5 ms·

SEC Approves Plan to Issue Overstock.com Stock via Blockchain

88 points by muloka 11y ago

jackgavigan 11y ago
The Wired.com headline (but not the headline here at HN) is misleading. Per an Overstock SEC filing, any securities they (or t0.com) issue "will not be issued on the Bitcoin blockchain ... the ownership and transfer of such digital securities will be recorded on a proprietary ledger that will be publicly distributed."
- muloka 11y ago
  I agree the Wired headline is misleading, which is why I changed it to better reflect what the article is about. Thanks for posting to clarify the change.
- jabgrabdthrow 11y ago
  It's only misleading if you thing "blockchain" is not generic but means "The Bitcoin Blockchain". Is this a common understanding?
  - eximius 11y ago
    Without clarification or context (i.e., "a new blockchain"), then it is usually Bitcoin.
  - brighton36 11y ago
    How is this any better than a database?
    - anilgulecha 11y ago
      Decentralized store and decentralized trust. The latter is hard with a publically accessible & editable mysql.
      - brighton36 11y ago
        Except that this isn't decentralized - its a controlled blockchain that's only available for public download (which http does just fine) As does archive.org
        anilgulecha 11y ago
        I think you incorrectly understand how the blockchain can be updated.
    - sanswork 11y ago
      It's not. This use case is pretty stupid since regulations make it impossible to allow true anonymous p2p trading.
    - deleted 11y ago
      [deleted]
  - umanwizard 11y ago
    "blockchain" or "a blockchain" to me is generic. "the blockchain" to me refers to the most famous one (Bitcoin)
- pash 11y ago
  The Wired headline is less misleading than your comment. Information about transfers of ownership will be recorded on a private ledger, and a hash of that information will be inserted into Bitcoin's blockchain, one hash inserted for each transaction. In other words, the private details of each transaction will be recorded on a proprietary ledger so that those details can remain private. But the fact of each transaction's occurrence will be recorded publicly on Bitcoin's blockchain, and recorded in a form that allows parties privy to the transaction details to verify cryptographically that the entries in the proprietary ledger correspond to the sequence of transactions published to Bitcoin's blockchain. Basically, this scheme uses Bitcoin's blockchain to provide security (immutability) and public accountability while keeping private information private. (This insert-a-hash scheme is typical of "colored coin" implementations even when privacy is not desired, since each Bitcoin transaction can insert only a small amount of data into the blockchain.) The amended S3 filing [0] spells all of this out in detail. The most relevant section starts on page 35, and the first paragraph of page 36 describes the core of the scheme: In connection with a digital securities transaction, the tØ software will publish the transaction to the proprietary ledger ... . Concurrently, the tØ software will electronically publish the proprietary ledger and commence the process of embedding in the Bitcoin blockchain information necessary to mathematically prove the validity of available copies of the proprietary ledger. Specifically, after a set of transactions in our digital securities have been executed and recorded to the proprietary ledger, the Pro Securities ATS will send a de minimis amount of Bitcoin from an ATS-controlled Bitcoin wallet to another ATS- controlled Bitcoin wallet using the blockchain protocol. This blockchain protocol provides for an editable field that can be used to implant code or other data within the Bitcoin transaction that will be embedded into the blockchain, and the tØ software will use this field to implant anonymized cryptographic hash functions for the digital securities transactions reflected on the proprietary ledger into the Bitcoin transfer made by the ATS. The blockchain will validate this de minimis Bitcoin transaction and embed it, together with the implanted anonymized cryptographic hash function, into the Bitcoin blockchain. As a result, once the Bitcoin transaction is immutably embedded into the Bitcoin blockchain, an immutable record of the digital securities transactions reflected on the proprietary ledger is also recorded within the Bitcoin blockchain. ... 0. http://www.sec.gov/Archives/edgar/data/1130713/000104746915008523/a2226515zs-3a.htm#dk40601_about_digital_securities http://www.sec.gov/Archives/edgar/data/1130713/0001047469150...
elliotec 11y ago
I work for Overstock. Take a look at the company's stock trends over the last year to see the affect this has on them.
- sanswork 11y ago
  How do the employees feel about the CEO constantly chasing one cryptocurrency project to the next? From what I've seen it's just costing them a lot of money with almost no success in any of the ventures but is the response positive from inside?
  - elliotec 11y ago
    The response is not positive, to say the least.
    - junseth 11y ago
      How much longer do you think he's got?
      - elliotec 11y ago
        If he's smart he'll sell the company within the next 2 years and retire pretty nice on the exit. If that doesn't happen, I'd be shocked if they make it another 5 before total collapse.
HappyTypist 11y ago
One of the biggest advantages of blockchains is that you can create your own private blockchain, and then hash the state of it every X interval and then put the hash on the Bitcoin blockchain. You get all the the security of a 6.6 billion network without the costs.
- brighton36 11y ago
  Can't you just hash your mysql database instead of a blockchain? Where's the efficiency in using a private blockchain?
  - sanswork 11y ago
    You can have a shared log between multiple parties where no one entity controls new entries with immutability and known entry ordering. Private blockchains don't need to be as inefficient as cryptocurrencies either because they can have a very small, specific use case and feature set.
    - brighton36 11y ago
      Doesn't http do this just fine? If you trust each other - there's no need for a blockchain.
      - sanswork 11y ago
        How does http do this at all? Unless you're talking about each company running an API? But then you run into difficulty with actually trading debt. Say you owe me $10 and I owe Bank B $10 and they owe you $10. With a blockchain situations like that are easy to spot and automatically resolve saving the number of required settlements. The point is that you don't have to trust each other since everything is in the open and shared between participants.
        brighton36 11y ago
        You publish a html page. Or better still - your broker does. Settlement is a deep market, and it works very well. Is it your belief that the errors in settlement are due to sql servers losing data?
kobayashi 11y ago
Does this mean that everyone using desktop wallets like Bitcoin Core will now be downloading a slightly more bloated blockchain?
brighton36 11y ago
Why is notarizing your database state on the blockchain noteworthy? Were there many people censoring the database checksums of the NYSE or NASDAQ?
- wmf 11y ago
  Normally I'd agree with this, but in this case one may suspect that Overstock's interest in blockchain technology is rooted in their war on naked shorting, which I guess is not possible if shares are tracked on a blockchain.
  - brighton36 11y ago
    That's also not possible if Overstock itself managed it's issuance on a centralized database.
ChuckMcM 11y ago
I think this is a really interesting idea. If you could issue stock as a million "units" on a block chain, then you could transact fractional units easily. Assuming you trust the ledger it would mean you really wouldn't ever have to split the stock. More units, more ownership, minimal brokerage fees/control. Of course stealing the private key of the hot wallet representing 10% of Overstock.com, well that would be a very juicy target indeed.
ryporter 11y ago
Though it will surely be a (very) long process, I'm excited about the ways in which blockchain technology can improve the efficiency of the financial system. There's an amazing disconnect between the speeds with which we can execute and settle trades. The former is on the time scale of milliseconds, while the latter is on the time scale of days. Even if we disagree on the merits of HFT, we can surely agree that settlement is an unnecessarily slow and unreliable process. In September, 2011 (the most recent date for which I could easily find data), there was a failure to deliver $200M worth of stock per day! [1] In the Treasury market, the daily average is currently $50B! [2] Blockchain technology has the potential to solve this problem. [1] https://en.wikipedia.org/wiki/Failure_to_deliver https://en.wikipedia.org/wiki/Failure_to_deliver [2] http://www.dtcc.com/charts/daily-total-us-treasury-trade-fails http://www.dtcc.com/charts/daily-total-us-treasury-trade-fai...
- nivertech 11y ago
  Failure to deliver is mostly due to naked shorts and can be easily solved by a corresponding regulation. It is completely orthogonal to the Blockchain concept: one can implement settlement rules which require locating shares prior to shorting them, another implementation wouldn't care about locating shares as long as there is an obligation to cover naked short at the end of the trading day. Patrick Byrne from t0 will agree with you, but that's b/c he's against naked shorts. [1] https://t0.com/ https://t0.com/
  - rottyguy 11y ago
    Patrick is well known to be the CEO of Overstock, son of John Byrne (Geico fame), and enemy #1 of the Naked Short sellers. What may be less known is his unbelievable fight against cancer. I read his speech from a charity event back several years back, periodically, to keep perspective. http://www.pmc.org/blog/2015/9/17/pmc-threshold-moment-billy-starr http://www.pmc.org/blog/2015/9/17/pmc-threshold-moment-billy... (scroll down)
murbard2 11y ago
What happens if a malicious forks is introduced in the blockchain? I see two possible outcomes, with the latter much more likely than the former: a) The blockchain protocol is the final arbiter of ownership, and those who purchased the stock in the other branch of the chain no longer own the stock. Caveat emptor. b) Courts rule in favor of the people who actually bought the stocks and marks the attack branch as invalid. This is possible because the attack was witnessed by so many people. It's unlikely that a fork would be resolved with (a), but if it does, there would be a lot of very pissed of investors and lawsuits. All it takes for such a fork to happen is someone with the motive to do it and the means to lean on a few mining pool operators. It's more likely that we would see outcome (b), in which case, the courts are the final authority and then what the heck is the point of using an expensive, slow, poorly scalable, decentralized consensus system? I totally see the value of a decentralized system despite the shortcomings, but if you're coming to do away with that aspect, what on earth is the point?

88 points by muloka 11y ago

The Wired.com headline (but not the headline here at HN) is misleading. Per an Overstock SEC filing, any securities they (or t0.com) issue "will not be issued on the Bitcoin blockchain ... the ownership and transfer of such digital securities will be recorded on a proprietary ledger that will be publicly distributed."

muloka 11y ago
I agree the Wired headline is misleading, which is why I changed it to better reflect what the article is about. Thanks for posting to clarify the change.
jabgrabdthrow 11y ago
It's only misleading if you thing "blockchain" is not generic but means "The Bitcoin Blockchain". Is this a common understanding?
- eximius 11y ago
  Without clarification or context (i.e., "a new blockchain"), then it is usually Bitcoin.
- brighton36 11y ago
  How is this any better than a database?
  - anilgulecha 11y ago
    Decentralized store and decentralized trust. The latter is hard with a publically accessible & editable mysql.
    - brighton36 11y ago
      Except that this isn't decentralized - its a controlled blockchain that's only available for public download (which http does just fine) As does archive.org
      - anilgulecha 11y ago
        I think you incorrectly understand how the blockchain can be updated.
  - sanswork 11y ago
    It's not. This use case is pretty stupid since regulations make it impossible to allow true anonymous p2p trading.
  - deleted 11y ago
    [deleted]
- umanwizard 11y ago
  "blockchain" or "a blockchain" to me is generic. "the blockchain" to me refers to the most famous one (Bitcoin)
pash 11y ago
The Wired headline is less misleading than your comment. Information about transfers of ownership will be recorded on a private ledger, and a hash of that information will be inserted into Bitcoin's blockchain, one hash inserted for each transaction. In other words, the private details of each transaction will be recorded on a proprietary ledger so that those details can remain private. But the fact of each transaction's occurrence will be recorded publicly on Bitcoin's blockchain, and recorded in a form that allows parties privy to the transaction details to verify cryptographically that the entries in the proprietary ledger correspond to the sequence of transactions published to Bitcoin's blockchain. Basically, this scheme uses Bitcoin's blockchain to provide security (immutability) and public accountability while keeping private information private. (This insert-a-hash scheme is typical of "colored coin" implementations even when privacy is not desired, since each Bitcoin transaction can insert only a small amount of data into the blockchain.) The amended S3 filing [0] spells all of this out in detail. The most relevant section starts on page 35, and the first paragraph of page 36 describes the core of the scheme: In connection with a digital securities transaction, the tØ software will publish the transaction to the proprietary ledger ... . Concurrently, the tØ software will electronically publish the proprietary ledger and commence the process of embedding in the Bitcoin blockchain information necessary to mathematically prove the validity of available copies of the proprietary ledger. Specifically, after a set of transactions in our digital securities have been executed and recorded to the proprietary ledger, the Pro Securities ATS will send a de minimis amount of Bitcoin from an ATS-controlled Bitcoin wallet to another ATS- controlled Bitcoin wallet using the blockchain protocol. This blockchain protocol provides for an editable field that can be used to implant code or other data within the Bitcoin transaction that will be embedded into the blockchain, and the tØ software will use this field to implant anonymized cryptographic hash functions for the digital securities transactions reflected on the proprietary ledger into the Bitcoin transfer made by the ATS. The blockchain will validate this de minimis Bitcoin transaction and embed it, together with the implanted anonymized cryptographic hash function, into the Bitcoin blockchain. As a result, once the Bitcoin transaction is immutably embedded into the Bitcoin blockchain, an immutable record of the digital securities transactions reflected on the proprietary ledger is also recorded within the Bitcoin blockchain. ... 0. http://www.sec.gov/Archives/edgar/data/1130713/000104746915008523/a2226515zs-3a.htm#dk40601_about_digital_securities http://www.sec.gov/Archives/edgar/data/1130713/0001047469150...

elliotec 11y ago

I work for Overstock. Take a look at the company's stock trends over the last year to see the affect this has on them.

sanswork 11y ago
How do the employees feel about the CEO constantly chasing one cryptocurrency project to the next? From what I've seen it's just costing them a lot of money with almost no success in any of the ventures but is the response positive from inside?
- elliotec 11y ago
  The response is not positive, to say the least.
  - junseth 11y ago
    How much longer do you think he's got?
    - elliotec 11y ago
      If he's smart he'll sell the company within the next 2 years and retire pretty nice on the exit. If that doesn't happen, I'd be shocked if they make it another 5 before total collapse.

HappyTypist 11y ago

One of the biggest advantages of blockchains is that you can create your own private blockchain, and then hash the state of it every X interval and then put the hash on the Bitcoin blockchain. You get all the the security of a 6.6 billion network without the costs.

brighton36 11y ago
Can't you just hash your mysql database instead of a blockchain? Where's the efficiency in using a private blockchain?
- sanswork 11y ago
  You can have a shared log between multiple parties where no one entity controls new entries with immutability and known entry ordering. Private blockchains don't need to be as inefficient as cryptocurrencies either because they can have a very small, specific use case and feature set.
  - brighton36 11y ago
    Doesn't http do this just fine? If you trust each other - there's no need for a blockchain.
    - sanswork 11y ago
      How does http do this at all? Unless you're talking about each company running an API? But then you run into difficulty with actually trading debt. Say you owe me $10 and I owe Bank B $10 and they owe you $10. With a blockchain situations like that are easy to spot and automatically resolve saving the number of required settlements. The point is that you don't have to trust each other since everything is in the open and shared between participants.
      - brighton36 11y ago
        You publish a html page. Or better still - your broker does. Settlement is a deep market, and it works very well. Is it your belief that the errors in settlement are due to sql servers losing data?

kobayashi 11y ago

Does this mean that everyone using desktop wallets like Bitcoin Core will now be downloading a slightly more bloated blockchain?

brighton36 11y ago

Why is notarizing your database state on the blockchain noteworthy? Were there many people censoring the database checksums of the NYSE or NASDAQ?

wmf 11y ago
Normally I'd agree with this, but in this case one may suspect that Overstock's interest in blockchain technology is rooted in their war on naked shorting, which I guess is not possible if shares are tracked on a blockchain.
- brighton36 11y ago
  That's also not possible if Overstock itself managed it's issuance on a centralized database.

ChuckMcM 11y ago

I think this is a really interesting idea. If you could issue stock as a million "units" on a block chain, then you could transact fractional units easily. Assuming you trust the ledger it would mean you really wouldn't ever have to split the stock. More units, more ownership, minimal brokerage fees/control. Of course stealing the private key of the hot wallet representing 10% of Overstock.com, well that would be a very juicy target indeed.

ryporter 11y ago

Though it will surely be a (very) long process, I'm excited about the ways in which blockchain technology can improve the efficiency of the financial system. There's an amazing disconnect between the speeds with which we can execute and settle trades. The former is on the time scale of milliseconds, while the latter is on the time scale of days. Even if we disagree on the merits of HFT, we can surely agree that settlement is an unnecessarily slow and unreliable process. In September, 2011 (the most recent date for which I could easily find data), there was a failure to deliver $200M worth of stock per day! [1] In the Treasury market, the daily average is currently $50B! [2] Blockchain technology has the potential to solve this problem. [1] https://en.wikipedia.org/wiki/Failure_to_deliver https://en.wikipedia.org/wiki/Failure_to_deliver [2] http://www.dtcc.com/charts/daily-total-us-treasury-trade-fails http://www.dtcc.com/charts/daily-total-us-treasury-trade-fai...

nivertech 11y ago
Failure to deliver is mostly due to naked shorts and can be easily solved by a corresponding regulation. It is completely orthogonal to the Blockchain concept: one can implement settlement rules which require locating shares prior to shorting them, another implementation wouldn't care about locating shares as long as there is an obligation to cover naked short at the end of the trading day. Patrick Byrne from t0 will agree with you, but that's b/c he's against naked shorts. [1] https://t0.com/ https://t0.com/
- rottyguy 11y ago
  Patrick is well known to be the CEO of Overstock, son of John Byrne (Geico fame), and enemy #1 of the Naked Short sellers. What may be less known is his unbelievable fight against cancer. I read his speech from a charity event back several years back, periodically, to keep perspective. http://www.pmc.org/blog/2015/9/17/pmc-threshold-moment-billy-starr http://www.pmc.org/blog/2015/9/17/pmc-threshold-moment-billy... (scroll down)

murbard2 11y ago

What happens if a malicious forks is introduced in the blockchain? I see two possible outcomes, with the latter much more likely than the former: a) The blockchain protocol is the final arbiter of ownership, and those who purchased the stock in the other branch of the chain no longer own the stock. Caveat emptor. b) Courts rule in favor of the people who actually bought the stocks and marks the attack branch as invalid. This is possible because the attack was witnessed by so many people. It's unlikely that a fork would be resolved with (a), but if it does, there would be a lot of very pissed of investors and lawsuits. All it takes for such a fork to happen is someone with the motive to do it and the means to lean on a few mining pool operators. It's more likely that we would see outcome (b), in which case, the courts are the final authority and then what the heck is the point of using an expensive, slow, poorly scalable, decentralized consensus system? I totally see the value of a decentralized system despite the shortcomings, but if you're coming to do away with that aspect, what on earth is the point?