The “blockchain” is the technology that underpins Bitcoin, a digital currency that its proponents claim will revolutionise global finance. And now it’s coming to Wall Street.
The Wall Street Journal reports that the Nasdaq is experimenting with blockchain technology in a pilot project, a move that could — if successful — transform the financial industry.
So what is the blockchain?
First of all, Bitcoin is a decentralised currency — there is no central bank, no mint printing money, no governing authority maintaining records.
But records have to be maintained somehow, to ensure there’s no double-spending of the currency. Instead, members of the network collectively contribute processing power from their computers to maintain Bitcoin’s integrity. And every time a transaction is made, a record of it is sent out to be recorded in immutably in a public ledger, which cannot later be changed. This ledger is the blockchain.
It allows Bitcoin users to cut out the middle-man — one user can send another a sum of money, no matter where they are in the world, without having to rely on any financial institution. Once the transaction is carried out, it is effectively set in stone — a record of it distributed permanently across the entire network.
And the blockchain’s potential extend beyond currency. There are now numerous startups working to implement the notion of a decentralised ledger in areas ranging from signing contracts to tracking conflict diamonds and even voting in elections.
Nasdaq is hoping to bring the efficiency that the blockchain promises to other areas of finance, potentially dramatically reducing the need for lawyers and intermediaries. For now, Nasdaq is implementing the technology in its Nasdaq Private Market, which the WSJ reports is “a fledgling marketplace launched in January 2014 to handle pre-IPO trading among private companies.”
Previously maintained by “largely informal systems, including spreadsheets maintained by lawyers who verify transactions by hand,” the blockchain could automate the entire process. Once a deal is done, the parties would cryptographically sign a contract and the rights would be transferred over almost instantaneously — no lawyers required.
Nasdaq has shown an interest in the digital currency space before. It previously provided the core technology to power New York bitcoin startup Noble Markets — but this marks the first time it has integrated Bitcoin-related technology into its own systems.