Blockchain technology is causing a wave of unprecedented disruption to sweep across the global socio-economical, financial, and political landscapes. Blockchain technology, a distributed system of networked computers that manage a public tamperproof ledger of transactions is changing the fundamental idea of money. You may not be very familiar with the idea of Blockchain technology, but I can bet that the chances are high that you’ve heard about Bitcoin.
Bitcoin is one of the applications of Blockchain technology in which we seek to take the supply and value of money away from the control of governments. Bitcoin is a decentralized peer-to-peer form of money whose value is determined by the dynamics of demand and supply rather than being governed the whims and caprices of a government and its agents.
More interesting is the fact that Bitcoin has delivered impressive outperformance to beat even the best of assets on Wall Street as seen in the chart below.
In the year-to-date period, Bitcoin has rewarded investors with 918.4% gains; in contrast, the NASDAQ, Dow Jones, and S&P 500 were struggling to deliver 27.78%, 19.32%, and 16.20% gains respectively. In this article, I will examine how blockchain technology is set to change investment status quo on Wall Street.
Change is coming to Wall Street
Wall Street is on the eve of a huge change as blockchain technology prepares to upend the financial services industry. To begin with, IBM is working on a blockchain solution called IBM Blockchain to facilitate cross-border payments without necessarily needing the intermediary of banks. IBM says it wants to develop a decentralized financial system that pushes for financial inclusion. Arvind Krishna, senior vice president of IBM Research notes that “I want to extend banking to the 3.2 billion people who are going to come into the middle class over the next 15 years… So, I need a much lower cost of keeping a ledger. Blockchain offers some intriguing possibilities there.”
Secondly, Blockchain provides a greater measure of security, transparency, and accountability than the traditional financial institutions currently offer to investors. A 2014 PwC financial services sector of the global economic crime survey shows that about 45% of financial services firms in payments, money transfers, and stock exchanges are victim of economic crime every year. In contrast, only 20% of firms in professional services are victims of economic crime.
Blockchain technology makes it easier to protect funds in the financial services sector with a decentralized ledger that is practically “unhackable”. In addition, Blockchain facilitates a tamper-proof record of identities and transactions, and you can always trust computer code to perform better than humans in keeping funds secure. David Grace, head of global finance at PwC, said “if you have a secure distributed ledger, it could be used to store validated ‘know your customer’ data on individuals or companies. … It’s a potentially global application that could provide more security over identity data and where that data are stored.”
A blockchain synergy between Wall Street and Cryptocurrencies
NAGA Group, a German fintech company in collaboration with China’s largest private equity firm, FOSUN Group is working on a blockchain-based solution that provides access to the financial markets. NAGA believes that there’s huge economic value to be unleashed from a synergy of the financial, cryptocurrency, and gaming markets.
For one, the centralized nature of the global financial markets puts the control of investments and trading under the direct influence and control of banks and traditional financial institutions. The traditional financial institutions in turn have been accused of unethical and borderline illegal practices in controlling access, taking commissions, and moving the markets. In addition, the complex design of current financial system keeps a large number of unbanked people out of the financial markets.
NAGA’s solution is NAGACoin (NGC), a decentralized cryptocurrency that give access to the traditional financial, gaming, and cryptocurrency markets. Through the instrumentality of three platforms, NAGA Coin provides access to the traditional financial markets through the SWIPESTOX platform. NAGA Coin helps gamers trade in virtual goods using the SWITEX platform.