Nasdaq, the American stock exchange, announced today that it intends to use the blockchain, the secure ledger technology that underpins Bitcoin, as part of an enterprise-wide initiative. This initiative intends to first build on the Open Assets Protocol, a colored coin innovation built upon the Bitcoin blockchain and network. The first application Nasdaq intends to release will be a blockchain-enabled technology designed to enhance the equity management capabilities offered by its Nasdaq Private Market platform.

The company named Fredrik Voss, Vice President at Nasdaq, as Blockchain Technology Evangelist to lead the strategic development of this initiative.

The Bitcoin blockchain provides the security and distribution technology that allows bitcoins to be traded like physical currency, it acts as a distributed ledger of every transaction made on the bitcoin network. This capability makes the blockchain an enticing technology for many other applications, especially those that require the transfer of unique digital assets that behave like virtual commodities.

Nasdaq intends to use the blockchain to offer more efficient, fully-electronic services that facilitate that issuance, transfer, and management of private company securities.

“Utilizing the blockchain is a natural digital evolution for managing physical securities,” said Bob Greifeld, CEO, Nasdaq. “Once you cut the apron strings of need for the physical, the opportunities we can envision blockchain providing stand to benefit not only our clients, but the broader global capital markets.”

The company also sees the blockchain as a vehicle to increase security due to its use of strong encryption and distributed consensus for transfers. The blockchain’s nature as a distributed ledger also makes it easier to audit, prove integrity, ownership, and provide for easier compliance with regulatory measures.

The first application “will provide a fully-electronic, distributed ledger-style solution for accurate record-keeping that complements ExactEquity.” ExactEquity is a cloud-based equity management solution designed to enable companies to manage capitalization and stock plans more easily. Companies can link ExactEquity to the Nasdaq Private Market to fully integrate the tracking of primary and secondary transactions as well as a complete, accurate view of shareholders, stock options, and other ownership data.

Open Assets Protocol and colored coins

The Open Assets Protocol (OAP) is a protocol built on top of the Bitcoin blockchain that permits the issuance and transfer of user-created assets–for example, private corporate securities issued by Nasdaq. The protocol, its specification, and code is available in an open source repository on GitHub.

The OAP is described as an evolution of a concept built on Bitcoin known as “colored coins.” Colored coins are described as a method to track the origin and movement of particular bitcoins. This is done by sequestering a number of bitcoins for a specific use that allows them to be re-imagined (and used) to represent virtual tokens or assets such as stocks, bonds, smart property, etc. For a more detailed explanation, Meni Rosenfeld describes colored coins and links a specification document on the technology Q&A forum StackExchange.

By running atop the Bitcoin blockchain, colored coins–and therefore also Nasdaq’s blockchain-based offering–benefit from the power and security behind the Bitcoin network. As described above, the Bitcoin blockchain uses distributed consensus derived from thousands of nodes across the world run by Bitcoin miners that provides integrity and stability to the ledger.

photo credit: WanderingtheWorld (www.ChrisFord.com) via photopin cc