Technology

The Lykke marketplaces uses the distributed ledger, which is blockchain technology pioneered by Bitcoin. A blockchain is a sequence of linked data records, or blocks. Each block refers to an earlier block in the chain, which strengthens the security of the entire sequence and makes it possible to store the data in a decentralized way, across multiple network-enabled devices in physical locations anywhere in the world. Using the blockchain as a ledger for financial transactions—as Bitcoin does, and as Lykke does—all but eliminates the risk of fraud, because the ledger exists in no fixed place. Rather, it exists in multiple places simultaneously, beyond the reach of any single authority.

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The blockchain also eliminates traditional barriers to entry, where only certain interests gain access to market, often due to regulations that discourage the participation of private investors. On the blockchain, anyone with a mobile device is now a potential market participant, with just as much access as anyone else. And on the global marketplace that Lykke is building, you can trade not just Bitcoins but any item of value. Any financial asset or instrument can be fairly exchanged for any other, from anywhere in the world to anywhere in the world, without the exchange assuming ownership of the asset, in the time that it takes to check your phone.

The medium of exchange is the colored coin, another innovation from the Bitcoin project. Just as a Bitcoin represents a fixed currency value, which you can express in any convertible currency, a colored coin represents a fixed value of anything: a stock or bond, real estate, a luxury item, a work of art—any object with market value. The holder of the asset can issue colored coins to stand for the value of the asset for trade, which any buyer can purchase in the very same currency, instantly, using the Lykke Exchange.

Under this model, the Lykke Exchange acts as a clearinghouse for going market rates but never as a repository for the assets exchanged. Market participants use the Lykke Exchange to negotiate prices and settle transactions, but the assets themselves are not held by Lykke, which further ensures the integrity of the exchange.

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