The NASDAQ has announced that they are testing use of the Blockchain technology that underpins the programmable currency Bitcoin.
On Reddit 3 days ago:
“If the effort is deemed successful, Nasdaq wants to use so-called blockchain technology in its stock market, one of the world’s largest, and potentially shake up systems that have facilitated the trading of financial assets for decades.
“Utilizing the blockchain is a natural digital evolution for managing physical securities,” said Nasdaq Chief Executive Robert Greifeld. He said the technology holds the potential to “benefit not only our clients, but the broader global capital markets.”
Nasdaq will start its pilot project in Nasdaq Private Market, a fledgling marketplace launched in January 2014 to handle pre-IPO trading among private companies. The platform has more than 75 private companies signed up, according to the company.
Private companies typically handle sales and transfers of shares with largely informal systems, including spreadsheets maintained by lawyers who verify transactions by hand. Nasdaq wants to replace that process with a system based on bitcoin’s blockchain technology.”
The Blockchain technology allows transactions to occur between two parties who do not know each other without a trusted intermediary between them.
As an example in presentations and workshops I use betting on a football game with someone you do not know. That really doesn’t happen now because how do you know they will pay up. So if you want to bet on a football game you either bet with friends or use a commercial betting agency. Those relationships provide the required trust.
However you could use the Blockchain technology to program your bet into the system and the programming includes scanning the internet for the game result and paying out on the result. The money to do this would have already been locked in the Bitcoin (or other system) currency that you own. So you can make the bet without a trusted intermediary.
Immediately this disrupts existing betting agencies but this also applies to a whole range of business models including as we can see from the NASDAQ announcement the stock market.
The initial experiment by NASDAQ makes sense because it is dealing with a sub- market that is currently clunky.
There are lots of issues still to be sorted out. In the betting example above one of the problems is the consumer standardisation of the process. The wild fluctuations in the price of Bitcoin and other currencies also means a lack of confidence in the bet amount. However we are already seeing hedging services filling this vacuum.
The NASDAQ announcement as surprised me a little. The Blockchain technology has been on my radar for a while but it is accelerating faster than I expected. Get ready for a wild ride.
The again maybe I should not be that surprised. It is a general rough rule of thumb in technology adoption that a technology has to be around for twenty years before it becomes mainstream. As the history of cryptocurrency page on Wikipedia notes:
“In 1998, Wei Dai published a description of “b-money”, an anonymous, distributed electronic cash system. Shortly thereafter, Nick Szabo created “Bit Gold”. Like bitcoin and other cryptocurrencies that would follow it, Bit Gold was an electronic currency system which required users to complete a proof of work function with solutions being cryptographically put together and published”
Welcome to the future.
For other interesting pieces on Bitcoin and the Blockchain see