Will The Forex Markets Embrace Blockchain Technology?
Blockchain is typically thought of as a sort of foundation for the transfer of cryptocurrencies, and because that’s how it started, the description makes perfect sense. As the technology has proven to have more uses beyond the cryptocurrencies that helped to establish it though, it’s become interesting to imagine the effect it might have on more traditional financial markets. And as it so happens, one such market – the vast and enormous global currency trade – may be inching toward adopting blockchain technology.
Why is this a good fit?
Again, blockchain and cryptocurrency are linked in most people’s minds, and that can make it difficult to think of one without the other. Some, in fact, may have particular difficulty imagining blockchain technology being put to use in handling an older form of wealth or investment. It seems almost backwards, or counterintuitive.
When you stop thinking of associations though, and start to think about what blockchain technology is valued for, the idea of its use in something like forex trading starts to make more sense. Specifically, the decentralized nature of blockchain technology may actually stand to add an air of increased legitimacy to forex trades. We have discussed decentralization as a solution to certain problems that can arise in digital transactions, and there’s no reason those same solutions can’t apply to forex trades also. Currency itself doesn’t have to be digital to be handled by a blockchain-like network, and such a network applied to fiat currency trades could establish full decentralization – and likely make transactions more efficient as well.
A brief explainer of forex trading
Forex trading, for anyone unfamiliar with the basics, involves the buying and selling of world currencies against each other’s values. Because of its global nature, it’s both one of the biggest and most active trading markets in the world – open for 24 hours on weekdays and handling trillions of dollars in transactions per day. People can trade through a number of different online platforms, with the aim being to buy a currency that then sees its value increase, such that it can be sold for a net profit in wealth. It can seem like a somewhat random and risky process at first, though there are now online tools for calculating each trade’s potential profits and losses, which FXCM describes as useful for responsible risk management. This sort of approach has helped forex trading to maintain a reputation as an ordinary, popular, and safe method of investment.
As for how trades are actually made, right now it happens in a fairly traditional way: Accounts are made on reputable platforms, money in a starting currency is deposited, and trades can be conducted fairly efficiently, though sometimes with associated fees.
Hints of blockchain adoption
So, does all of this add up? Is this long-popular method of currency investment actually poised to adopt blockchain technology? It’s a difficult question to answer in any sort of definitive terms, but what we can say is that there are some early hints of interest from institutions connected to the forex market.
Specifically, the bank HSBC has been experimenting with blockchain-based forex transactions for over a year now, and it sounds as if the early returns are quite promising. Coindesk covered comments from an HSBC executive indicating that the experiment had been a resounding success, in fact. The initiative, called HSBC FX Everywhere, used blockchain technology to handle some three million foreign exchange transactions, and saved 25% on costs compared to traditional methods. This is just one example, but it’s a very high profile one, and one that could certainly impact the forex world more broadly.
To suggest that this will all lead to full adoption of blockchain technology in forex markets may still be somewhat outlandish, at least in the short term. However, the appeal is clear, and does seem that gradual integration is now inevitable.
Piece specially contributed to pirl.io
Contributed by: JBeland