Bitcoin technology comes to Nasdaq

NasdaqIt seemed only a matter of time before the technology behind Bitcoin known as the Blockchain would be tested by the financial markets. That time has come.

In a partnership announced last month, Nasdaq will enlist the services of Chain.com, a leading blockchain infrastructure provider, to facilitate the secure issuance and transfer of shares of privately-held companies using the blockchain platform.

There are currently 75 private companies within this new market for pre-IPO shares. Managing the shares of private companies has long been an expensive, inefficient, labor-intensive process involving lots of paper, lawyers, filing cabinets and sometimes bank vaults.

By using the blockchain to represent securities and manage capitalization tables, stockholders can seamlessly transfer securities between entities, and companies and their affiliates can be provided with a complete historical record of issuance and transfer of their securities. Importantly, the use of a blockchain-based distributed ledger can also offer integrity, audit ability, issuance governance and transfer of ownership capabilities – important qualities not yet offered in this Nasdaq-managed marketplace.

The first company to test this pilot program scheduled to be launched later this year will be Chain itself.

In recent years, many companies have sprung up offering software services to manage a company’s capitalization table. This software is certainly an improvement because its replacement of spreadsheets, paper stock certificates, paper options grants and paper convertible notes. But, it’s still software, and as such carries a high cost and the risk of human error in the transfer, recording and valuation work required for securities.

In contrast, the blockchain demands every transaction to be securely recorded on a public ledger, copies of which are held by computers all around the world. These ledgers are continuously synced so that each ledger agrees with all the others about when money or assets have been transferred, how much, as well as the sending and receiving party. Discrepancies are immediately identified and rejected by the system.

It is important to understand that the blockchain facilitates more than the recording of currency values. Anything can be recorded in perpetuity within the metadata of the blockchain including title history, ownership designations, terms and agreements – even wedding vows! Yes, this has been done.

Say, for example, a private company wanted to use the blockchain to issue shares to its employees. It would send each employee a nominal amount of money (a tiny fraction of a bitcoin). Encoded on the tiny bitcoin transfer would be the amount of shares being transferred to that employee. Because the details of that transfer would be recorded into the blockchain, no other records or oversight would be needed.

If the pilot goes well, the system could be extended to more private companies within the Nasdaq Private Market and even the public exchange. Chain CEO Adam Ludwin believes the ultimate vision is to extend blockchain technology to mergers and acquisitions, equity and debt, and to domestic and international markets – international currency transfers being a particularly prevalent use of bitcoin.

In another indication of the financial markets embracing blockchain technology, several major Wall Street institutions, including Goldman Sachs and the New York Stock Exchange announced investments in or partnerships with Bitcoin startups. As a number of long-time Wall Street players and financial regulators leave their positions to head up or join Bitcoin companies, look for cryptocurrencies and the blockchain to have an increasing visibility and important role within the world’s financial markets.

About Mike Lake

Mike is the Senior Vice President of Marketing for Evergreen Trading. When not playing jazz trombone he is probably obsessing about writing content that will capture the attention and interest of business people and fellow learning junkies everywhere.

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