Analysis of Smart Contract Abstraction in Decentralized Blockchain Based Stock Exchange

Abstract

Stock markets have a centralized structure that has a number of intermediaries and operational trade policies contributing to high transaction times. Blockchain has the capability to optimize market transactions using automation with high security to create a peer-to-peer trading environment. It reduces operational risk by enabling transparency, certitude and interoperability in fragmented market systems to eliminate the need for third party regulators to a large extent. In this paper, a decentralized stock exchange system is implemented with Distributed Ledger Technology (DLT) on Ethereum for executing trades by separating concerns into three different smart contracts: buyer, seller and exchange. The self-enforcing smart contracts used are highly flexible and optimized for parallel operation due to functional abstraction. The multi-contract model is compared to a single contract model, which handles all three aspects within the same contract, by executing sample trading data from NASDAQ. Transaction fees for the miner at 161 Gwei is 27.96% lesser for the single-contract system and 98.75% lesser for the multi-contract system than the brokerage fees of traditional traders for the same transactions. Experimental results indicate that the separation of concern results in transaction costs being 98.26% lower and transaction time being 28.70% lower than having a single contract.