Cryptocurrency may have once been a concept out of reach for most people. Still, it has demonstrated its value in recent years, with investors speculating that this new technology can be used for more than just buying and trading. Those invested in crypto rely on the perceived value of these assets, including the technology network, blockchain, and the idea of the decentralized network. It’s no secret that crypto is changing the way people invest and the investment world, and here’s how.
More and more investors, both novice and experienced, have begun investing in cryptocurrency and using their tax software to see how much they’ve earned over time. Still, the coins themselves are not the most interesting thing about cryptocurrency– it’s the blockchain technology that can revolutionize investing and even banking. Cryptocurrency is one just used for blockchain. Blockchain technology is a digital ledger that keeps track of transactions and can be configured in several ways. Blockchain can be used in all industries, including supply chain management for tracking products, and in just a few decades, investors can expect to see blockchain used in financial markets.
Post-trade settlements currently take around three days because of the number of different intermediaries involved in them. If these settlements were on a ledger instead, trades and settlements would be instantaneous because they’ll be automated. In decentralized exchanges like cryptocurrency trading, settlements happen immediately.
Lower Trading Costs
Because settlements and trading won’t require as many intermediaries, fewer people and parties will need to be compensated for trading. When fewer parties are involved, the cost of trading will be drastically reduced. With blockchain technology, trading can happen faster and be a lower-cost banking system with lower total costs.
Blockchain is open 24/7, which means you can trade any time of day or night. Being open at all times might be the future of stock exchanges as well. Blockchain technology enables trading and investing to happen no matter what time of day it is or where you live. There’s no need to worry about trading after hours or geographic boundaries. Major stock exchanges are already starting to take advantage of this idea to make after-hours calls easier.
Distributed ledgers like blockchain allow users to see the records of all transactions, operating with greater transparency than other types of investing. Tracking trades makes everything easier for buyers and sellers. Essentially, every new transaction adds a new block to the chain. Outside of crypto, blockchain can be designed to use rules and regulations with built-in smart contracts to regulate transactions and stop fraud in its tracks.
With better transparency comes better communications between investments and portfolio managers. Blockchain allows account transactions to be shared easily, helping managers monitor portfolios in real-time and weigh risks. This technology can also be used to streamline the entire process by allowing parties to access information through their crypto keys.
Cryptocurrency is making it easier to raise capital. With initial coin offerings (ICOs), businesses can give investors coins instead of capital. Currently, there are only two types of ICOS. One type consists of tokens that allow holders to obtain a future service from the company, while the other type of ICO consists of tokens that provide equity shares similar to what’s given to stockholders.
Of course, there are risks to ICOs. Some might not be honest opportunities and can present risks for investment losses. ICOs also have much less protection and regulation than other types of investments, so they’re not for everyone.
Other Investments Can Be Tokenized
With blockchain, all types of investments can be tokenized, including real estate. Trading with tokens can impact real estate investment, allowing investors to allocate their assets across multiple investments. Additionally, receiving distributions may become easier. Managers currently have a legal requirement to distribute funds as quickly as possible, but blockchain technology can make this process instantaneous.
Faster Private Equity Trading
Trading shares is a complex process, but blockchain can make it easier. Instead of matching buyers and sellers, private equity tokens could exchange hands as easily as cryptocurrencies do right now. Anyone who is willing to accept coins can trade them quickly without needing an exchange or intermediary.
More Tradable Assets
As we’ve mentioned, anything can be tokenized, including shares of anything you currently own that might be worth value; any real asset, including records, music, and even art, can be tokenized. In this process, the value of the object is converted into a token and moved across the blockchain, making just about anything tradable, including copyrights or patents. Investors can then turn the value of their assets into coins for other investors to purchase, just like you do with stocks.
Blockchain eliminates many administrative hassles involved in transferring share ownership, which makes liquidity less of a problem than in recent years. With blockchain, your shares are registered on the blockchain, making entry and exit to investments simple and without any administrative tasks. Ultimately, this will enable investors in all markets to control how long they participate in a portfolio.
Shareholder Voting Process
Blockchain can also help improve investor voting processes by implementing an e-voting system. This system will manage voting at annual meetings more efficiently. The e-voting software uses blockchain to consider voters’ ideas, including transparency and real-time voting results that will be saved in the ledger.
Blockchain ledger technology is a part of cryptocurrency, but it can extend beyond the world of crypto to alter the world of investing in many of these ways. As crypto becomes more mainstream and more people learn about blockchain, more financial institutions will begin experimenting with how they can use it to improve the investment industry.
Crypto is already becoming more popular, with many consumers using it for peer-to-peer payments or for buying goods and services. Since more consumers are enthusiastic about the implications of blockchain and crypto, governments and businesses will have to find ways to implement it to make investing easier for everyone.
Ashley Nielsen earned a B.S. degree in Business Administration Marketing at Point Loma Nazarene University. She is a freelance writer where she shares knowledge about general business, marketing, lifestyle, wellness or financial tips. During her free time she enjoys being outside, staying active, reading a book, or diving deep into her favorite music.