Overstock.com’s CEO, Patrick Byrne, announced today at Inside Bitcoins in Las Vegas, Nevada, that he intends to reinvent the stock market by using blockchain technology.
Based on the bitcoin digital currency, Byrne’s project, code-named “Medici,” will allow large retailers to issue their corporate stock over the Internet using “cryptosecurity” software. Byrne’s move seeks to disrupt traditional stock exchanges such as the NASDAQ by allowing any to potentially issue financial securities.
Byrne took to the stage at Inside Bitcoins to bring attendees through the process of the incredibly centralized and, what he considers to be highly fraudulent, world of stock market trading and settlement.
Many have been made aware of the severely fraudulent practices within both investment banks and their regulators in the aftermath of the 2008/2009 financial crisis. Indeed, Bitcoin is thought to have been born out of this traumatic financial collapse: it’s promise is to allow people to transfer value directly between each other, without going through 3rd party financial institutions.
Why would circumventing 3rd party institutions be important? Byrne walks us through it. The ties between organized crime, regulation and Wall Street giants like Goldman Sachs and JP Morgan Chase, for one (anyone remember the HSBC connection with Mexican drug lords?). The complete lack of transparency and high-frequency trading … for another.
Byrne believes blockchain technology can change this reality.
Byrne is passionate about the need to democratize Wall Street by allowing companies to IPO in a less manipulated, less expensive way. This is not a new passion for Byrne; he has quite a history of pushing for reform in such markets. This time, he is working with regulators to make this happen, although he apparently has not yet secured regulatory approval for his ambitious project. However, he has retained blue-chip law firm Perkins Coie to help bring his vision into reality. Additionally, he has secured an “open chequebook to build” his crypto-finance project from an investor with “deep pockets,” and he has enlisted Counterparty talent to help him.
Byrne’s announcement comes as no surprise to some, as he previously hinted that Overstock would be building such software. But he has confirmed this with his announcement today to an excited crowd of Bitcoin advocates and entrepreneurs. No doubt, this is an excellent piece of news for startups in the space, as it promises to remove the number of middle-men involved between starting a company and taking it public.
Byrne’s blockchain-based project intends to save businesses approximately 20 percent or less of what Wall Street banks are charging to provide these services today.
All trades on Byrne’s stock market will be recorded on the Blockchain ledger. Other players in the Bitcoin space are moving forward with similar efforts, notably a new company that debuted this week at Inside Bitcoins – Blocktech Financial, a subsidiary of the Blockchain Technology Group, a collection of financial and technical experts who are also building a stock market, although not on top of the Bitcoin blockchain. Blocktech Financial is in the pre-approval process for FINRA and has registered with FinCEN.
Byrne’s team seeks to be compliant under all necessary regulations, saying that they can only make changes “from the inside.”
Many others players in the Bitcoin space, including as Pamela Morgan of Empowered Law, BitNation and Ethereum, also have visions of building on Bitcoin to disrupt not just finance, but law, governance and politics. Clearly, many see these spheres as in desperate need of re-work and disruption.
Byrne says he will “build the platform so any company can list, but Overstock will be the first to use it,” in a coin called O-Coin. The crypto-finance market does not currently have its code listed on GitHub, as it is “still materializing”; Counterparty’s code is open-source and is available for review on GitHub.
Byrne considers this project an “ice-breaker”, doing the “heavy lifting at a multi-million dollar expense” so other alt-markets can follow.
Byrne’s ambitious project may eliminate short-selling, but it certainly does not help insider trading; Counterparty (XCP) increased 46% last night, suggesting significant insider information prior to the ‘official announcement.’ Bruce Fenton speculated on this announcement during a speech at ‘Coins in the Kingdom,’ another Bitcoin conference running simultaneously to Inside Bitcoins. WIRED released their article on this topic earlier than planned, as well.
One thing remains: we can change the way we transfer value, but we cannot change human nature. However, of all the people to lead a project like this, I think Byrne is a fine, fine choice.
What do you think about this project? Do you think it will materialize and disrupt as promised? What are your questions or concerns? Share and comment below.