Nasdaq will start using Bitcoin technology

I lived on bitcoin for 24 hours

The Nasdaq stock exchange is tapping Bitcoin's powerful new transaction technology to create a more secure, efficient system to trade stocks.

Most people have heard of Bitcoin (XBT) as a system of electronic money -- one that hasn't really caught on yet.

But what gets less attention is blockchain, the technology that powers the Bitcoin system. It's a computer program that automatically processes transactions and creates a perfect, reliable digital record.

High-tech bankers are starting to realize this could revolutionize trading. Nasdaq (NDAQ), a favorite exchange among many technology companies, is making the first move.

On Monday, the stock market announced it will start using a blockchain system to keep records for its Nasdaq Private Market, which handles trading of shares in the pre-IPO phase before a company goes public.

Nasdaq sees the blockchain's perfect recordkeeping as a major step in the right direction for more transparency. The pre-IPO market doesn't typically see as much trading and what does occur is often by a tight circle of employees and early investors.

"Blockchain technology will provide extensive integrity, audit ability, governance and transfer of ownership capabilities," Nasdaq said in its public announcement.

This doesn't mean Nasdaq is using actual Bitcoins as currency. But Nasdaq will be interacting with the Bitcoin system to slip data into the blockchain.

By using Bitcoin's core technology, this is a major acknowledgment of Bitcoin's contribution to finance and trade. This is the first time the world has seen a trading system that doesn't require a trusted middleman. It sounds boring, but in the banking world, it's revolutionary.

CNN explains: What is Bitcoin?

It seems odd to equate Bitcoin with better security. The world's first true big digital currency is generally known for two things. One, its popularity in online black markets. Two, the epic fall of Mt. Gox, a major Bitcoin exchange market that wiped out $400 million in people's savings.

But these have nothing to do with the digital currency itself. Bitcoin's perfect recordkeeping actually helped convict a black market kingpin. And computer security experts say Bitcoin's technology actually makes it more secure than any other money transfer system.

Nasdaq's experiment is a limited one. On Monday, the Wall Street Journal referred to Nasdaq's pre-IPO market, which launched in January 2014, as "a fledgling marketplace." But if it works out, expect to see it use the blockchain concept elsewhere.

"Utilizing the blockchain is a natural digital evolution for managing physical securities," Nasdaq CEO Bob Greifeld said in a statement.

Jose Pagliery is the author of Bitcoin - And the Future of Money (Triumph Books, Chicago).

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