Financial industry eyes Nasdaq's block chain technology test

Nasdaq will use Bitcoin-style blockchain technology to enhance the equity management capabilities on its Private Market platform, in a sign that big financial industry players are beginning to see the value of the public ledger. Businessman pointing at Bitcoin, one of many currencies

It plans to use the Open Assets Protocol, a coloured coin innovation built upon the blockchain to deliver fully electronic services that facilitate the issuance, transfer, and management of private company securities.

"Utilising the blockchain is a natural digital evolution for managing physical securities," said Bob Greifeld, chief executive officer of Nasdaq. "Once you cut the apron strings of need for the physical, the opportunities we can envision blockchain providing stand to benefit not only our clients, but the broader global capital markets."

The blockchain application will complement ExactEquity, Nasdaq Private Market's cloud-based equity management solution, which helps firms manage their capitalisation table and stock plans more efficiently.

"We are always looking at new ways to leverage technology to provide client-centric solutions," added Mr Greifeld. "Our initial application of Nasdaq's blockchain technology-enabled offering will modernise, streamline and secure typically cumbersome administrative functions, and will simplify the overwhelming challenges private companies face with manual ledger record-keeping."

After Nasdaq, other big name financial services players could follow as the industry weighs the advantages of the ledger. Ron Quaranta, founder and executive director of the Wall Street Bitcoin Alliance told IBTimes UK: "Wall Street has started to realise what can be done with blockchain technology - trading, allocating capital, arbitrage, all the things you do now with capital."

The technology is also interesting central banks on both sides of the Atlantic.

The Bank of England said in a recent discussion paper that the technology behind Bitcoin and others could have “profound implications” for the financial industry.

“While existing private digital currencies have economic flaws which make them volatile, the distributed ledger technology that their payment systems rely on may have considerable promise. This raises the question of whether central banks should themselves make use of such technology to issue digital currencies,” the Bank said.

Meanwhile, David Andolfatto, an economist for the Federal Reserve Bank of St. Louis, has postulated the concept of a ‘Fedcoin’, a form of dollar-pegged cryptocurrency based on blockchain technology. He says this would be “just another denomination of currency”, which would not impact the overall supply of money.

Game-changer for banks?

A Euro Banking Association (EBA) report out May 2015 argued that blockchain technology could reduce costs and improve speed and product offerings for banks.

Although it largely dismissed the digital currencies themselves, the paper stressed that existing financial services could be “powered by cryptotechnologies offering financial institutions potentially lower costs, better products and faster time to market”.

It added: "Apart from possibly being able to speed up processes and reduce their complexity, crypto technology applications in this area can also be integrated with legacy IT, legal frameworks and existing assets (currencies, stocks, bonds, etc)."

The EBA suggests that we’ve only seen “the tip of the iceberg of cryptotechnologies’ true potential, which goes far beyond the application of currency”.