Is Bitcoin Better Suited to Replace Stock Markets?

[TheLittleDuke]

With the advent of "colorcoins" it seems like we're on the verge of having a credible replacement to just about every stock exchange on the planet.

The Proof-of-Stake model combined with a completely pre-mined coinbase is looking like a solid model for just about any company that wants to issue a security.

IPO's would no longer need underwriters and really only shareholders would benefit from running any kind of mining related software -- if at all.

It seems to me that the fast block times aren't really that beneficial and if you actually slowed it down to say once an hour you might have something that more accurately represents a shareholder ledger.  Since all exchange activity happens "off block" anyway you can let it run as fast as you want -- however once you declare your ownership stake by committing to the chain you'd have to wait for verification.  Not that different from the current "settlement period" after any stock transaction today.

We've been considering filing for a SCOR (Small Company Offering Registration) in Minnesota and then leveraging a blockchain of our own to track the owners instead of listing on a bulletin board.

Your thoughts?

David V Duccini
Executive Director
doabitofgood.com

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[odolvlobo]

The concept of colored coins won't replace the stock exchange because trading on the Bitcoin blockchain is not feasible. It will replace the clearing house because there is no need for a third party to keep track of who owns what. It also has the potential to replace the broker.

[DeathAndTaxes]

With the advent of "colorcoins" it seems like we're on the verge of having a credible replacement to just about every stock exchange on the planet.

As pointed out it is important to separate the concepts of asset ownership and asset trading.  Stock exchanges exist because they provide very low latency trading.  From a technical (but not legal) standpoint colored coins (or other blockchain technologies) are a replacement for shareholder registries.   However today the overwhelming majority of shares in publicly traded companies are not registered to an owner but instead are "in street name".  The broker registers a number of share in street name and then upon proof is allowed to trade an equal number of shares on the exchange.

Exchanges aren't a requirement for recording ownership of companies.  You could remove all exchanges today and brokers could still (crudely) facilitate transfer of ownership between individuals.  That is the portion that blockchain type technologies replace.

We've been considering filing for a SCOR (Small Company Offering Registration) in Minnesota and then leveraging a blockchain of our own to track the owners instead of listing on a bulletin board.

I would recommend a good securities lawyer.  There is no technical requirement for conventional exchanges to use underwriters and broker dealers.   There are plenty of legal and regulatory requirements.   Switching to using a blockchain doesn't exempt you from existing laws.  Namely SCOR has certain know your investor requirements and major shareholders (10%+) must be free of regulatory problems in the past.   This could be done with a blockchain but it would require linking public keys to identities and limiting transactions only to authorized participants.

To answer your general question, is a blockchain useful for recording changes in ownership of "smart property"?  Of course.  The harder question is can smart property be done in a manner that doesn't violate existing laws and regulations?  Maybe but not in an open pseudo anonymous manner as bearer shares are no longer legal in most (all?) jurisdictions.  Ironically bearer shares use to be very common and they could be seen as a paper equivalent of modern smart property.  So the blockchain technology of the 2010s has a good compatibility with the security laws of the 1900s. 

[keithers]

I don't really think stock markets will ever be fully replaced.   They are too ingrained into our society.  A lot of the old money is already injected into the stock market, and it is too big of a part of people's wealth for it to be completely replaced.

In the distant future, BTC could very well be a significant part of people's savings/retirement, but we are far off from that now...

[Beliathon]

Blockchain-based applications will replace or otherwise transcend the stock market, the court system, the voting system, IPOs, and just about anything else you can imagine.

The innovation of the blockchain changes everything. So much clunky, centralized modern systems will be made obsolete in the comes years. I can't possibly overstate how much this will change every facet of our world.

[JPage]

  They are too ingrained into our society.

CDs were pretty 'ingrained' too, then came Napster.
Newspapers were 'ingrained into out society', now they are all dissolved and broke.
The United States Post Office is almost destroyed because of email.  Give it another year.

I am pretty sure stock markets don't have a monopoly on longevity.

take a good look at Mastercoin.  This protocol enables a 'stock market' right on top of the bitcoin.  They aren't yet fully up to speed, but they are on the brink.  they've done one funding, albeit with a bit of a glitch, for $6million (MaidSafe).  I expect in a year's time, there will be a big rush towards organizing shared equity entities, despite regulators, via something like Mastercoin.  Please go study that project - you will be floored.  

[bananaControl]

Blockchain-based applications will replace or otherwise transcend the stock market, the court system, the voting system, IPOs, and just about anything else you can imagine.

The innovation of the blockchain changes everything. So much clunky, centralized modern systems will be made obsolete in the comes years. I can't possibly overstate how much this will change every facet of our world.

<sarcasm> Being able to trade stocks with only minutes of confirmation time sounds fantastic! </sarcasm>

[Beliathon]

Blockchain-based applications will replace or otherwise transcend the stock market, the court system, the voting system, IPOs, and just about anything else you can imagine.

The innovation of the blockchain changes everything. So much clunky, centralized modern systems will be made obsolete in the comes years. I can't possibly overstate how much this will change every facet of our world.

<sarcasm> Being able to trade stocks with only minutes of confirmation time sounds fantastic! </sarcasm>

Confirmations will be instant in the not-too-distant future, at a cost far, far, far, far, far cheaper than current models. Embrace the future or be left behind, penniless.

[bananaControl]

Blockchain-based applications will replace or otherwise transcend the stock market, the court system, the voting system, IPOs, and just about anything else you can imagine.

The innovation of the blockchain changes everything. So much clunky, centralized modern systems will be made obsolete in the comes years. I can't possibly overstate how much this will change every facet of our world.

<sarcasm> Being able to trade stocks with only minutes of confirmation time sounds fantastic! </sarcasm>

Confirmations will be instant in the not-too-distant future, at a cost far, far, far, far, far cheaper than current models. Embrace the future or be left behind, penniless.

Is this wishful thinking or based on actual work that someone is doing?

[Beliathon]

Blockchain-based applications will replace or otherwise transcend the stock market, the court system, the voting system, IPOs, and just about anything else you can imagine.

The innovation of the blockchain changes everything. So much clunky, centralized modern systems will be made obsolete in the comes years. I can't possibly overstate how much this will change every facet of our world.

<sarcasm> Being able to trade stocks with only minutes of confirmation time sounds fantastic! </sarcasm>

Confirmations will be instant in the not-too-distant future, at a cost far, far, far, far, far cheaper than current models. Embrace the future or be left behind, penniless.

Is this wishful thinking or based on actual work that someone is doing?

I don't do wishful thinking. I leave that to the theists, capitalist economists, and other superstitious fools. I prefer an evidence-based existence, this is why I embrace cryptocurrency and reject fiat scrip.

Technology is always improving, getting faster and more secure. The trend only goes one way, unless/until we find a way to wipe ourselves off the face of the planet because we wouldn't/couldn't stop governing our world with violence.

[TheLittleDuke]

I would recommend a good securities lawyer.  There is no technical requirement for conventional exchanges to use underwriters and broker dealers.   There are plenty of legal and regulatory requirements.   Switching to using a blockchain doesn't exempt you from existing laws.  Namely SCOR has certain know your investor requirements and major shareholders (10%+) must be free of regulatory problems in the past.   This could be done with a blockchain but it would require linking public keys to identities and limiting transactions only to authorized participants.

We have been talking with the law firm that wrote the model legislation for Minnesota.  Stock must carry a $1 par value, and the firm is permitted to raise up to $1M US every 12 months.  I know that when I was looking for venture capital a few years back for another venture, the vultures didn't want us to do it.  But then again, they didn't invest either so you decide which is the better route :-)

I'm all for linked identities in the transaction -- it would also offer some protection against theft because if someone swiped your shares and if they were not "of record" we could just repudiate the transaction.

Which is why I am also in favor of a much longer block generation time -- such that you could easily repudiate theft as well as guard against 51% attacks.

It's all high level at this point.

[allthingsluxury]

I don't see this happening anytime in the near future. The stock market is likely here to stay.

[Swordsoffreedom]

Yes Bitcoin is better suited to replace stock markets
It can get rid of significant costs to trade and still be a viable efficient system
A decentralized stock exchange has tremendous utility but it will take some time to come to market.
https://bitcointalk.org/index.php?topic=52494.0

[Harley997]

Blockchain-based applications will replace or otherwise transcend the stock market, the court system, the voting system, IPOs, and just about anything else you can imagine.

The innovation of the blockchain changes everything. So much clunky, centralized modern systems will be made obsolete in the comes years. I can't possibly overstate how much this will change every facet of our world.

<sarcasm> Being able to trade stocks with only minutes of confirmation time sounds fantastic! </sarcasm>

Confirmations will be instant in the not-too-distant future, at a cost far, far, far, far, far cheaper than current models. Embrace the future or be left behind, penniless.

If you have "instant" confirmations then it would be easy to fork the chain for your own benefit, and orphans would be much more common.

One example of how this is bad is that a trader makes a trade, gets it confirmed within 1 minute and the price goes against him. The trader would not have an incentive to try to get enough hashpower to orphan the blocks the confirmed his TX and execute a double spend.

[twiifm]

This is retarded.   Bitcoin can't replace stock MARKETS.   A market is where people go to exchange.

Even bitcoin is traded on an exchange.   If you can't can't trade bitcoins without an exchange then how can you trade stocks?  Meetup up through craigslist list and trade stocks ala localbitcoin?   LOL

Maybe colored coin can replace an actual stock certificate but who has those anymore?

[Swordsoffreedom]

Maybe colored coin can replace an actual stock certificate but who has those anymore?

Think Mastercoin, Sidechains and Ethereum for a few examples of possible implementations
A sidechain with a fixed value could easily allow for the flow of assets that have a fixed value back and forth on a blockchain
The ledger would record the transactions and miners get the incentive through a merge mine.
Mastercoin would raise capital on the blockchain and then have it converted to fiat as happened in the Maidsafe IPO
Ethereum promises those things but is still a developers gardenshed with the infrastructure and technology still being made.

[twiifm]

Maybe colored coin can replace an actual stock certificate but who has those anymore?

Think Mastercoin, Sidechains and Ethereum for a few examples of possible implementations
A sidechain with a fixed value could easily allow for the flow of assets that have a fixed value back and forth on a blockchain
The ledger would record the transactions and miners get the incentive through a merge mine.
Mastercoin would raise capital on the blockchain and then have it converted to fiat as happened in the Maidsafe IPO
Ethereum promises those things but is still a developers gardenshed with the infrastructure and technology still being made.

Do you even trade stocks?   Without a market maker who matches orders?  How do you do stops,  limits and OCOs?   Can you see the other bids and ask coming from other exchanges?

[waldox]

if block chain stock registries gain traction we will see the traditional exchanges be exposed for not having the stocks they claim they have trading on them.... over leveraged stocks

[lihuajkl]

I don't see this happening anytime in the near future. The stock market is likely here to stay.

True! I believe the blockchain concept will be applied in the stock market. But at the moment the there are still a lot of pitfall  and confusion in cryptographic technology. People will accept it as this new technology is improved and  all of these things are solved.

[Swordsoffreedom]

Maybe colored coin can replace an actual stock certificate but who has those anymore?

Think Mastercoin, Sidechains and Ethereum for a few examples of possible implementations
A sidechain with a fixed value could easily allow for the flow of assets that have a fixed value back and forth on a blockchain
The ledger would record the transactions and miners get the incentive through a merge mine.
Mastercoin would raise capital on the blockchain and then have it converted to fiat as happened in the Maidsafe IPO
Ethereum promises those things but is still a developers gardenshed with the infrastructure and technology still being made.

Do you even trade stocks?   Without a market maker who matches orders?  How do you do stops,  limits and OCOs?   Can you see the other bids and ask coming from other exchanges?

Read a few whitepapers but simply put their is no need for a market maker in a decentralized market
There is separate layers where trades can occur from person to person or as part of the larger exchanges
Since trading is decentralized it occurs on various platforms at various times and their are only centralized locations where the trading commences based on trust (Think the ripple system)
Stops and limits can be done easily enough just a normal interface we communicate using that technology everyday just changing the underlying structure to it.
http://www.nber.org/papers/w15513.pdf

Easier reads
http://www.forbes.com/sites/kashmirhill/2014/04/08/beyond-bitcoin-crypto-ownership-companies-hope-youre-ready-to-decentralize-everything-on-the-internet/
http://newswax.com/2014/01/implications-crypto-assets-part-2-decentralized-exchanges/
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Distributed Autonomous Corporations