Nasdaq adopts bitcoin backbone for stocks

Nasdaq is to start using the technology behind the virtual currency bitcoin to handle transactions on its market, making it what is thought to be the first major financial market to adopt the idea.

The blockchain - the backbone on which bitcoin depends - has attracted wide interest in the financial world as a potentially revolutionary way to streamline many different types of transactions, though few alternative applications have yet been tried beyond bitcoin.

As a public, distributed ledger, the blockchain currently acts as a central repository for details of all bitcoin trades, though it could also be used for other financial assets. Transactions are validated based on a mathematical formula running on the computers of volunteers, removing the need for banks, clearing houses or other intermediaries.

"It brings a level of auditing that's based on mathematics and not based on trusting a third party," said David Johnson, chairman of Factom Foundation, a start-up trying to expand the use of the blockchain beyond bitcoin.

Nasdaq said it was looking to use the blockchain across its markets. The first application, due later this year, will handle the issuance and transfer of stocks on its Nasdaq Private Market platform, which was set up to handle trades in private company stocks.

The technology will "modernise, streamline and secure typically cumbersome administrative functions," said Bob Greifeld, Nasdaq's chief executive officer. Private companies in particular struggle with the requirements of keeping share registers manually, he added.

In a sign of the growing interest in the blockchain's potential to disrupt how financial markets operate, Blythe Masters, the former JPMorgan executive who help develop the idea behind credit default swaps, earlier this year joined Digital Asset Holdings, a start-up focused on the area. At the time, she described the task of reducing the costs and inefficiencies in financial transactions as "one of the great challenges of our time."

Besides ending the need for intermediaries like banks or clearing houses, the use of the blockchain could also make the completion of transactions almost instant, compared to the period of days most trades currently take to settle, Mr Johnson said.

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