NASDAQ is reported to have started a pilot project to use Block Chain technology which is the foundation of all Virtual Currencies including the well known “Bitcoin”, for the trading of shares in the Pre-IPO stage.
Some details are available in this article in WSJ.
This is an innovative attempt that commends appreciation. It is considered that the technology may pave the way of real time settlement of trading. Presently stock markets operate on T+2 settlement cycle where as Bitcoin transactions are often settled in 15 to 20 minutes.
The system may require two kinds of users namely the investors themselves and the other service providers who provide the settlement services. These settlement service providers would have to be provided a “fee” for their services which will have to be boarne by the investors or the underlying companies.
Each time a transaction is reported, it is sent to the central system and the settlement service providers pick up the transactions and try to create a link to the existing block chain based on the rules set by the algorithm. The first person to crack the solution would be rewarded with the fee and the solution adds the transaction to the existing block chain. Then the next transaction is taken up for addition. The additions can be on a single transaction or a set of transactions at a time and perhaps the fee may have to be determined on the basis of the number of transactions added.
While the existing stock brokers can be the logical settlement providers, there is scope for the public at large also providing similar services so that the settlement times shrink and tend towards real time settlement.
Despite the bad reputation which Bitcoin gathered because of its use by Cyber Criminals, Naavi has been one of those who has been indicating that a “Virtual Currency” or a “Crypto Currency” like Bit Coin is only a technology innovation and has a huge potential for multifarious use. RBI has created a perception that “Bitcoin” is not acceptable and is illegal per-se and hence the Crypto Currency technology has not taken off in India.
We urge RBI to reconsider its decision and for SEBI to also start thinking on whether a NASDAQ initiative can be tested even in India.