Time to Take Bitcoin Seriously? Bitcoin Tech Spreads to Wall St.

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By Casey C. Sullivan, Esq. on May 11, 2015 12:55 PM

Your company may not be paying its legal department in bitcoin yet -- and it may never -- but bitcoin technology could soon change the way financial operations work. Nasdaq is currently experimenting with bitcoin's blockchain technology to see if it can speed up trades on its stock market.

Right now, the experiment is limited to a small market for securities in privately held companies. If the project is successful, it could ramp up the speed of securities trades -- potentially transforming the industry. For in house counsel, now's a good time to start taking note of bitcoin.

Who Needs Lawyers When You Have Miners

Blockchain technology is one of the foundations of the bitcoin system. It is essentially a "public ledger" that tracks transactions by logging them across thousands of interconnected computers, run by bitcoin "miners." Those computers work simultaneously to verify a transaction. Under this system, there's no need to channel that information through banks, brokers or other middlemen, allowing transactions to occur much more quickly.

Nasdaq is testing the blockchain process out on its small Private Market, a new exchange handling pre-IPO trading among private companies. Currently, shares in such companies are often traded using an informal system which requires lawyers to maintain ledgers and verify transactions individually. Those lawyers could soon be replaced by computers.

A Risk Worth Investing In?

According to The Wall Street Journal, there's still plenty of concern over the bitcoin system. The miners who collectively run the blockchain process are anonymous, meaning that there is a risk that "bad actors" could undermine its integrity. Similarly, the volume of bitcoin transactions pales in comparison to Wall Street, meaning that the hardware underlying blockchain would need to be expanded greatly should the process become more common.

But, the risks don't seem to be enough to dissuade financial institutions who are looking at bitcoin, and bitcoin tech, with new promise. In addition to Nasdaq's experiment with blockchain technology, the New York Stock Exchange has created a bitcoin-trading platform, Goldman Sachs has made a bitcoin-services company and several large investment firms are experimenting with cryptocurrency.

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