The Silicon Valley revolution is coming, and Wall Street is also opening its arms

Jamie Dimon, CEO of JPMorgan Chase, put it most succinctly. “Silicon Valley is coming,” he said.

In his annual letter to shareholders this spring, Dimon warned that Wall Street has been surrounded by hundreds of startups with brains and money because of the old guard's way of doing things. Traditional banks are facing a world where more and more "seamless and competitive" alternatives have emerged. He said JPMorgan Chase will work hard to modernize its services. If necessary, JPMorgan Chase will cooperate with Silicon Valley startups that are trying to disrupt the banking industry.

His warnings went unheeded. In the past few months, Wall Street has embraced Silicon Valley fintech companies at an astonishing rate. The latest example: Earlier this week, Chain, a San Francisco blockchain company, reportedly received $30 million in funding from financial giants such as Nasdaq, Citi Ventures, Capital One Financial, and Visa.

Chain builds financial systems based on the blockchain protocol. This online public ledger system is the cornerstone of the digital currency Bitcoin. This technology can not only provide us with a more efficient and secure way of currency exchange, but also change the way other financial assets are traded, including stocks, bonds and futures.

Nasdaq, the world’s largest stock exchange, has partnered with Chain to build a crypto-digital marketplace for trading private equity. Chain CEO Adam Ludwin said other investors in the company are using Chain’s blockchain technology to create their own systems.

Ludwin revealed:

"All of our investors are either our business partners or have strong intentions. We have already discussed cooperation agreements."

Meanwhile, the New York Stock Exchange has invested in San Francisco bitcoin infrastructure company Coinbase; Goldman Sachs has backed bitcoin consumer services company Circle; and Digital Asset Holdings (DAH), a company led by former JPMorgan commodities mogul Blythe Masters, is developing a system for “crypto-securities” similar to those being developed by Nasdaq and Chain.

Wall Street is advancing the Bitcoin world in various ways.

Blockchain and the stock market

Blockchain is essentially an online ledger managed by a cryptographic algorithm. In the case of Bitcoin, its blockchain is responsible for tracking the movement of the digital currency bitcoin (Bitcoin token), and it also plays a monitoring role.

The hope is that by embedding, for example, stock trades into an encrypted online database, we could greatly simplify the stock market.

The goal of Nasdaq and Chain is to provide a better way to manage stocks for companies before they go public. Blockchain can provide a more efficient way to buy and sell stocks and audit transactions. Georgetown finance professor James Angel even called the private equity market "the most perfect application of blockchain."

Is the private equity market Nasdaq's ultimate goal? Not really. As Nasdaq's technical director Brad Peterson said, this is just the first step. The company said that Nasdaq will eventually use blockchain protocols to completely reform its public stock market.

Coincidentally, online retailer Overstock has already taken this step early, launching a complete crypto securities market TØ.com. At the same time, they have also developed a blockchain-based stock lending monitoring system.

Of course, the Bitcoin blockchain is not perfect. For example, it is currently not fast enough to handle transactions in the public stock market. These are the issues that Chain is trying to solve. Essentially, the company provides technology that allows companies to operate their own private blockchain networks and then connect their networks to other networks in a faster and more secure way.

Processing of all currency transactions and financial instruments

The rise of Nasdaq, Overstock, and other blockchain systems is not necessarily aimed at changing the way we trade currencies, but at completely transforming the stock market.

Ludwin said:

“What we’ve built, and what most of our partners care about, is that blockchain can issue all kinds of assets, not only can you trade one security for another, you can trade currencies. You’re going to see networks that can handle all kinds of currency transactions, as well as other types of financial instruments.”

Securities markets are particularly ripe for change. Trades on public stock markets can take up to three days to settle, and blockchain has the potential to eliminate that seemingly anachronistic lag time. Today, stock settlement is overseen by an organization called the DTCC, and even that organization has publicly praised blockchain technology.

Silicon Valley is coming, and Wall Street's arms are already outstretched.

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