The three major ways blockchain technology can improve the Capital market inefficiencies:
Blockchain technology in capital markets solves the issue of trust and reliability. Investors, asset holders, and services providers are major participants in the blockchain network. Each participant possesses the competing interests and is required to transact with each other throughout the lifecycle of the digital asset.
With blockchain-based capital markets technology, each participant can hold and maintain a node of the network, this will enable equal access to real-time asset-related data. The immutable nature of the blockchain will ensure that no party can tamper with the data which will lead to the highest degree of trust.
The problem of unsecured and unequal access to asset-related data across parties can be easily solved with the help of blockchain technology in capital markets. Blockchain-based capital markets technology helps make the entire ecosystem more secure with the help of encryption technology.
With blockchain technology in capital markets, investors and asset owners can get access to the “golden source” of the actual asset-related data, thanks to the combined data pool, in a secure way.
Employing blockchain technology in capital markets eliminates the inefficiencies. With the implementation of blockchain technology in capital markets, the requirement for manual processes and physical paperwork could be completely eliminated enabling faster processes and prompt transaction settlements.
Moreover, smart contract technology can automate numerous processes on the blockchain leading to enhanced operational efficiency. Still, most complications would require human judgment including in the event of default.
With the rise of blockchain technology in capital markets, investors will get the chance to further diversify their portfolios and have exposure to smaller investment opportunities.
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