At the Austrian Economics Research Conference this year, Patrick Byrne, CEO of Overstock.com, discussed the many ways that the blockchain may be used in the future to facilitate exchange. Summarized in the most simplistic way possible: the blockchain, Byrne says, allows parties to exchange without first having to establish trust with each other, and without having to rely on legal authorities for enforcement. Naturally, this has implications for the usefulness of state authorities in regulating exchange. (See this video beginning at 30:00.) Specifically, Byrne notes the role of an obscure organization called the DTCC in ownership of securities.
A recent Politico article noted Byrne’s role in expanding the blockchain’s role and the DTCC:
The DTCC is the clearinghouse for U.S. capital markets. Its Jersey City vault contains about a million physical stock and bond certificates, representing some undisclosed portion of the $43 trillion in total assets the organization holds in custody. This is the center of the entire American stock-trading system. Each share has an owner, and – no matter how fast it changes hands – a clearinghouse keeps track of who owns what.
This year, Patrick Byrne, the CEO of Overstock.com and would-be financial revolutionary, is taking the first steps in a campaign to smash open the vault. Or, really, to eliminate it - and with it, the whole system that makes the vault necessary. On April 1, the Securities and Exchange Commission approved a request by a private stock exchange partnered with Overstock to deal in “digital securities.” On April 24, Byrne filed a Form S-3 with the Securities and Exchange Commission to register $500 million worth of equity in Overstock as the first digital stock, which the agency is currently reviewing. On Friday, the company offered the world’s first-ever digital security, a corporate bond that does not need SEC approval and could be issued in a matter of days.
Byrne wants to use the technology behind Bitcoin to create a securities market that exists not in any one particular place, but as a collection of data distributed across computers anywhere on Earth, with no need for the DTCC, the New York Stock Exchange or any of the other middlemen who oversee the world’s capital markets.
This new system, which he calls Medici, after the banking family that ruled over Renaissance-era Florence, would do something no other stock exchange has ever done. It would skip the centralized clearinghouse entirely, and keep track of trading, clearance, and ownership on everyone’s computers at once. It would transform processes that now depend on centralized institutions for trust, and let people instead transact directly with one another.
By approving these new securities, the SEC has made the federal government’s first foray into regulating Bitcoin 2.0, a technological force on the cusp of sweeping into the mainstream.
When people talk about the real potential of Bitcoin to transform the financial system, they aren’t talking about a digital currency that may or may not ever really take off. They are talking about what Byrne and other Bitcoin 2.0 entrepreneurs are trying to do.
