Chae-EunJeong
commented
4 years ago Technical solution
Which platform? Why? Critical evaluation of the platform
The platform of choice for implementing the blockchain-based stock exchange proposed in this project is Ethereum. Ethereum is a platform that extends Bitcoin technology which is the initial cryptocurrency using distributed ledger to enable transactions through smart contracts and distribution of decentralized applications. Smart contract is a system that allows written contracts to be made between the parties digitally without any third party. Smart contracts are written in the language of Solidity, and the contract is automatically executed when all the conditions of the contract are satisfied. Therefore, it has the advantage of saving time and cost because the contract is made without an intermediary. The decentralized application(DApp) is an application which runs on a blockchain basis. Blockchain based platforms on which DApp runs are not only Ethereum, but also Steam, Neo, Stellar, etc. Among them, Ethereum is the traditional blockchain based platform with the most DApps. Ethereum with these features was chosen because it can be operated by applying not only blockchain technology but also including smart contracts and distributed apps. The stock exchange will be implemented so that transactions can be made using a smart contract without a third party. In the future, we plan to implement the process of building a blockchain based stock exchange program with smart contracts as DApp and distributing the DApp that can be used by many people.
4.2. Critical evaluation The Ethereum platform we chose is very innovative, but it has some disadvantages. Ethereum is a relatively early stage of platform and is an extension of Bitcoin technology, so it has problems like of Bitcoin has. The mining method cryptocurrency Ether used in Ethereum is a proof of work method thus it requires high performance and memory capacity. This is not efficient because it can be a way to waste a lot of energy unnecessarily. On this issue, Ethereum is planning to change to a proof of stake, but it is currently inefficient because it currently uses a proof of work method as a mining method. Another problem is the use of Solidity languages to implement smart contracts. First, because Solidity is used to write smart contracts, developers must learn the Solidity language. Second, since developers have to implement smart contracts themselves, human errors can occur depending on the code writers, then malicious hackers can exploit those errors. Therefore, when a smart contract is written by Solidity by the developer, the disadvantage of choosing the Ethereum platform is that the developer who does not know how to use the Solidity language needs to learn a new one, and there are human errors that can be made by humans. In addition, there are some more disadvantages to the Ethereum platform, but our project was implemented through the most common and familiar platform, Ethereum.
What data is stored in the blockchain and how?
This project proposes a stock exchange platform based on blockchain where companies, shareholders or investors trade stocks with having all the same information. In order to trade stocks on the Ethereum blockchain, the company must first be listed. In the stock exchange, information about companies is disclosed for fair trade so that they can compete fairly. The stock exchange platform to be created on the Ethereum blockchain should also be designed to provide transparent and trustful information in real time by publicly disclosing the company. Information that can represent the company's value, such as how much the company's debts, what business plans it has, and what changes in income should be stored on the blockchain. Information on company disclosures can be designed to add content by the company when it is first listed on the Ethereum Stock Exchange platform. If changes are made later, a transaction is generated and added to the contents, or the stored smart contract is changed to the new smart contract in the blockchain. In this project, stock trading can be implemented as a smart contract that occurs between the buyer and the seller. When each identity is verified and the seller is verified that the stock is held, the buyer pays and the purchase is made. When a stock trading transaction occurs, information on who has placed a buy/sell order, whose buy/sell order has been signed, and how much stock has been traded should be stored in the blockchain. It can also be implemented a list function to manage shareholders whenever a transaction is made by adding an identity variable to the smart contract. Implementing the designed function allows network participants to store stock transaction records in a distributed ledger technology, so that executive's stock transactions can be audited, and insider trading history can be monitored. With applying blockchain technology, all securities transactions in the stock trading market are stored, verified and recorded in a distributed ledger by all participants in the network, so that all information can be managed transparently. It means it's not only to know the information inside the company, but also for investors to understand the shareholding ratio and transaction statements of executives. Through this, it is possible to solve the problem of asymmetry information that may occur when trading stocks and to prevent issues about unfair insider tradings.
Introduction
Problem
The classic example is the corporate employee who learns that the corporation is about to be bought out by a larger company and uses that information to buy stock in the corporation before the buy-out is announced and the corporation’s stock price goes up.
Solution
This project proposes a stock exchange platform based on blockchain where companies, shareholders or investors trade stocks with having all the same information. With applying blockchain technology, all securities transactions in the stock trading market are stored, verified and recorded in a distributed ledger by all participants in the network, so that all information can be managed transparently. It means it's not only to know the information inside the company, but also for investors to understand the shareholding ratio and transaction statements of executives. Through this, it is possible to solve the problem of asymmetry information that may occur when trading stocks and to prevent issues about unfair insider tradings.
Outlook
If it is implemented as designed later, it prevents insider trading, which was mentioned as a problem, so that everyone can trade stocks with the same information. Buying and selling of stocks and receiving dividends can also be operated without a third party through smart contracts. Therefore, the platform proposed in this project will be able to expand the current stock trading market to the blockchain-based stock trading market. The blockchain market is increasing in utilization and the demand is also increasing through smart contracts and distributed applications. In particular, research is actively underway to enable transactions of various assets to be conducted in a distributed network through blockchain. Therefore, if the transaction of stocks is also distributed as a DApp in the future, it will serve as a demonstration case to solve the problems of current stock market and unreliability with the blockchain. If the demand of general users increases through DApp, it is highly likely to become universal by utilizing concepts of blockchain technology such as immutable, security, distribution, sharing, and transparency. In addition, the number of cases of convergence with other industries will also be increased, so blockchain technology can be further developed. As mentioned in the Critical Evaluation part, if the shortcomings of the Ethereum blockchain are supplemented and the flaws of the proposed stock trading platform are filled, it will be developed into a system that is sufficiently needed in real life.