The whole world can’t stop talking about GameStop, whose stock price is way beyond our wildest expectations. Brokerage houses are taking steps to quell the speculative frenzy surrounding the company, but these actions have only generated more market volatility and outrage, as well as an avalanche of comments about the mistreatment of small investors, and the dictatorship of millionaires and hedge funds. In the middle of these events, appear considerations on how to avoid the risks of centralization of markets, trading platforms and all financial businesses. Undoubtedly, this is the moment to turn to open banking and blockchain, which are solutions that can remedy a lot in such crises. How to use modern technologies and the blockchain revolution to avoid situations like GameStop and the influence of more privileged entities but ensure security?
Why is everyone talking about GameStop?
GameStop is an American chain of stores for players. Due to the recent changes in customer preferences caused by the pandemic and the global crisis, the business moved to the Internet. As a result, the chain began to record losses of several hundred million. In mid-January, GameStop’s share price hovered around $20. It might seem that the company is in danger of bankruptcy. The company’s problems were also noticed by the investors themselves, who used what’s called short selling – they borrowed shares to profit from the fall in the value of the stock. Generally, they were betting on the collapse of the company.
However, at this point, the least expected thing happened. The Reddit community gathered on the WallStreetBets subreddit has set a real financial precedent. The forum highlighted the entry into the shareholding structure of the well-known businessman Ryan Cohen. There was hope that the company would move towards online distribution. Reddit’s petty investors were also angered by Citron Research’s Andrew Left, who issued negative recommendations to the company. GameStop fans decided to deal with the enemies of the brand, the Wall Street sharks – they started buying GameStop shares without hesitation, regardless of the company’s foundations and its valuation. As a result, GameStop shares began to appreciate rapidly, prompting other investors to change their plans and, further fueling the rise in share prices.
GME stocks frenzy consequences
With the GameStop stock situation going on, Robinhood and other trading platforms such as WeBull and Apex Holdings refused to allow the purchase of more GameStop shares. WeBull mentioned “extreme volatility” and its billing firm refusing to accept further approvals. WeBull users were now forced to exchange or sell only GME, as well as several other stocks that were adjacent to the same short squeeze strategy. These plots follow several systematic attempts to stop trading GameStop stocks, and more specifically to stop retail investors from buying more stocks. This has led to some calling for decentralized exchanges and censorship-resistant trading to avoid the pressure of a coordinated, centralized financial system.
Are decentralization and blockchain the answer?
Decentralized markets are platforms focused on reducing as much as possible the chance of fraud. In general, instead of running on centralized servers, they run on many different computers. Demand for such trading platforms seems to increase in the shadow of recent events. Such a system, although not without certain drawbacks, is also primarily a beneficial solution. You can trade and settle with confidence knowing that without a centralized server, there is little or no chance of downtime. Financial, political, and economic organizations try to influence the market as much as they can and they mix, often to the detriment of retail investors. Decentralization is a beneficial option to avoid censorship and control of transactions by such entities.
How to build a decentralized trading platform, then? Here comes the blockchain technology to the rescue, one of the main features of which is the lack of central management units. Let’s discuss what blockchain is before we move on to discussing the platform ideas.
What a blockchain is?
You probably know what Bitcoin is. This cryptocurrency is the first application of blockchain and at the same time a common solution of this type. Blockchain technology is an architecture for storing information in a way that guarantees the integrity of historical data. Basically, it is a decentralized and distributed database that functions as a growing, one-way list of records called blocks. The term “blockchain” itself comes from blocks that are the basic building blocks and store many critical encrypted transactions. Each block contains a cryptographic hash of the previous block in the blockchain, combining both. Connected blocks form a chain. The advantage of this technology is the ability to openly check, record and distribute transactions in stable, encrypted ledgers. By linking blocks in a chain, where each successive block stores a digest of the information from the previous block, the information in the blocks can only be written during block creation and cannot be modified once the block is made public and distributed.
Blockchain is more secure than the banking model itself. The transactions are not monitored by any main broker because they are encrypted and distributed. They are processed by computers on a peer-to-peer network that does not verify transactions with central computers. Moreover, blockchains are divided into 2 main types – private and public. Bitcoin is an example of a public blockchain where everyone has access to real-time history. In turn, a private blockchain is a chain that is under the direct control of an entity, person or company. Only those who have been granted permissions can access the network, and this is a centralized network.
Ideas for using blockchain to build an effective and secure trading platform
What do you gain from developing a blockchain-based platform? First of all, enhanced safety. Due to their distributed nature, peer-to-peer networks such as blockchains do not have centralized vulnerabilities that can be exploited by hackers and do not have a central point of failure. The consistency and irrevocability of all transactions processed in the blockchain additionally eliminate the risk of fraud. Moreover, Blockchain does not have an intermediary in the transactions. This results in faster and more transparent settlements as the ledgers are updated automatically. Everyone verifies everyone, there is no possibility of fraud due to the transparency and openness of the network. As long as we have the private key, the funds signed with this key belong to us.
Being determined to use this technology and choosing experts in implementing this type of solution, you have a wide range of possibilities.
For large enterprises, such as financial corporations or banks, blockchain is a solution from the future that is worth implementing. An idea for such a sector might be to develop an enterprise-class cryptocurrency trading platform. For blockchain, the big data and complex algorithms to be expected in large businesses are not a problem. The platform can pull data from multiple exchanges to help institutions make the most up-to-date trading decisions, and allow you to trade simultaneously on multiple blockchain platforms based on a single API.
Cryptocurrency wallet and identity management tool
An application that will handle digital finances regardless of your preferred currency – sounds interesting? This is another idea for successful blockchain implementation. At BinarApps, we worked on developing such a platform, which was based on the vision of a decentralized asset management system. The presumption was also that the user should be able to buy, send and manage cryptocurrency assets however they like. On top of that, the app also needed a transparent UX / UI that would be suitable for a beginner in the world of Blockchain and cryptocurrencies so that no one is left behind in the financial revolution. Minerva has many functions that use blockchain capabilities, including innovative ones such as the ability to authenticate identity.
Cryptocurrency investing platform
Blockchain can be used to build a mobile application that allows users to invest in stocks, stock exchange funds, or cryptocurrencies, as well as buy and sell digital currencies. An example of such a platform is Robinhood Crypto. With this platform, profits are derived from interest income on the client’s cash balance and loans for collateral, as well as from receiving payments for order flows. Commission-free trading policy, low level of entry into the world of cryptocurrencies, many factors make this type of application a hit. We can create it for you at BinarApps
Unfortunately, the likelihood of achieving greater equality in the markets and an end to unfair financial practices is low. The tug of war between small investors and large institutions will not stop. No wonder investing in modern blockchain technologies is a trend for the coming years. Wanting decentralized trading, higher safety, and no external influences, more and more companies will choose this type of software. At BinarApps, we have knowledge and experience in innovative blockchain-based projects. Do you want to create a reliable digital product with us? Contact us!