The US-based stock exchange, NASDAQ, is apparently testing out the blockchain technology for the NASDAQ private market. This private market is basically NASDAQ’s very own marketplace for pre-IPO trading. The blockchain technology is highly associated with Bitcoin, the popular virtual currency. This brings us to conclude that NASDAQ is indeed looking at virtual currency-based systems for stock trading.
NASDAQ is, no doubt, one of the world’s largest stock markets, and if bitcoin is integrated, then it would be the one of the biggest achievements for the virtual currency. Currently, 75 companies are signed up on the NASDAQ Private Market platform and henceforth, they would be actively involved in the pilot project. The NASDAQ Private Market came into inception as a joint venture with SharesPost and enables private companies to raise capital and manage secondary transactions.
The blockchain technology basically involves a ledger system which keeps track of the amount of bitcoins owned by specific parties. In the traditional share trading system, the sales and transfer of shares is done using a manual process which involves spreadsheets and other elements. Now, it seems that NASDAQ wants to automate this process by leveraging the blockchain ledger system.
The blockchain technology offers a decentralized system which itself provides a direct channel for transactions. This means no involvement of middlemen players such as banks or clearing houses. If the blockchain technology gets incorporated, then NASDAQ can have a direct channel for immediate transfer of shares. This would further reduce the risk of defaults or disruptions by third parties.
But there are other issues which can raise concerns over the adoption of blockchain technology. The blockchain ledger system is managed by a global network of anonymous “miners” who work towards the authenticity of the ledger system. Now officials monitoring the stock exchange system can raise concerns over the existing anonymity in the blockchain network. A scenario where billions and trillions of dollars are passing through a network run by anonymous users certainly doesn’t give that much confidence.
Here are some initiatives which highlight how digital currencies can be the future for exchanges:
- Sweden’s NASDAQ exchange approved a bitcoin-based exchange-traded note (ETN) earlier this year.
- In China, Huobi launched a service to allow users to mortgage bitcoin in return for Chinese yuan (CNY) loans to purchase real shares on the Shanghai Stock Exchange.
- US-based NASDAQ had partnered with the bitcoin start-up, Noble Markets, in order to leverage their X-Stream technology