Nasdaq has named blockchain API developer Chain as the first company that will be trialing a blockchain backed version of the group's Private Market for trading pre-IPO company's shares.
Nasdaq embraces blockchain tech
In an announcement on June 24, Nasdaq OMX Group explained that Chain would be the first company on the Private Market to be issuing, cataloging, and managing transactions of their privately issued shares through blockchain technology.
The problem the companies are trying to solve is the difficult bookkeeping and paperwork currently associated with issuing shares in a private company. The paper records used are frequently outdated as startups make changes to staff and pivot their businesses faster than what the traditional capitalization recording methods can keep up with.
CEO of Nasdaq Bob Greifeld explained the importance of simplifying the current method of share issuing and cataloging. In a press release, he said:
"We are excited about the potential impact of this new endeavor with Chain on the transaction process. This Nasdaq Private Market project aims to simplify the overwhelming challenges private companies face with manual ledger record-keeping. As blockchain technology continues to redefine not only how the exchange sector operates, but the global financial economy as a whole, Nasdaq aims to be at the center of this watershed development."
Shares issued in the blockchain backed version of Nasdaq's Private Market will be recorded and delivered in the form of colored coins. By decentralizing this information, Nasdaq hopes to make the process of recording and later moving shares easier. In addition, they describe how “the use of a blockchain-based distributed ledger can also offer integrity, audit ability, issuance governance and transfer of ownership capabilities.”
Speaking about the move Chain CEO Adam Ludwin emphasized what he sees as the potential benefits that can come from Nasdaq adopting a blockchain powered system:
"Chain is thrilled to be working with Nasdaq on blockchain initiatives which will reduce the time, costs, and points of friction across the capital markets.”
Chain and Nasdaq are not the only companies exploring the blockchain powered shareholding space. Overstock.com's CEO Patrick Byrne has been working on selling private shares in his company through the blockchain since late 2014.
Most recently the Salt Lake City based company purchased a 25% stake in the SEC registered trading firm PRO Securities to ease the process of fulfilling the financial regulations surrounding the selling of shares.
Byrne is noted for his hatred of Wall Street and has described his vision of a system for “crypto equity” as one which could undermine the position of traditional financial institutions like the Nasdaq:
“Crypto equity is the use of the blockchain to create a parallel universe that parallels the financial system as we know it; Wall Street as we know it.”
Blockchain API developer Chain previously made the news when the San Francisco based company raised US$9.5 million in a funding round that included prominent figures such as Kevin Ryan and Barry Silbert.