Nasdaq Brings Blockchain to Life

Finally, some action. On the penultimate day of 2015, Chain.com, a privately-owned blockchain development company, issued shares to a private investor using Nasdaq's Linq system based on the much-hyped digital ledger technology popularly referred to as blockchain.

Trading shares of private companies is usually considered a laborious, time-consuming, paper-based process where information quickly becomes outdated. Considering the advantages of blockchain ─ especially as a disseminated list of transactional data records ─ Chain.com was presented as the ideal case on which to test the new distributed ledger technology. And according to Nasdaq, it all went pretty well.

Toward a Blockchain Ecosystem
But let's step back a bit to establish some of the thinking as to how one would take a heavily conceptual technology into the daily workflow of the capital markets. Although Nasdaq is obviously a large player in the exchange space, the firm pretty quickly realized that it couldn't take on the blockchain challenge alone, which meant collaborating with a community of similarly-minded firms.

"There's no point in us running around doing our own little ledger or our own solutions exclusively for our own benefit," explains Fredrik Voss, head of blockchain strategy at Nasdaq. "The real value of the technology is in an ecosystem."

When it comes to blockchain, Voss has a deliberate and determined manner in how to move things forward in terms of creating a community and learning on the way. It's a very considered, Scandinavian way of saying, "enough chat, let's get it done." Similarly, from WatersTechnology's point of view, so many articles have been read and so many talks given, so isn't time for us to see some results?

"At the end of 2016, we'll be able to draw conclusions as to whether the technology has created positive attitudes and desires for its implementation, and for firms to be willing to invest in transition investments from legacy technology to this newer technology." ─ Fredrik Voss, head of blockchain strategy, Nasdaq.

Voss confirms Nasdaq's drive: "As part of a community, we feel a responsibility to bring capital markets players along, although it's an early-days innovation initiative, and our objectives shift pretty quickly."

A Learning Experience
So, is this how the snowball forms? By the end of 2016 will we see the wholesale adoption of distributed ledger technology? Probably not, according to Voss, who believes that although a roadmap is starting to take shape, there is still a lot of testing, learning and responding left to do before we see any kind of mass implementation.

"At this point, the objective is to maximize learning, to understand what impact the technology might have on operating processes and procedures, and how it fits into the regulatory environment. In order to do that, we're looking for opportunities that are not too complex and which do not require a big-bang approach for replacing already existing technology," Voss says.

Nasdaq arrived at the decision to move forward with a transaction of private securities based on the relatively confined environment of private shares, with very little existing technology infrastructure ─ paper, Excel spreadsheets, faxes, and FedEX. Voss also cites the fact that the private market is also less complex from a regulatory perspective than the public market in the US.

"We just wanted to get out of our laboratory and work toward use-cases of real consumption, involving real, private companies and real investors."

[It should be noted that while Nasdaq says it's the first to have a private issuance using blockchain technology, Symbiont claims to be the first firm to issue securities over the blockchain.]

The State of Play

If we break it down year-by-year, it looks as though 2015 will be remembered as the year use-cases for blockchain were genuinely being discussed and projects were initiated for implementations around products. According to Voss, 2016 will be the year when we see a number of offerings actually deployed, and finally we'll be able to draw some genuine conclusions as to what worked, why it worked, and what didn't.

"At the end of 2016, we hope to be able to draw conclusions as to whether the technology has created positive attitudes and desires for its implementation, and for firms to be willing to invest in transition investments from legacy technology to this newer technology," says Voss.

So, potentially, 2017 could be the year more substantial offerings start to appear? After the success of the recent Nasdaq-executed trade, Voss reiterates the potential of the distributed ledger: "The technology holds great promise to actually revolutionise capital markets processing and how it operates. But we're also realistic in acknowledging that it needs to fit into an existing ecosystem of technology ─ processes, procedures and regulations."

The Bottom Line: 

Although the Chain.com trade marks the debut of this much-hyped blockchain technology, Nasdaq admits that at this point it's all just part of the learning process and it will be a number of years until we see the wholesale adoption of a distributed ledger. However, there remains great promise for blockchain to revolutionize the capital markets.