The crux of this article is to discuss about how blockchain and share distribution could revolutionize the domain of finance.
Source: https://cointelegraph.com/news/why-stock-markets-love-blockchain
Blockchain has been the hottest buzz word which has been around quite some time now, and I bet my life on the fact that it’s going to stay around for a very, very long time. So sooner you brace yourself, the merrier life will be.
Time for some basics
In very abstract terms, blockchain will have a fundamental impact on how we all would trade/exchange/barter our assets/value. In present world, majority of us rely on third party institutions to carry out day-to-day work, like; banks for money, lawyers for execution of contracts, government for identity, and so many more.
Now, can you imagine a world where neither of them is present? Life would be pretty comfortable without them. And the idea of blockchain is exactly THAT. It’s completely going to change the administration of human civilization.
Blockchain is basically a decentralized database which stores registry of assets and transaction across peer-to-peer network. Each block contains a couple of transactions/registries and a new block is created roughly every 10 minutes. Number of transactions per second is quite low; 3.37 transactions per second. This is partially why blockchain is said to be non-scalable.
The data within a block is secured via cryptography. The AHA! part is that each block is connected to each other and any hacker can’t get into the middle of the chain to modify the data. Once anything is written onto the chain, it can’t be changed. It’s similar to engraving on a stone. This guarantees immutability of data, and protection against forgery.
Each block holds multiple custodianships, ownerships, meta data about assets like digital currency, contracts, IDs, certificates, bonds etc.
Nobody can govern blockchain, it is autonomous. Nobody can limit blockchain, it is decentralized.
Use Case
Now what if I say blockchain could be used for private equity issuance? This would certainly transform private corporations. Blockchain would behave as a medium to store and transfer security records. The distributed ledger of blockchain technology can be used to:
1. Issue and register shares of stock
2. Allow shareholders to proxy vote on corporate decisions
3. Enable shareholders to view transactions and share issuances through capital table
The decentralized nature means that no single body has control over how the votes are evaluated and ensures that all stakeholders (investors, administrators, or regulators) have real time access to current capital table along with previous share issuance transactions. This gives way for improved corporate governance by giving shareholders more say and injecting greater level of transparency.
The share issuance process (which is currently highly manual, and a very time consuming process) could get automated by the means of smart contracts.
Smart contracts are self executing code (if-else statements) which are triggered to initiate when a particular event takes place. Ethereum is one platform to code out smart contracts. The idea of smart contract was first conceived by Nick Szabo in 1993 by giving vending machine as an example. Smart contract code to get Coke from a vending machine is,
If (money_receieved == $2.50 && button_pressed_coke = true) {
Release Coke;
}
The good part about a smart contract is that it is tamper proof, transparent, neutral. The results are final and permanent.
Blockchain is perfectly capable of record-keeping and managing value of exchange under contract. The whole process of issuing shares can be automated using smart contracts. This will save a lot of manual work, time, and cost. Things which usually would take days would now happen in real time. Along with this, blockchain also allows regulators to access the information on it.
News! Delaware Authorizes Stocks on Blockchain
Fin.