Blockchain, and the related concept of cryptocurrency, are phrases that have been thrown around a lot following the success of Bitcoin. Blockchain technology has great potential in all manner of computing-related fields, which nowadays is almost all of them. Blockchain is essentially a new system for keeping records, but its relevance to trading and its investment potential are not immediately obvious.
This guide will lay out the basic concepts behind blockchain, some of the reasons for its fame and the advantages and disadvantages it carries with it for all manner of financial instruments, especially cryptos and commodities. Also explored is how blockchain trading is evolving and some of the possible uses of blockchain beyond finance.
#1 - eToro USA
eToro US leads the way in cryptocurrency trading. 1% fee for buying or selling crypto added to the spread (from 0.75% for BTC), with their own wallet service and the largest number of cryptos to trade in the market. eToro copy trading is only for cryptos. Crypto asset investing is highly volatile and unregulated. No consumer protection. Tax on profits may apply.
"eToro is a top pick for traders looking for social investing and copy trading. With a low deposit, zero commissions and an intuitive platform, the broker will meet the needs of newer traders."- DayTrading Review Team
- Crypto Spread: BTC 0.75%
- Crypto Lending: No
- Platforms: Own
- Crypto Staking: No
- Minimum Deposit: $10
- Regulator: SEC, FINRA
About eToro USA
eToro is a social investing platform that offers stocks, ETFs, options, and crypto. The broker is well-known for its user-friendly community-centred platform and competitive fees. With FINRA and SIPC oversight and millions of users across the world, this brand is highly respected. eToro securities trading is offered by eToro USA Securities, Inc.
- The online broker offers an intuitive social investment network with straightforward copy trading on cryptos
- eToro USA Securities is a trustworthy, SEC-regulated broker that is a member of FINRA and SIPC
- A free demo account means new users and prospective traders can try the broker risk-free
- Execution speeds trail the fastest brokers
- Narrower range of instruments than some competitors
- No MetaTrader 4 platform integration
#2 - NinjaTrader
Trade micro Bitcoin futures with low fees and leading charting tools. Get exposure to Bitcoin through CME Group's centralized exchange with robust risk management tools.
"NinjaTrader is well-positioned to meet the demands of active futures traders looking for low fees and premium analysis tools. The platform hosts top-rate charting features with custom indicators. "- DayTrading Review Team
- Crypto Spread: Floating
- Crypto Lending: No
- Platforms: NinjaTrader Futures, eSignal
- Crypto Staking: No
- Minimum Deposit: $50
- Regulator: NFA, CFTC
NinjaTrader is a US-headquartered and regulated brokerage that specializes in futures trading. There are three pricing plans to suit different needs and budgets, as well as ultra-low margins on popular contracts. The brand's award-winning charting software and trading platform also offers a high-degree of customization and superb technical analysis features.
- Easy account opening that takes a few minutes
- Thousands of add-ons and applications from developers in 150+ countries
- Free platform access and trade simulation capabilities
- Non forex and futures trading requires signing up with partner brokers
- Withdrawal fee on some funding methods
- Premium platform tools come with an extra charge
#3 - Interactive Brokers
Buy and hold Bitcoin, Bitcoin Cash, Ethereum and Litecoin with low commissions of 0.12%–0.18%. Fees are low and the broker offers a secure environment to invest in digital assets.
"Experienced day traders seeking a regulated broker with sophisticated trading software and very low fees should look at IB. Their range of stocks also can't be beaten."- DayTrading Review Team
- Crypto Spread: Variable
- Crypto Lending: No
- Platforms: AlgoTrader, OmniTrader, eSignal, TradingCentral
- Crypto Staking: No
- Minimum Deposit: $0
- Regulator: SEC, FCA, IIROC, SFC
About Interactive Brokers
Interactive Brokers is a leading global brokerage that provides access to a comprehensive offering of stocks as well as forex, futures, metals, bonds and cryptos. The firm has over 40 years experience in the online trading industry and is heavily regulated by SEC, FCA, IIROC, and SFC. Day traders can use the proprietary Trader Workstation and can access powerful tools and data feeds as well as comprehensive educational resources.
- Regulated by some of the world's most reputable bodies including in US
- Diverse payment options and account currencies
- Direct market access, including to the FTSE 100 index, the CAC 40 and Germany’s DAX 40
- Mediocre customer support
- The TWS platform falls short in terms of technical charting
- Platform and web interface are complex and difficult for beginners to pick up
#4 - OANDA US
Speculate on the world's biggest cryptos by market cap. Commissions are lower than many peers starting at 0.25%. Clients can spot trade cryptocurrencies on Paxos's itBit exchange through the OANDA platform via OANDA’s partnership with Paxos. Users can trade digital currencies in a few taps through the iOS and Android mobile app.
"OANDA is an excellent broker for US day traders seeking a user-friendly platform with premium analysis tools and a straightforward joining process. OANDA is also heavily regulated with a very high trust score."- DayTrading Review Team
- Crypto Spread: $100
- Crypto Lending: No
- Platforms: MT4, TradingView, AutoChartist
- Crypto Staking: No
- Minimum Deposit: $0
- Regulator: NFA, CFTC
About OANDA US
OANDA is a popular brand offering exceptional execution, low deposit requirements and advanced charting and trading platform features. The top-rated brand has over 25 years of experience and is regulated by trusted agencies, including the NFA/CFTC. Around the clock support is available, alongside flexible contract sizes and automated trade executions.
- API facilitates access to 25 years of historical data and rates from 200+ currencies
- Low minimum deposit for beginners
- Wide selection of instruments including 68 forex pairs
- Customer support not available on the weekend
#5 - IG Group
11 popular cryptos are available, plus two crypto crosses. A crypto index is also offered, following the value of the top 10 digital currencies by market cap. All cryptos are available via CFDs.
"IG offers a superb all-round package. Beginners will appreciate the user-friendly web platform and secure trading environment while established investors will rate the 17,000+ markets and top-tier market research."- DayTrading Review Team
- Crypto Spread: Variable
- Crypto Lending: No
- Platforms: MT4, AutoChartist, TradingCentral
- Crypto Staking: No
- Minimum Deposit: $0
- Regulator: FCA, ASIC, NFA, CFTC, DFSA, BaFin, MAS, FSCA
About IG Group
IG is an award-winning broker that has an excellent reputation globally. The brand-US offers spread betting, CFD and forex trading across a comprehensive suite of markets. IG is also multi-regulated, provides a great trading app and has 50 years experience.
- Over 17,000 assets are available spanning stocks, forex, commodities, baskets, futures, options and more
- Opening an account takes less than 5 minutes
- Users have access to a comprehensive range of charts, market news, client sentiment data, and analysis tools
- Inactivity charge
- No copy trading platform
What Is Blockchain?
Fundamentally, a blockchain is a form of database, or ledger, that electronically stores information. Database information is typically tabulated, appearing much like a spreadsheet, and allows several users to concurrently access and filter a large amount of information.
One of the primary aspects that separate blockchains is the way the data is structured. A blockchain groups information together into sets, or blocks, of data. Each block has a limited capacity and, when it is filled, it gets appended to the previous block. This process continues, with blocks of data chaining together to form, you guessed it, a blockchain.
These blocks, once confirmed and added to the chain, cannot then be amended. This forms a linear timeline of data as each block is timestamped at the exact time it becomes part of the chain. This is important for security and transparency in the blockchain. Blockchain trading networks have increased in popularity mostly because a combination of this and its decentralization.
Another important and often argued to be definitive, characteristic of a blockchain database is its decentralization. Large traditional databases manage such huge quantities of data and run several concurrent tasks by holding everything on big servers formed of many powerful computers. In these cases, one entity normally owns the property, the servers and the database, controlling the information within.
Similarly, blockchains require many computers to store their data and run their tasks. However, computers are split by geography and ownership so that many different people or groups help to operate the blockchain, with no single entity owning the database or controlling the information. This means that, when investing in blockchain trading instruments, there is no risk of a controlling entity rejecting your trade or halting your profits.
Each computer in a blockchain is called a node, and each node has a full record of the data stored since the database was created. For any change to be made to the chain, be it the addition of a new block or amendments to previous blocks, most of the nodes must approve the changes. This helps prevent tampering, improve security and maximizes data accuracy.
Blockchain & Cryptos
The first live implementation of the distributed ledger technology system, Bitcoin (symbol: BTC) has stolen the spotlight, especially in trading circles. But in reality, all cryptocurrencies run on a form of blockchain, providing decentralized, transparent and secure digital transactions.
All traditional currencies, be they fiat or commodity-based, are managed and distributed by a central bank or authority. This means that all related data is centralized and controlled by a single entity, producing several risks. If a bank were hacked, not only would the assets of all those holding money in the bank be at risk, but so would their personal information.
The bank could also collapse, in which case the money held by consumers may be worth much less than before, or their taxpayer money may be used to bail it out.
Bitcoin was created with these worries in mind, made to be decentralized and follow a proof of work system, which means that there are no entities involved with more authority than any others. Furthermore, it is much harder to hack as every node must agree on the correct blockchain, so one would need to hack over 50% of the nodes, a massive task. This decentralization is a key reason that many people have shifted to blockchain trading instruments.
Many more cryptocurrencies have since sprung up, following Bitcoin’s decentralized approach, and more will continue to explore possibilities.
- 1982 – A protocol blockchain is first proposed by David Chaum
- 1991 – Stuart Haber and W. Scott Stornetta produce further work on cryptographically secured blockchains with an aim to produce a system where timestamps couldn’t be tampered with
- 1992 – Stornetta, Haber and Dave Bayer incorporated Merkle trees into the system to associate several bits of information with a block, improving its efficiency
- 2008 – The mysterious Satoshi Nakamoto publishes a paper coining the term ‘Bitcoin’ and outlining its peer-to-peer verification and blockchain structures
- 2010 – First purchase using Bitcoin is carried out for two pizzas using 10,000 BTC, worth £38 at the time but now worth more than $246million
- 2011 – BTC achieves parity with the USD and several organizations start accepting donations in BTC
- 2013 – Bitcoin market cap surpasses $1 billion and its value reaches $100/BTC. The ‘Ethereum Project’ paper is published, exploring other possible uses of blockchain
- 2014 – Ethereum crowdfunds over $18 million in Bitcoin, PayPal integrates BTC payments and 200 blockchain firms form R3, a company aimed at expanding the uses of blockchain
- 2015 – Over 100,000 merchants now accept BTC and NASDAQ tests blockchain trading shares in private companies
- 2017 – JP Morgan CEO gives blockchain a vote of confidence and Dubai announces a goal for its government to be 100% blockchain-powered by 2020
- 2018 – Meta, previously Facebook, starts a blockchain group and discusses the inception of a new cryptocurrency, IBM creates a blockchain-based platform with large banks getting involved
- 2019 – Over a million transactions per day are made on the Ethereum network
- 2020 – Stablecoins (cryptocurrencies pegged to the price of a fiat coin like USD) start rising to fame. AI is also introduced into blockchains to speed up business tasks
- 2021 – Cryptocurrencies are being used more and more in everyday practical applications from real estate to fitness and voting
- 2022 & the future – Cryptos are set to become mainstream and a huge part of how society functions. Web 3.0 (a decentralized version of the web), NFTs (non-fungible tokens) and dApps (decentralized applications) are more popular than ever
Blockchain Trading Options
If you are wondering how does blockchain help trading, we break down a few of its uses for investors…
The most intuitive way to combine blockchain and trading is with cryptocurrencies. Run using blockchain systems, cryptos can be traded on a vast array of platforms through a wide range of brokers. Most cryptos are traded as currency pairs, like forex, against a fiat or other traditional currency, typically the USD. However, many brokers also provide options to trade one crypto directly against another.
Also called prosumer power or the crypto-trading blockchain-oriented energy market, P2P energy trading is the sale of excess energy from one consumer with the ability to produce electricity, usually from solar power, to another consumer on the same grid. Cryptocurrency helped facilitate the start of this trading concept, with Ethereum (symbol: ETH) used in 2018 to buy power from a neighbor.
This idea can be seen in many places in the world, often using a blockchain trading energy platform to invest in renewable energy credits amongst prosumers connected to a microgrid. P2P energy trading challenges the traditional centralized energy supply but provides users with control over where they buy or sell excess energy from or to.
Another form of trading is emissions trading schemes (ETSs), which is a government environmental policy to reduce emissions, typically carbon emissions, by selling a limited number of pollution permits to businesses. These permits must be bought by any business releasing a significant quantity of emissions, and more must be purchased if the company wishes to increase its pollution. Beyond the direct purchase and sale of permits, financial derivatives of the permits are available to be traded on secondary markets.
Blockchain is implemented into some of these markets, both primary and secondary, to better and more efficiently connect suppliers and demanders. The format of the database also helps to record and transfer information quickly, reduce entry gates by minimizing costs and helpS against fraud and double counting of credits thanks to its transparency.
Many firms in the finance and technology sectors believe that current exchange systems could be upgraded using blockchain trading. Commodity exchanges typically rely on paper for transaction processing and verification, though some companies implement blockchain technology to automate processes and store information more efficiently.
Two notable projects are Vakt (oil trading platform) and OneOffice (gas trading platform), which have created greater transparency with their services. S&P is also using blockchain to store data and publish oil stock levels transparently and clearly.
The improved transparency of the chain, coupled with its security and confidentiality, is particularly attractive, as it could let all stock levels be public without locations being released and help track down fraudulent purchases.
It is not only oil and gas exchange markets that stand to benefit from blockchain, stock trading exchanges, derivatives markets and other commodities, such as gold or agriculture could stand to gain for all the same reasons.
Trading The Technology
Another, less direct way to start blockchain trading is by looking at those industries and companies that stand to benefit from its use and development. At the first level, there are specific technology consulting businesses that work to implement blockchain solutions. Such companies include Hive, Riot, Argo and TXQuick, though there are many more.
As crypto-systems gain traction, big tech companies and financial technology businesses have begun to aid their development. Amazon, CME and Mastercard are but a few whose shares can be easily invested in at many online brokers.
Finally, computing hardware manufacturers stand to gain from blockchain thanks to the heavy computational requirements to mine different cryptocurrencies and support the networks. More specifically, GPU (graphics processing unit) manufacturers like Nvidia have created and sold many of their products for mining purposes.
Non-Trading Blockchain Uses
Blockchain has great potential in financial trading systems, as has been proven with cryptocurrencies and many stock and commodity trading platforms. However, there are many other uses and opportunities that it provides, many of which have barely been explored to date:
- Finance and Banking – Implementation of blockchain structures with automated clearing protocols would allow transactions to be completed securely even while financial institutions are closed. There would also be less processing and verification to be carried out, significantly reducing fees for consumers.
- Supply Chains – Blockchains could be leveraged by suppliers to ensure the origins and paths of their materials. For example, De Beers has implemented blockchains to ensure the authenticity of diamonds and that fair working conditions were involved in their mining. A similar approach could be taken for the artwork trade; blockchain could verify the authenticity and track the ownerships of high-profile artwork securely and confidentially. This is already being done with digital art like NFTs, which are becoming increasingly popular.
- Voting – Crypto-based chains could be used to reduce voter fraud and improve turnout, something demonstrated by the 2018 midterm elections in West Virginia. Votes would be very difficult to tamper with, fewer people would be needed to conduct the election and counting would be both automatic and accurate.
- Smart Contracts – These are sets of code that can be integrated with a blockchain to verify or facilitate an agreement. A set of conditions are agreed upon by users and the contract is actualized automatically once these are met. This is something widely used in blockchain trading but could spread to many other forms of deals, such as property signing or insurance. The use of smart contracts is already being leveraged when it comes to cryptocurrency lending.
- Healthcare – The security of blockchains could be applied to healthcare services. Writing medical records and updates into a blockchain would provide confidence and proof that they will not be altered. Privacy can be ensured by encoding records with private keys that only certain individuals would have access to.
- Safer Web and Data Storage – The technology can be used to encrypt personal details, passwords and data. Since the information is stored on a decentralized platform, it makes it harder for hackers to access online accounts and tamper with data. Not only that, but data storage in a decentralized environment could give companies greater access without a convoluted process or reliance on another firm’s operations.
- Gambling – Online casinos can provide better transparency to their customers by storing their information on a public ledger. A fair casino that pays its winners will attract bettors.
- International Access – On many decentralized open source platforms anyone can invest. This opens blockchain trading up in India, Kenya, South Africa and many other countries. Not only that, but the technology itself can be used internationally without a specific company’s restrictions. This can help the crypto space evolve at lightning speed.
Pros & Cons Of Blockchain Trading
A blockchain is operated by many computers at once, often thousands, which must approve a transaction before it is carried out. This removes the possibility of human error when verifying the transaction and, even though computers can produce errors, more than half the nodes in the network must produce the same error for it to pass through.
Third-Party Cost Reductions
Third parties are involved in almost all verification processes, be it a minister for a marriage or an exchange for an instrument trade. Crypto-based chains, and their inherent verification process, reduce or eliminate additional costs.
Transactions placed through a body that only works during certain hours in the week can take several days to settle if attempted at the start of the weekend, for example. Much like forex trading markets, blockchains improve efficiency by running 24/7, 365 days a year, facilitating and beginning transactions as soon as they are requested.
One drawback of blockchains, partly due to the immaturity of the concept, is the time taken for a transaction to be completed. Bitcoin, for example, can process approximately seven trades per second, whereas Visa can carry out 24,000.
That being said, many other cryptocurrencies boast throughputs in the low thousands of trades, as blockchain technology has improved. For example, Ethereum 2.0 is expected to process 100,000 transactions per second.
It is often thrown around that Bitcoin transactions are anonymous. Each user has a unique public key that is associated with any transactions they make, rather than any private information. This makes all transactions confidential, as users can only decode their own public keys. However, some transactions require identification, and these will link the user’s name to their blockchain address.
The authenticity of any amendment or trade within a blockchain network must be verified by nodes. Once verified by the majority, and only then, can a new block be added to the chain.
Each block is also identified with a unique hash and the hash of the block prior, and any changes made to a block will also change its hash. This would make the new and the old hash mismatch, making any tampering noticeable.
Most blockchains are decentralized and publicly accessible, with open-source platform software (available for all to see for free). This means auditors can easily assess its security and anyone can propose changes to the blockchain’s code. The full ledger is also publicly available, allowing anyone to look at all trading in the blockchain’s history.
Technological Complexity & Costs
While blockchain trading offers reduced third-party fees, there are still great costs associated with them. The validation system in place for Bitcoin, for example, uses so much power that the entire network consumes more than the quantity of electricity annually used by Argentina.
The incentive to rack up such high energy requirements comes from a Bitcoin reward for miners that add blocks to the chain. However, not all blockchains are for cryptocurrencies, so other incentives or offsets must be implemented.
A big reason for the creation of Bitcoin and the advent of cryptocurrencies was to avoid central authorities controlling currency and its users. However, there are growing concerns that governments will try to regulate cryptocurrencies, be it directly or by criminalizing ownership. In 2021, for example, China banned the trading and mining of crypto.
With that said, China is an outlier as in recent years many major first-world countries have become more open to the use of cryptocurrency and have created friendlier regulations.
The confidentiality and lack of regulation offered by blockchains can also be attractive to those wishing to partake in illegal activities. One such example was the Silk Road, a marketplace run on the dark web using blockchain trading to deal in drugs and other illegal goods for cryptocurrencies.
There have also been cases of insider trading debates and halts with companies such as Hive and Riot, which have occurred thanks to ambiguity in the relevant laws that have not advanced alongside the technology.
While this is most certainly a disadvantage, there are debates as to whether the legal and moral possibilities of blockchain outweigh this criminal potential, especially considering how much of the criminal world runs on cash.
Blockchain Trading Resources
If you are interested in further exploring blockchain trading systems, there are many resources available online, from blockchain bots to helpful guides. For greater depth on the technologies behind the scenes, websites such as the Blockchain Training Academy, the Blockchain Council or the Blockchain Training Alliance provide more technical detail, reviews and learning courses.
For tips, guides and advice on strategy and the best platforms for blockchain trading cryptos, see here.
Final Word On Blockchain Trading
Blockchain has potential, there is no doubt about it, but it is a young technology that has not yet been fully realized in many sectors. However, it has maintained momentum after its Bitcoin success, being implemented in finance for trading all instruments, including bonds, equity, fixed income funds and more obscure assets, such as emission permits. This momentum looks likely to continue, causing not only blockchain-specialized businesses but many other related companies to grow and succeed.
There are worries, however, regarding blockchain trading platforms and currencies as governments and regulatory agencies have not yet caught up with it. The main attractions of blockchain are its decentralization and confidentiality, two things authorities tend to dislike. The future of blockchain, therefore, is not clear-cut. However, if allowed to continue its development, it will likely grow and revolutionize many areas of society and business, not to mention financial trading and investing.
What Is Blockchain?
A blockchain is a form of information database that can be likened to a ledger. Moving away from a traditional, overwritable tabular format, a blockchain sifts new information into a unique block that gets appended to the previous one. This technology is designed to be decentralized, secure and transparent.
What Is A Blockchain Trading Platform?
A blockchain investing platform uses a distributed ledger system to process trading settlements. Blockchain was first used in this way by NASDAQ in 2015, which now runs Linq, a blockchain-based trading platform that speeds up transaction verification and improves the transparency of its data.
What Blockchain Companies Can be Traded?
Many companies specialize in blockchain solutions all over the world, from Australia to South Africa to China. These companies can be traded directly on their respective exchanges. For example, Riot Blockchain can be traded publicly on NASDAQ.
Can You Trade Gold Using Blockchain?
All investing could theoretically move to crypto-based networks, including securities trading for commodities such as gold and platinum, company stocks and options. There are many online brokers and exchanges available that currently link such instruments, including gold, with cryptocurrencies to be traded on a decentralized network.
Is Blockchain Secure?
This technology is essentially a decentralized ledger system, meaning that the computers operating the database are spread amongst different people and places throughout the world. If someone were to attempt to hack the system, they would need to hack more than half the computers within the system, which is harder than hacking a singular server system in a centralized network.