Could a Bitcoin stock trading system be the cure for the many transgressions of Wall Street?
Overstock.com (Nasdaq: OSTK) CEO Patrick Byrne thinks so.
Last month he created a wiki page on the Internet to solicit help in creating a decentralized, purely digital stock trading system that would use Bitcoin's blockchain - the mechanism that records and verifies all the transactions - as its foundation.
"You would have an instant, frictionless market, while having the added benefit of wiping out a whole parasitic class of society - that is, the whole financial industry," Byrne told Wired in February.
Besides the Big Banks, Byrne told CoinDesk the system would bypass the Depository Trust & Clearing Corp. (DTCC), which provides clearing and settlement services to the U.S. capital markets.
"It's a corrupt organization that shows [the] influence of organized crime," Byrne said.
It's no surprise Byrne would seize upon a Bitcoin stock system as a weapon - this is not the first time he's targeted the powers of Wall Street...
A Legacy of Fighting Wall Street
Back in 2005, Byrne became notorious for his accusations that Wall Street was using naked short selling techniques to manipulate the prices of his and other companies' stock for their own gain. In naked short selling, a trader doesn't borrow shares to sell on the market - they simply sell shares they don't have.
In 2007 Byrne filed a $3.48 billion lawsuit against a dozen of Wall Street's biggest players, including Goldman Sachs Group Inc. (NYSE: GS), Merrill Lynch, Citigroup Inc. (NYSE: C) and Deutsche Bank AG (NYSE: DB). That suit is still pending.
Fast forward to last year, when Byrne became intrigued with Bitcoin. Unlike many in the financial community, the unconventional CEO immediately saw great potential in the digital currency.
Overstock.com started accepting Bitcoin as payment in January - the first major retailer to do so.
But he also recognized that the underlying Bitcoin technology could serve purposes beyond mere payments.
A Bitcoin stock trading system would take his fight against Wall Street to an entirely different level.
And for those who are sick and tired of Wall Street's dangerous games - the high-frequency trading that skims money away from retail investors, the thinly disguised manipulation of stock and commodities prices, the insane risks taken in a gambit for quick profits - a system that relegates these bad actors to the ash heap sounds very tempting indeed.
Byrne has made some promising first steps in making this Bitcoin stock trading system a reality, but he also faces some daunting challenges...
A Bitcoin Stock Trading System Would Be Great - but Can It Be Done?
Byrne is the first to admit that his Bitcoin stock trading project faces an uphill battle, but that's why he created the wiki page - to enlist the help of the Bitcoin community, lawyers, and financial experts to explore solutions.
"Instead of asking some law firm to spend $1 million to try and figure it out, we're turning it over to the world and say 'Hey you folks who want to see this happen, come and help figure out some of these questions on our wiki'," Byrne told CoinDesk.
The mechanics would be the easy part. For example, a company that wanted to sell 100 million shares of crypto-stock could buy a single Bitcoin and split it into the smallest slices possible - a Satoshi, or 0.00000001 of one bitcoin. Each slice would correspond to a share, and would have all the necessary ownership data embedded in it.
Such crypto-shares could then be traded over the Bitcoin network between individuals without any need for brokers or other Wall Street interference. The network would even facilitate shareholder voting.
And because all the transactions would be recorded in Bitcoin's public ledger - the blockchain - all trading would be completely transparent, making such Wall Street creations as "dark pools" impossible.
Less clear is whether the trades could be conducted smoothly and in a timely fashion, given that the Bitcoin network can take several minutes to verify a transaction. And liquidity could also be a problem.
But the biggest threat to a Bitcoin stock trading system is government regulators, particularly the U.S. Securities and Exchange Commission (SEC).
The SEC Is Mum on the Bitcoin Stock System - So Far
Always spoiling for a fight, Byrne actually seems to be looking forward to SEC scrutiny of his wiki page, which is entitled "How to issue a cryptosecurity."
"We're open-sourcing how to create an alternative to the current corrupt institutions that dominate Wall Street," Byrne told CoinDesk. "If their lap dog, the SEC, subpoenas me, I intend to open-source their subpoena and open-source my response. And when the DOJ indicts me, I'll post that online and we'll open-source our response to that."
Byrne is even mulling whether to offer some Overstock.com crypto-shares himself, but knows that means he will need to notify the SEC.
So far the SEC and other regulators have been silent on the concept of cryptosecurities - let's face it, regulators are still trying to wrap their heads around the idea of a digital currency - but SEC obstinance could nip any Bitcoin stock trading system in the bud.
That and Wall Street's opposition to the idea could make the whole thing a non-starter, even if there's enthusiasm among retail traders.
While Byrne may not succeed in wiping out Wall Street, a Bitcoin stock trading system could find a role as a supplement to the traditional exchanges, or possibly as a venue for penny stock trading.
Regardless, Byrne is committed to the fight no matter how quixotic it might seem.
"I wish to provide the world a way to give Wall Street some payback," Byrne told Wired, "in the form of a massive hot fudge high colonic that would be a cryptosecurity."
For more Bitcoin news and insights, follow me on Twitter @DavidGZeiler.
UP NEXT: A Bitcoin stock system is just one way the blockchain could be used. But those working on these exciting new applications for the blockchain need an easier way to access it. That's where this tiny San Francisco startup comes in. Welcome to Bitcoin 2.0...
- Overstock.com: How to Issue a Cybersecurity
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.