Bitcoin Is Drawing Interest From Nasdaq and NYSE, but Are Investors Ready?

NEW YORK (The Street) -- The two biggest stock exchanges in the United States have taken an interest in Bitcoin, and it may be time investors start paying attention.

On Monday, Nasdaq (NDAQ) announced plans to leverage Bitcoin's blockchain technology in a trial with its pre-IPO private market platform. This comes just months after Intercontinental Exchange (ICE) revealed that its subsidiary, the New York Stock Exchange, had invested in Bitcoin wallet and platform Coinbase. NYSE is expected to make a related announcement soon regarding advancements in the arena.

Bitcoin is a digital currency that was created in 2009. Unlike government-issued currencies, it is operated by a decentralized authority, and no physical bitcoins exist. Balances of the currency are kept using public and private keys (long strings of numbers and letters), and all transactions are stored on public ledgers called blockchains.

Since its creation, Bitcoin has developed a rather poor reputation in the media and among investors. It has often been associated with illegal activity and theft and has proven extremely volatile. The currency was priced at about $1,000 per bitcoin at the start of 2014, and by the end of the year, it had fallen to $300.

"So much of the conversation surrounding digital currency to date has centered on its use in criminal activity, but the narrative seems to be shifting now, with people realizing there is real potential for the technology to improve company operations and customer experience," said Emily Spaven, managing editor of CoinDesk, a news platform focused on digital currency.

Nasdaq has honed in on the blockchain technology behind Bitcoin in its endeavors. The blockchain is a public ledger of all transactions that have ever been made. It is entirely unalterable and, according to Duke University economist Campbell Harvey, the "most secure" blockchain there is. "It's different than a database, where you can edit. There's no editing of the entries into the ledger," he said. "Blockchain technology has the potential to replace stock exchanges as we know them."

Nasdaq will pilot the project in Nasdaq Private Market, a marketplace launched in 2014 to handle pre-IPO trading among private companies. The Wall Street Journal reports the platform has more than 75 companies signed up. "This is an experiment, but they see the viability of the technology," Harvey said.

The technology will create an equity management capability that allows private companies to facilitate the issuance and transfer of securities. It will provide pre-IPO companies a complete visualization of who has shares and at what valuation, potentially replacing traditional systems of record keeping that are typically performed manually using certificates and often outsourced to third parties.

Nasdaq's trials are in the very early stages; however, they are part of an enterprise-wide initiative that could have bigger implications later down the line. The firm's technologies power one in 10 of the world's securities transactions, meaning success in blockchain could have an impact not only on its own exchanges but on trades all over the world.

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