Banks including J.P. Morgan Chase & Co. and Citigroup Inc. have successfully tested the record-keeping technology behind bitcoin on credit-default swaps,a move that could help the technology gain a foothold in mainstream finance.

The swaps are essentially insurance contracts that pay off if a bond goes bad, and the process of keeping track of the over-the-counter products can be a burden. Banks match buyers and sellers, transmit the trades via a service run by data provider Markit Ltd. and send a record to Wall Street’s central bookkeeper, Depository Trust & Clearing Corp.

The new test showed that a portion of that record-keeping task could be accomplished using “blockchain,” a common ledger that each party can view in much the same way that multiple users can work on shared computer documents.

DTCC now will discuss whether the results are strong enough to warrant using the technology for live trades or across a broader swath of credit-default swaps, a market with trillions of dollars in outstanding contracts.

“The ink is still drying on the results, but they are positive,” said Chris Childs, chief executive of the DTCC unit that oversees over-the-counter derivatives.

The test helps make the case for using blockchain in core Wall Street activities. While the alternative currency bitcoin itself has been embroiled in legal battles and volatility, the underlying ledger–which can be edited anywhere and instantly validated — has drawn strong interest from mainstream finance.

Big banks recently have assigned teams of people and invested millions of dollars to find ways to apply private blockchains to cut out middlemen and save money. Barclays PLC announced on Wednesday a partnership with bitcoin startup Circle Internet Financial Ltd. to enable the digital-currency firm’s mobile app to send and receive British pounds and to swap them for U.S. dollars.

Analysts at Autonomous Research say using blockchain could cut trading settlement costs by a third, or $16 billion a year, and cut capital requirements by $120 billion. A recent report by Citigroup forecast that automation, including blockchain, could eliminate two million banking jobs, largely in processing, over the next decade.

The new test replicated a month’s worth of trades in the single-name credit-default-swap market, which has a total of $6.7 trillion in face value of outstanding contracts, not accounting for offsetting trades, according to DTCC figures. Electronic CDS agreements on individual servers were replaced with a record on a shared blockchain network.

The test included Bank of America Corp. and Credit Suisse Group AG, which worked with J.P. Morgan, Citigroup, Markit and technology firm Axoni, a new venture focused on applying the bitcoin technology of blockchain to banking.

Markit has about a half-dozen active blockchain projects, but the CDS test is “the most real proof of concept going on,” said Jeffrey Billingham, vice president in Markit’s processing division and a lead in its “Chain Gang” testing blockchain uses. The test “revealed to everybody the ways you can improve efficiencies and minimize costs.”

Any live implementation of blockchain in swaps trading could be years away. DTCC said the next step is to determine the interest of other banks and regulators in using blockchain in the market. Some may be reluctant to make changes that threaten their own market share or introduce new complexity to systems that have been tested and refined over the years.

DTCC, a bank-owned utility, will be an important player. It handles settlements for quadrillions of dollars worth of transactions. While bitcoin and blockchain were intended to eliminate the need for a middleman, DTCC has argued that U.S. regulators likely still would require oversight by a central body.

By Telis Demos for WSJ VC