SEC Approves Overstock’s Plan to Issue Stock Via Blockchain

According to a report from Wired, the Securities and Exchange Commission (SEC) has approved the online retail giant Overstock’s plan to issue securities via the Bitcoin blockchain. This is the first-of-its-kind approval from the regulatory authority that might completely alter the way how public securities are issued and traded in the future. Overstock had earlier issued private securities using the blockchain which did not require the authority’s approval.

The blockchain is a public ledger of transactions; however, it can also be used to record data of anything including stocks, real estate, etc. Overstock’s CEO Patrick Byrne, however, has not yet confirmed as to when the public securities will be issued, but in a conversation with Wired, he said, “You can assume its high on our list of priorities for 2016.

The approval is a significant boost for Overstock as it plans to offer the technology to other businesses, so that they too can issue cryptosecurities. A successful debut of this technology in the public domain might facilitate or compel other companies to adopt the blockchain platform to distribute securities. However, this does not eliminate the need for approval from the SEC.

Jeffrey Steiner of law firm Gibson Dunn had some concerns regarding the same. He said that since this is new territory, the complete case might not be as simple as is perceived to be. He said that many investors might flinch from immediately using this technology. The attitudinal change will come from the participation of more big exchanges like NASDAQ in using the blockchain technology.

The blockchain ledger can help in drastically cutting down the costs associated with the issuance, tracking, and trading of cryptosecurities. It provides a transparent, secure, cheap and speedy infrastructure in the financial markets. The Bitcoin tech may also prevent market manipulation, as automated systems replace the traditional systems which can be rigged easily.

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Following the recent announcement of Overstock to offer cryptosecurities, UBS Bank revealed that it is currently experimenting with blockchain-based bonds as well. During his talk at IDX Derivatives Expo in London, Alex Batlin, UBS Bank’s Chief Information Officer for innovation said that they are working on smart-bonds using the bitcoin’s public ledger of transactions.

Batlin described these bonds as “risk-free interest rates and payment streams were fully automated, creating a self-paying instrument.” “The key attraction is that there is no middle or back office, and no registry, so clearly a major impact on costs,” he explained.

Bitcoin-Based Cryptosecurities

The Swiss banking giant recently formed The Innovation Lab in April and the smart-bonds is the first technology announced from this venture. The Innovation Lab aimed to explore how blockchain technologies could improve the banking sector, right after the bank published an extensive report about the benefits of the blockchain.

“I believe – and this is my personal view – that blockchain technology will not only change the way we do payments, but it will change the whole trading and settlement topic,” said UBS Group CIO Oliver Bussmann back then.

“Blockchain technologies can make banks more efficient – for example, through instantaneous settlement rather than the days it takes at present, lower costs and lower operational risk,” Batlin pointed out. “The simple lesson for banks is that if we don’t do it someone else will.”

However, one of the biggest challenges for UBS Bank is that the proof-of-work mining algorithm of bitcoin causes the system to be slow and expensive. Transactions can take an hour or more to verify and it requires large amounts of electricity via miners who verify transactions.

“All kinds of revenue opportunities can emerge,” said Batlin. “But it’s still more expensive, so there is a way to go.”

Just recently, online retailer Overstock announced that they would be offering securities based on blockchain technology dubbed as cryptosecurities. This would feature benefits that traditional financial securities do not enjoy, such as safer and faster clearing and not incurring fees from middlemen or clearinghouses.

While it has been acknowledged that the value of bitcoin probably lies in its use as a medium of exchange or facilitating transactions rather than its dollar equivalent, some industry experts that this cryptosecurity offering is nothing but a gimmick.

Blockchain Crytposecurity Features

“The cryptorevolution has arrived on Wall Street. We’re making it official by offering the world’s first cryptosecurity,” says Overstock CEO Patrick Byrne.

The company plans to sell $25 million in bonds issued as tokens to be traded on a cryptographically secure database or ledger similar to blockchain technology. However, some financial experts have criticized this cryptosecurity for lacking the typical features such as interest rate or a repayment date. After all, the company’s press release doesn’t contain much detail about the bond offering.

Nonetheless, top financial players are still exploring the potential use of blockchain in financial trading applications. Nasdaq has noted that it might use blockchain technology in its suite of trading products.

Blockchain refers to the public ledger of transactions associated with bitcoin, with a network of computers involved in solving complex algorithms in order to verify transactions and add a block to the code. With that, this is seen as an immutable and secure way to keep records, with various applications such as creating a secure land registry or tracking digital file transfers.

Apart from that, a good number of ETFs and CFDs based on bitcoin are available for trading on some exchanges. This could offer people better access to bitcoin-related investments while still managing their risk.

 

One of the more notable features of bitcoin as a cryptocurrency is its decentralized nature, which means that there are no monetary authorities overseeing its use. For some, this has been appealing in that it paves the way for easier and faster transactions but others think that this just opens up the possibility of fraud.

This has been one of the major issues that financial regulators have grappled with in the past years as the bitcoin rose to fame. Some governments and states have come up with their own regulatory framework for the cryptocurrency, which some believe might stifle progress. However, the bigger challenge for them is that bitcoin is starting to render financial regulation irrelevant.

Bitcoin Revolution in Trading

One example is the recently announced bond offering of Overstock, an online retail giant. What makes this particular bond offering unique is that it will be using bitcoin-based technology and that it will be traded on a decentralized exchange using the company’s Medici platform.

With this platform, investors can bypass the traditional clearing houses associated with trading securities. SEC already granted approval for Overstock to deal in digital securities or cryptosecurities.

This marks the company’s move to create a digital security exchange that isn’t just regulated by a single entity in a particular place. Instead, the network would span the entire globe, making it more secure and immutable. This could remove the need for financial regulation, as the network of computers could conduct the check and balance for transactions.

Industry experts believe that bitcoin could revolutionize the financial industry in this regard, enabling people to trust the network or blockchain protocol instead of relying on individuals or institutions. “For the first time in human history, we can have peer-to-peer exchange where trust is not an issue,” said Overstock CEO Patrick Byrne.

 

Online retail giant Overstock just announced its plans to offer cryptosecurities based on the blockchain protocol. The company will be issuing $25 million in private bonds than can be traded using bitcoin-based technology.

Blockchain refers to the public ledger of transactions associated with bitcoin. A block is added to the blockchain for every successfully verified transaction, which is done by computers solving complex algorithms.

Trading Cryptosecurities

Prior to this, the traditional way to trade securities is to go through a centralized exchange. In using the blockchain protocol, Overstock can offer investors a way to buy bonds under a decentralized exchange. This can be done through their platform called Medici.

Last year, Overstock CEO Patrick Byrne announced their partnership with Counterparty to create a trading platform that offers greater speed and reliability than conventional ones. “The cryptorevolution has arrived on Wall Street,” said Byrne. “We’re making it official by offering the world’s first ‘cryptosecurity.’”

Overstock’s cryptosecurities will be traded using custom-built TØ.com technology, which means that trades made with the system clear in the same day instead of the standard Wall Street technology, which traders call T+3, which clears and settles trades in three days.

“Issuing the TIGRcub bonds on the TØ.com platform proves that cryptotechnology can facilitate transparent and secure access to capital by emerging companies,” Byrne said. Industry analysts believe that using a decentralized exchange could set the future of financial trading.

Apart from being used in cryptosecurities, the blockchain technology has also been used in a number of practical applications. One example of this is in the creation of a secure database of land titles for Honduras, as the immutable and irreversible feature of blockchain means that the entries will not be altered without proper authorization. Another example is its potential usage in securing digital files in acting as a record-keeping method for any transfers.