The Salt Lake City-based online retailer Overstock is working on a revolutionary new development: a new independent stock exchange dubbed Medici, powered by Bitcoin technology. The new stock exchange could sidestep traditional stock exchanges such as NYSE and NASDAQ and issue corporate stock directly over the Internet.
In a prospectus filed with the Securities and Exchange Commission on April 24, Overstock indicated that it may issue up to $500 million in stock or other securities through an alternative trading system built upon blockchain technology that powers bitcoin. Overstock’s CEO Patrick Byrne is confident that the SEC will approve the filing eventually: “I wouldn’t have taken all the time and trouble and expense to do this if I didn’t plan on using it someday soon,” he toldWired.
Now Wired reveals that last fall Overstock purchased a 25 percent stake in government-regulated trading company PRO Securities. The firm, formed in California in 2002 and now based in New Jersey, manages the buying and selling of securities on behalf of its clients, acting as a registered agent between traders and exchanges. In a government filing earlier this year, PRO Securities amended its charter to say it may handle trades in digital securities overseen by technology related to the “blockchain,” the online public ledger that tracks the movement of bitcoin.
According Byrne, his company has built blockchain-related technology atop the electronic system operated by PRO Securities and is ready to demonstrate this technology to regulators.
“The prospect of using a blockchain-like public ledger to hold securities or other assets is quite exciting and one that should be explored,” said Georgetown University professor of finance James Angel. He thinks investors will not immediately adopt new blockchain-based trading systems, preferring instead to continue operating with the traditional systems they are familiar with. However, the inevitable inertia may be overcome if Overstock’s and other similar initiatives gain sufficient momentum.
In fact, momentum is building. On May 11, Nasdaq announced that it would begin to leverage the colored coin protocol Open Assets to expand and enhance the equity management capabilities offered by its Nasdaq Private Market platform.
“Utilizing the blockchain is a natural digital evolution for managing physical securities,” said Nasdaq CEO Bob Greifeld. “Our initial application of Nasdaq’s blockchain technology-enabled offering will modernize, streamline and secure typically cumbersome administrative functions, and will simplify the overwhelming challenges private companies face with manual ledger record-keeping.”
This vote of confidence by Nasdaq, a prestigious stock exchange and leading financial institution, is bound to have a deep impact on the acceptance of blockchain-based technologies by the financial mainstream. According to Overstock’s Director of Communications Judd Bagley, the Nasdaq initiative will help in overcoming the hurdle of market acceptance of Medici.
Other companies expected to play a leading role in developing and deploying blockchain-based security exchanges are Digital Asset Holdings, headed by former JPMorgan superstar Blythe Masters, and Symbiont, a new digital fintech company focused on fostering the symbiotic relationship between traditional financial markets and cryptographic blockchain technology.
Symbiont was co-founded by the founders of Counterparty, whose technology was initially selected by Overstock as the main software backbone of Medici.