Unregulated digital exchanges as bottleneck

Abstract

Since the creation of Bitcoin in 2009, digital exchanges have demonstrated that global, 24/7 and disintermediated trading is possible. By trading digital currencies, they have grown to a size impossible to ignore. To allow digital exchanges to enter the multitrillion market of securities trading and business, technology and regulators need to work hand in hand. Together, they are in a position to solve the challenges of a steep learning curve and build an efficient, convenient and, most importantly, trustable environment that can protect investors. Regulators face the challenge of channelling the path but are potentially also among the biggest beneficiaries of the inevitable transition from traditional stock exchanges to digital asset exchanges, since compliance may be ensured by design. While ensuring personal data protection and jurisdiction particularities, global standardisation and distributed ledger technology (DLT) can effectively forestall trading errors and market abuse instead of leaving them to be discovered. To generate the necessary trust for market participants to adopt, digital exchanges will have to be regulated, licensed and supervised in the same way that traditional stock exchanges are today, while safeguarding and leveraging the technological benefits that DLT carry.