The 24/7 global stock market is impossible on today’s blockchain

Overview

The current state of blockchain technology presents significant challenges that hinder the establishment of a 24/7 global stock market. Key limitations include inadequate throughput and issues related to systematic front-running, which are critical in meeting the demands of real-world finance.

Inadequate Throughput

Blockchain infrastructure struggles with throughput, meaning it cannot process a sufficient number of transactions per second to support the needs of a global stock market. This limitation poses a significant barrier to the scalability of blockchain systems. In traditional finance, high-frequency trading and instant transaction settlements are commonplace, allowing for rapid execution and adjustment of trades. The inability of current blockchain systems to match this level of performance means they fall short of providing the required immediacy for trading activities.

Systematic Front-Running

Another critical issue with current blockchain technology is the problem of systematic front-running. Front-running occurs when a party is able to execute a transaction based on knowledge of a pending transaction from another party. This undermines the fairness and integrity of the trading process. In real-world finance, transaction ordering needs to be transparent and equitable to ensure that all market participants have a level playing field. The presence of front-running in blockchain systems raises concerns about the potential for manipulation and exploitation, which is detrimental to the trustworthiness of the market.

Real-World Finance Demands

Real-world finance operates on the principles of sub-second finality and fair transaction ordering. The ability to finalize transactions within a fraction of a second is crucial for traders who rely on speed to capitalize on market opportunities. In contrast, the current blockchain infrastructure struggles to provide this level of efficiency, leading to delays that can result in lost opportunities and diminished market confidence. Furthermore, the need for fair transaction ordering is paramount in maintaining investor trust and ensuring that all participants can transact without fear of unfair practices.

From author

The challenges faced by blockchain technology in replicating the functionality of a traditional stock market are significant. The limitations in throughput and the prevalence of front-running practices highlight the need for advancements in blockchain infrastructure. Without addressing these fundamental issues, the dream of a fully operational 24/7 global stock market on blockchain remains unattainable. The technology must evolve to meet the rigorous demands of real-world finance, ensuring that it can deliver the necessary speed, efficiency, and fairness for all market participants.

Impact on the crypto market

• The inadequacy of blockchain throughput limits the scalability of crypto trading platforms, affecting their competitiveness against traditional markets.
• Systematic front-running raises concerns about the integrity of transactions, which could deter investors from participating in crypto markets.
• The inability to achieve sub-second finality in transactions may result in decreased adoption of blockchain technology in financial applications.
• The current limitations could lead to regulatory scrutiny, as authorities may seek to address issues of fairness and transparency.
• The ongoing challenges could slow the innovation and development of new blockchain solutions aimed at overcoming these barriers.