Patrick Byrne.
His efforts are part of a much larger movement that seeks to remake the stock market in the image of bitcoin. Several projects---including NXT, Mastercoin, and Bitshares---are working on software that's similar to the tools offered by Counterparty, and all are mentioned in the Overstock outline. What's more, others are looking to apply the bitcoin way to additional financial instruments, including derivatives, and some software developers are even using the idea of bitcoin's public ledger---known as the "blockchain"---to remake tasks beyond the financial world, including secure online messaging.
The overarching aim here is to put tasks in the hands of the people and remove the heavy-handed control of governments and corporations. "There is a lot of good the blockchain can do," says Robby Dermody, one of the founders of Counterparty.
But a cryptosecurity wouldn't be entirely free of the existing authorities. According to Keith Miller, a partner with the international law firm Perkins Cole and the chair of the firm's securities enforcement practice, it's likely that Overstock would have to seek SEC approval before issuing and trading its own cryptosecurity. "I find it very difficult to believe that they won't have to get some sort of registration statement on file that the SEC would have to approve---and I suspect there would be lots of comments back and forth," he says.
The SEC did not respond to a request for comment on the matter. But Byrne says that if he decides a cryptosecurity is feasible, he will solicit approval from the commission. The new wiki appears to be a way of gaining public support for a plan, before Overstock takes it to the SEC. "We're turning to the world to help us fill in the pieces," he says.
James Angel, a professor of finance at Georgetown University and a visiting professor at the Wharton School of Business who specializes in the nuts and bolts of the economic system, calls this a "really interesting idea." But he believes that the plan in unlikely to receive much support from the SEC and the Wall Street. "The biggest hurdle is institutional inertia," he says. "When you talk about the stock settlement system, you've got over 4,000 broker-dealers involved in the process, and it's not something that's easy change." That said, Byrne has never been one to shy away from long odds.
>'When you talk about the stock settlement system, you've got over 4,000 broker-dealers involved in the process, and it's not something that's easy change.'
In 2007, Overstock sued Goldman Sachs, Merrill Lynch, and several other big Wall Street names, accusing them intentionally driving down the price of shares in Overstock and other companies through a practice known as "naked short selling." The lawsuit is ongoing, and for years, it made Byrne a pariah among the Wall establishment.
Basically, naked shorting amounts to selling shares you don't really have. According to Angel and others, this was a large problem before the 2008 financial crash, but new rules laid down by the SEC in the wake of the crash has significantly curbed the problem. This is still an issue, however, with some securities---including what are called exchange traded funds---and Byrne sees cryptosecurties as a way of completely closing these loopholes and many others that plagued the economy in recent years. You'll hear much the same from Robby Dermody, of Counterparty. With the blockchain, ownership of stock is reduced to pure mathematics, he explains. "It would be impossible to naked short a stock," he says, though he does acknowledge the possibility of bugs in the software.
Angel agrees that a cryptosecurity could close certain market loopholes. But he also questions whether it would suit the high-speed world of Wall Street trading. "There's some latency in settling a bitcoin trade. It can take anywhere from several seconds to hours to get a transactions completed," he says. "In a world where people want to trade quickly, putting that kind of a delay into the system could make it a non-starter."
But Byrne says that one of the things he's trying to eliminate is high-speed trading that serves no real purpose---other than to generate profits for those doing the trading---and he's sees current blockchain software as just one step towards remaking the stock market. As the past several years have shown, he's determined to fight this battle indefinitely---and fight it in the most unusual of ways. "I wish to provide the world a way to give Wall Street some payback," he says, "in the form of a massive hot fudge high colonic that would be a cryptosecurity."
