(Bloomberg) -- The blockchain revolution is gunning for the goldmarket.

Public online ledgers that emerged from the explosive marketsfor bitcoin, a virtual currency, already have drawn theattention of businesses from banks to retailers who seeblockchain systems as a revolutionary way to verify and recordtransactions. Now, companies including exchange owner CME GroupInc., IEX Group Inc. spinoff TradeWind Markets and financialtechnology firm Paxos are rolling out similar platforms to bringgold into the digital age.

About $27 billion of gold changes hands every day inover-the-counter markets where settlements can sometimes takesdays, leaving price risk for buyers and sellers. Using blockchainpromises more transparency, security and speedier deals. It alsocould attract new participants at a time when investors are souringon gold-backed exchange traded-funds, a key source of growth inphysical demand over the past decade.

“Digital gold would take market share away from other goldinstruments: futures, physical gold bullion, gold ETFs,” EbeleKemery, head of energy investing at JPMorgan Asset Management, saidin a phone interview Aug. 9. Using the technology to trade theprecious metal would create “another avenue for where investors canlook to find value,” she said.

Bitcoin, the first instrument to use blockchain, has more thanquadrupled in 2017 to more than $4,000. The cryptocurrency thisyear surpassed the price of gold for the first time.

CME Group, the world’s largest exchange owner, teamed up lastyear with the U.K.’s Royal Mint to create a bullion productcalled Royal Mint Gold. CME, according to its website, worked withblockchain security company BitGo to provide a “fast,cost-effective and cryptographically secure method” of buying,holding and trading the precious metal.

Testing System

The RMG trading platform is now being tested with majorfinancial institutions and will be offered to customers by the endof the year, according to CME. That’s in line with a timetableset in November 2016, when the exchange first announced the plan.The product, which is geared toward institutional and retailinvestors, will be backed up by as much as $1 billion of bullionstored at the mint, according to the exchange.

TradeWind, backed by Sprott Inc., a money manager focused onprecious metals, is using blockchain for an electronic platformthat would match buyers with sellers of gold stored in any LondonBullion Market Association-approved vault. TradeWind also providesa distributed ledger that will handle trade settlement, accountmanagement and record-keeping. The company expects to launch theproduct late this year or early next.

Paxos built Bankchain Precious Metals. It’s a blockchainsettlement service to allow for the instantaneous transfer ofpayments and ownership of the bullion stored in various vaults inLondon, Charles Cascarilla, Paxos’s chief executive officer, saidin a phone interview.

Clearing Trades

In a pilot test with Euroclear, before its partnership withPaxos was dissolved, Bankchain cleared more than 100,000transactions with participants including Citigroup Inc.,Societe Generale SA, Barrick Gold Corp. and INTL FCStone, accordingto a statement in April.

Paxos, which built the infrastructure, conducted another test,this time involving the actual movement of dollars through theFederal Reserve and the ownership of gold in London vaults, provingthat the system is ready to process instantaneous settlements,Cascarilla said. The service will be launched by the end of theyear, as planned, even after breakup of Paxos’s partnershipwith Euroclear, he said.

Still, blockchains won’t solve any problems related to thephysical delivery of gold, said Adrian Ash, a research director atBullionVault. The company runs an online platform for retailtrading of about $2 billion of metal stored in vaults around theworld, including Zurich, London, New York and Singapore. It handles38 metric tons of gold, more than the reserve holdings of Peru.

“People don’t trust the government, so why would you leave it atthe government vaults?” Ash said. “Our customers don’t want itsitting in a commercial bank vault because they could go bankrupt.When we buy it from a bank, we put it in a specialist custodialfacility. You need a truck to move it. Blockchain doesn’t solve thetruck problem.”

Paxos’s settlement service may lure clients like TornadoBullion, an online trading platform for coin dealers, metalrecyclers and bullion buyers. Tornado is tracking the progress ofBankchain, hopeful the technology could lower the transactioncosts, co-founder Peter Thomas said in a telephone interview.

Currently, Tornado buys and sells gold over the counter throughJPMorgan Chase & Co., one of the five clearing members of theLondon Bullion Market Association. That way, same-day payments canbe transferred to Tornado’s JPMorgan account in New York, Thomassaid. Settlements take longer for smaller players who don’t dealdirectly with LBMA clearing members.

Given the transaction takes a couple of days to be cleared andthe gold delivered, Thomas said his clients use a hedging tool thatcosts 10 cents for every ounce of gold to protect them againstprice fluctuations. The metal traded Thursday at about $1,286.29 anounce. Avoiding that cost on about $500 million of trades everymonth would be useful, but Thomas says Tornado Bullion isn’trushing to join the Paxos system.

“The biggest concern to me is reliability,” Thomas said. “Thelast thing I want to do is come in and find 700,000 ounces of goldare missing. We’ll give it a few years to see how it goes. Onceaccountability has been tested, then we’ll be a little morecomfortable with it.”

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