In a feature on WIRED, Nasdaq CIO Brad Peterson shared that bitcoin technology could transform the stock market. Nasdaq is the second-largest exchange in the world based on capitalization, next to the New York Stock Exchange.
In particular, Peterson and his team are working on a system that can make use of the distributed public ledger or the blockchain to track trades in private companies. However, he is also open to the idea of implementing this on public stock exchange such as the Nasdaq.
Bitcoin and Stocks
Prior to this, online retail giant Overstock has already made waves in making use of bitcoin technology to create “cryptosecurities” or bonds that can be traded using the blockchain for settlement. The blockchain is updated by a network of computers solving complex algorithms in a process known as bitcoin mining, rendering the entries immutable and irreversible.
In addition to the security of blockchain, it also enables clearing to proceed faster and at lower costs. Traditionally, clearing houses and middlemen facilitate the settlement of trades, causing delays and preventing nearly-instantaneous clearing. Also, fees can pile up from one middleman to another, reducing potential profitability.
Through their Nasdaq Pilot Market project, Peterson and his team aim to conduct record-keeping via the blockchain, which will complement a cloud-based data management tool that tracks who owns shares of a given company and how much they own. Aside from that, the entries in the blockchain will alsocontain certain important information about the transaction, such as the timing and number of shares involved.
Peterson reiterated that errors in record-keeping can be costly and that there is no system that currently allows for accuracy and auditability. Nasdaq continues to explore the potential applications of bitcoin technology, although Peterson has expressed his concerns regarding the issues surrounding the bitcoin industry these days, most notably the block size limit debate.