Could the blockchain finally be coming to financial services? In early June, financial tech firm Symbiont secured $1.25 million in funding for a bitcoin-based system designed to revamp the financial securities market.
The people behind Symbiont have experience using bitcoin technologies for financial tech. They started Counterparty, a financial trading platform built atop the bitcoin network that enable people to create and trade their own cryptocurrencies. Now, with Symbiont, they are courting Wall Street with technology that will allow people to encode ownership of securities into the bitcoin network.
Bitcoin couldn’t operate without its core technology: a general ledger, distributed among its users, which records every bitcoin transaction ever made. Called the blockchain, this general ledger is cryptographically ‘sealed’ using the vast computing power provided by bitcoin’s users. This makes it tamper-proof, producing a record that everyone can trust, even though no central organization manages it.
We have already written about the blockchain’s potential in business at IT World Canada.
Symbiont CTO and founder Adam Krellenstein said that securities trading could benefit from this kind of system.
“It’s different to anything that was done before,” he said. “The ledger can be distributed, immutable, cryptographically verifiable, and controlled in a decentralized fashion.”
Krellenstein believes that this could revolutionize outmoded systems currently used for trading securities on Wall Street.
“They’re tired of using such outdated technology. You’re talking phones and faxes,” he said. “They’re comfortable with it – bond traders for example. But they know that this isn’t how things should be done, because they use smartphones every day.”
In Symbiont’s technology, which is still yet to be made commercially available beyond a selection of pilot partners, the properties of financial securities would be encoded in the blockchain, digitally recording them in a trusted record. Rather than simply recording ownership, however, the record would include executable code known as a smart contract, that would execute rules relating to the security.
An example of a smart contract could be a pre-arranged escrow transaction or a yield payment, triggered by particular activities such as a change in the security’s price. Other benefits to the system include the possibility for decentralized trading and peer-to-peer settlement, which would effectively do away with the need for a centralized exchange.
Symbiont is layering its own technology on top of the bitcoin blockchain to make all this work. It will continue to use bitcoin’s blockchain for the time being rather than developing its own, because the size and popularity of the bitcoin network contributes to its security. The large amount of computing power on the bitcoin network helps to ‘seal’ records on its blockchain.
There are some downsides to the bitcoin blockchain, such as the time it takes to clear the average transaction. On average, it takes 10 minutes to write a transaction to the blockchain. Security-conscious participants will sometimes wait up to 60 minutes for a transaction to be truly confirmed by the bitcoin network.
This doesn’t worry Krellenstein, though. There are many securities that trade infrequently, such as corporate bonds, for example.
Symbiont already has some pilot projects in play, he says, but won’t reveal who they are with. The company expects to issue the first ‘smart securities’ later this year.
In the meantime, its June seed round came from former NYSE Euronext CEO Duncan Niederauer, Wicklow Capital and Celeridem FinTech Fund among others. It plans an A-round for the third quarter.