What is Blockchain Technology
By now, we are sure that everyone has heard of cryptocurrencies and Bitcoin, but not everyone
knows about blockchain or understands what exactly it is.
A basic way to think about it is as a public ledger of all the transactions that took place in the
For the uninitiated, a ledger is simply a record of something — whether it be trades executed
by traders, or financial transactions to buy goods and services – and as the amount of ‘data’ the
world now produces continues to grow at parabolic rates, people’s ability to use and
understand that data is lagging behind.
Essentially, blockchain is a decentralized and publicly available register of all data in the
network that is open for viewing to all users at all times, but no one can edit or alter any of the
information that has already been recorded in the database. This is achieved by
cryptographically securing the network which makes it practically unbreachable and is exactly
what makes the blockchain technology so powerful.
It’s a fully transparent database of all the transactions and there is literally no space for any sort
of falsification to take place. The blockchain ledger is constantly updated as new transactions
are recorded and is automatically distributed to all of its users.
Forex Complex Problems
Forex currency trading involves the trading of one currency for another. The trading takes place
on a global decentralized network. Important in the trading is the use of middlemen and the
settlement of transactions post the closing of transactions.
Foreign currency exchange is a nightmare because it has multiple co-dependencies and parties
with separated ledgers to keep all the transactions in place. The system relies on regulatory
agencies, monopolies such as SEPA and SWIFT, brokers, traders and banks all over the world to
perform a simple transaction.
Corruption at any level of a centralized organization can cause distortion across the business
and consequentially, can cause distortion for all its connected nodes (clients, employees,
vendors etc.). In the world of FX trading, manipulated transactions are difficult to detect due to
the industry’s Over the Counter (OTC) nature and vast depth.
The system is clunky and relatively expensive, operating on dispersed, decentralized exchanges
with duplicate processes, a lack of standardization, an emphasis on direct relationships and
increasing capital requirements. Although the infrastructure has radically improved over the
past few years with the introduction of new trading venues, greater liquidity, algorithmic execution and improved data aggregation, the industry still regards settlement risk as one of its
Solutions for the Problem
If we look at the forex market, there’s no doubt that the emergence of online and
mobile trading platforms such as MT4 has made the foreign exchange more accessible to
investors. The same cannot be said for major institutions, however, who still need to push
transactions through a number of middlemen while paying a slight fee for the privilege.
It was with this in mind that Goldman Sachs applied for a patent on a blockchain-inspired
ledger, which could quickly process forex trading transactions without charge.
The application, which was published in the autumn of 2016, outlined a distributed ledger that
would ultimately revolutionize this marketplace, while also potentially introducing a new,
Bitcoin-sequel digital currency for traders.
Goldman Sachs is not the only bank experimenting with Blockchain, but they’re among the
first to apply this technology to forex market trading. Once the patent is applied and rolled
out, it would create a new model for trading currencies in the digital age, and one which
eschewed the need to send funds to an intermediary foreign exchange settlement service
while the transaction is being completed.
With blockchain technology, it is possible to eliminate all the bad – complexity, security and high
cost, and emulate and exponentiate all the good: instant international currency conversion that
is secure and affordable.
This is possible because by being open, records are held in public: the KYC, transaction and
contracts are publicly available data. It means that regardless of the currency type, money is
ultimately being held in all currencies and in multiple accounts by default. With nothing to
convert, there is no money being lost.
Investors could still use the MT4 app to execute orders, they would complete transactions
by connecting to a decentralized and distributed ledger that optimized market access. This
would also allow for direct, real-time settlement for all traders while creating greater
accountability and transparency in relation to individual orders.
Blockchain can be applied to any number of products and markets, and the forex market is
no exception. Given this and the imperfections of the current model, which is
relatively complicated and opaque, it’s only a matter of time before this technology will
revolutionize FX trading and the way in which investors access the market.