Visa and financial institutions team up to invest in Bitcoin-related startups

Beijing time, September 10th, according to the Wall Street Journal, Wall Street is investing more in a technology that it had previously denounced as a fad.

Several large financial institutions , including Visa, Nasdaq, Citigroup's venture-capital arm Citi Ventures, Capital One Financial, Fiserv Inc. and Orange SA, have invested $ 30 million in Chain, a San Francisco startup that works with banks and other financial institutions to develop ways to trade and transfer financial assets using the system that powers the virtual currency Bitcoin.

Chain announced the funding round on Wednesday without disclosing its valuation, and said former American Express CEO and venture capitalist Jim Robinson III has joined its board of directors.

The investment is the latest sign of a U-turn on Bitcoin on Wall Street. When Bitcoin first emerged, banks and other financial firms said the virtual currency was unlikely to transform business . They had no interest in actually using Bitcoin but saw the "blockchain" technology that allows Bitcoin users to conduct and record transactions instantly as having the potential to replace cumbersome, costly and less secure transaction procedures.

There is a lot of red tape within banks and third-party companies in the verification and processing of buy and sell transactions for various assets, whether it is foreign exchange or stocks .

The so-called "blockchain" refers to a record of all transactions conducted using Bitcoin, but this record does not exist in a central database or institution. Instead, it is spread across a network composed of independent computers and is continuously verified by the participants of this network rather than by a central institution.

Proponents of the technology say it would make it possible for stocks or other assets to change hands quickly in the blink of an eye, rather than the three days or so it takes now with multiple intermediate steps.

While many on Wall Street are increasingly bullish on the technology, it could be years before financial institutions agree on a large scale to adopt it to establish new protocols for processing and clearing trades. There is also uncertainty about whether the technology, called blockchain, is secure enough to handle large volumes of sensitive transactions, and how easy it would be for traditional financial institutions to overhaul the way they operate.

"We believe that blockchain technology is powerful enough to transform the way financial assets are transferred, but we must have the right partners to ensure its success," Chain CEO Adam Ludwin said in an interview.

The company is currently working with Nasdaq to use the technology to facilitate trading of unlisted shares in its private markets, but changing the way stocks or corporate bonds are transferred between investors will require broad agreement across the financial industry.

"The devil is in the details," said Houman Shadab, a professor at New York Law School who studies blockchain technology. "There's still a lot of work to be done in terms of industry agreement on how to do this and in terms of converting existing technology to new, unproven platforms."

Chain is one of several startups competing to dominate the new space, including New York-based Digital Asset Holdings LLC and San Francisco-based Ripple Labs Inc., which is headed by Blythe Masters, a former JPMorgan Chase executive.

Some industry experts say the industry is facing growing challenges in how to safely move assets around the world, reminiscent of another major market event: the 1968 "paperwork crisis." At the time, trades in financial assets were settled by the delivery of physical certificates, but a surge in trading volumes bogged financial firms down with a mountain of paperwork. The situation got so bad that the New York Stock Exchange had to cut its trading week to four days.

To help solve this problem, brokers and exchanges helped create what is today called the Depository Trust & Clearing Corp., a central agency that facilitates the settlement and clearing of financial market transactions. The Depository Trust & Clearing Corp. says it now clears more than $1.6 trillion worth of trades each year.