Gu Yanxi: The impact of blockchain on the securities industry is beginning outside the industry (www.blockcast.cc)

Will the way the blockchain changes the securities industry reproduce the changes the Internet has brought to the publishing industry? The two are both similar and different.

Original title: “Will the change of blockchain to the securities industry reproduce the change of the Internet to the publishing industry?” 》
Written by: Gu Yanxi, founder of the American Liyan Consulting Company, a researcher and practitioner in the blockchain and encrypted digital asset industry

Changes in the Internet era started entirely outside the publishing industry

The situation in the early days of the Internet is very similar to the current blockchain situation. In the early days of the Internet, this new technology was used by people to send emails and build personal websites. Later, portal sites like Yahoo began to appear. Initially, the information distributed on the Internet was directly produced by individuals and companies, and there was no professional content produced by professional publishing organizations such as news media and publishing houses. The publishing industry has not paid enough attention to the development of the Internet. From the perspective of the publishing industry, the Internet is just a tool for everyone to express their views and communicate with each other in a low-cost way. Really professional and valuable opinions and content still need to be provided by professional institutions such as newspapers, magazines and publishing houses. This state has continued for a long time.

The influence of the Internet on the news and book publishing industry is a process of gradual erosion. In such a long-term slow development process, the market share of newspapers, magazines and books has become smaller and smaller, and people have gradually developed the habit of obtaining various information through the Internet. When mainstream organizations in the publishing industry truly recognize the threat of Internet technology to their business, they are no longer able to make corresponding countermeasures. Today, text-based and video-based self-media and more focused organizations in the subdivision field have become the main channels for people to obtain information. The influence of traditional mainstream publishing organizations in this industry is far less than before. In general, the Internet’s changes to the press, publishing and media industries started from outside the industry.

Blockchain’s change to the securities industry begins in the securities industry

Unlike the early days of the Internet, the securities market has experienced changes in business models brought about by technological developments, and in particular has directly witnessed the changes that Internet technology has brought to many industries, including the press and publishing industry. In the early stage of blockchain development, the securities industry has already begun to actively explore how to use blockchain technology to change existing businesses, avoid becoming the target of technological development, and even be eliminated by the development of technological trends. Now, some institutions in the securities industry are already in the process of advancing this aspect, such as the Swiss Digital Asset Exchange and Nasdaq (see my related articles and video directions). These institutions are also currently leading companies in the securities industry. In this respect, this is completely different from the original publishing industry’s response to Internet technology. Nasdaq itself relied on the application of new technologies and adopted an electronic trading model that was completely different from traditional trading methods, and thus defeated the traditional mainstream stock exchanges. Now the emergence of blockchain technology also makes Nasdaq very sensitive. It has now begun to establish the underlying technical foundation of a new type of digital asset exchange on the basis of blockchain technology. In the process of changes brought by blockchain technology to the securities industry, Nasdaq will continue to occupy a very competitive market position in the new digital financial ecosystem.

In the same securities industry, other exchanges, especially those exchanges that currently dominate the exchange business, because the application of blockchain technology will directly affect their existing interests, they do not Very strong motivation to change the status quo, and adopted a wait-and-see attitude. However, since the change of blockchain technology to the industry is a continuous and slow process, these exchanges will not obviously feel the impact of this change on their business. However, when more and more digital product trading businesses begin to develop on the new financial market infrastructure, it will be difficult for such exchanges to seize such opportunities. The development of the American options exchange market is the most obvious case in this regard. When the U.S. options trading market just started in the 1970s, there were four options exchanges. They are the Chicago Board Options Exchange (CBOE), the American Stock Exchange (AMEX), the Philadelphia Stock Exchange (PHLX) and the Pacific Stock Exchange (PSE). These four options exchanges have been providing all options trading services in the United States. But in 2000, the International Securities Exchange (ISE) began to provide fully electronic matching trading services. Because this method is superior to the face-to-face yelling trading method in the traditional trading pool, ISE has been consistently gaining market share in options trading. The first four options exchanges were not able to complete this transition. To this day, only CBOE remains independent of the first four.

In the process of such a change, brand-new companies have a better chance to seize the opportunities brought about by this change. For example, ISE is a brand new exchange. Because they don’t have any historical baggage. The existing dominant financial institutions, the advantages they have established within the existing market system, have instead become a burden for them to migrate to the new market structure. For example, those traditional face-to-face trading exchanges, their exchange membership system is a factor that helps them succeed, but it also hinders their migration to electronic matching trading methods. Although some of these exchanges recognized the development trend, they were eventually eliminated by competition because they could not change the status quo.

Blockchain will change the securities industry from outside the securities industry

In the current era of blockchain, the impact of blockchain on the securities industry is also starting from outside the securities industry. This process has actually started with encrypted digital currency transactions. The global trading of encrypted digital currencies allows the market to see what the future securities trading market will be like. With the development of encrypted digital currency transactions, compliant security tokens began to appear in 2018. This transaction process has developed to today’s 2020, and security tokens have begun to try to circulate in different regulatory jurisdictions.

Even today, I think blockchain technology is still very likely to change the securities industry from outside the securities industry. The securities industry is a highly regulated industry. It is difficult to make very big changes directly in this industry. So even if there are efforts in the industry to apply blockchain technology to this industry, the resistance it faces will be very large. The case where the Australian Securities Exchange is advancing the application of blockchain technology to the settlement of securities after trading is a very good illustration in this regard. Similarly, the application for the establishment of the Boston Securities Token Exchange in the United States is also a case in this regard.

Blockchain technology is likely to change the securities industry from outside the industry. It is likely to be based on a financial market infrastructure based on distributed accounting technology, using a peer-to-peer way to trade digital products. These digital products may be native digital products, or digital products corresponding to actual commodities. Therefore, such an application is more like an e-commerce of digital products. When such a market infrastructure is established, it is very natural for digital securities to migrate to this ecosystem for trading. The current centralized computing method supported by centralized matching trading methods is likely to become one of the digital securities trading methods. And more types of digital commodities and digital financial products will be directly traded in a point-to-point manner.