Bitcoin is not generally seen by the finance world as an asset worth investing in, due to often wild fluctuations in value. However, other elements of its online protocol are attracting the interest of certain financial services companies — including the Australian Stock Exchange.
As part of an overhaul of its systems set to take place over a period of four years, ASX has selected US-based firm Digital Asset to build a new trading platform based on Bitcoin's distributed ledger technology, the blockchain. Unlike Bitcoin's peer-to-peer distributed ledger, ASX's will be private.
The system that ASX currently uses to provide clearing and settlement services is called CHESS, and is in dire need of updating. However instead of simply replacing CHESS with an updated version that uses the same legacy processes, ASX is looking at re-enineering and simplifying the processes to better suit the modern market. “There has been very little innovation in the post-trade services that operate around the world for the better part of 20 years," says Elmer Funke Kupper, Managing Director and CEO of ASX.
Bitcoin's blockchain is a decentralised ledger that keeps track of every transaction ever made in the cryptocurrency. All the transactions are verified and shared by a peer-to-peer network of computers. While Bitcoin never quite managed to be the world-changing currency that it initially had promised to be — and has since gotten itself a reputation for being used in criminal transactions on sites like Silk Road — a number of financial institutions are now seeing great potential in its blockchain feature instead. In the US, the Securities and Exchange Commission have already greenlighted the use of technology like Bitcoin's blockchain to issue publicly traded shares.
ASX's plan to utilise a distributed ledger comes as part of a two-phase plan. “The initial phase of work is designed to bring the benefits to life and to test if Distributed Ledger Technology can work at the scale of the Australian equity market," says Mr Kupper.