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Blockchain is so badly needed in the startup world when allocating shares of a company. Eshares is promising but too pricey for bootstrapping entrepreneurs. A

Blockchain is so badly needed in the startup world when allocating shares of a company. Eshares is promising but too pricey for bootstrapping entrepreneurs. An open standard with distributed tracking of shares allocated for any given company would help institute much more trust into startup investing. Right now it's kind of tough to do due dilligence on a small private company.

amluto 10y ago
> Blockchain is so badly needed in the startup world when allocating shares of a company. Eshares is promising but too pricey for bootstrapping entrepreneurs. What, exactly, does a blockchain have to do with this? ISTM all that's needed is a spreadsheet with an audit log, and even the audit log is somewhat optional.
- riprowan 10y ago
  In theory, an open blockchain like Bitcoin eliminates the need for a trusted authority to be the system of record. A spreadsheet needs someone to manage it. That person, and that data, must be very trustworthy, else they can simply change the data for their benefit. The compliance procedures that assure trustworthiness cost money. Lots of money. And they still fail. Blockchains, in theory, could also serve as a voting mechanism on splits, which could be manifested as blockchain hardforks. As Satoshi Nakamoto wrote: > The proof-of-work also solves the problem of determining representation in majority decision making. If the majority were based on one-IP-address-one-vote, it could be subverted by anyone able to allocate many IPs. Proof-of-work is essentially one-CPU-one-vote. The majority decision is represented by the longest chain, which has the greatest proof-of-work effort invested in it. Essentially a blockchain can codify the ownership of a stock share into a smart contract. That's the theory, and only insofar as it applies to a Proof of Work blockchain like Bitcoin. A private blockchain is more likely to be a Proof of Stake blockchain, in which shares (or tokens of other sorts) are issued in a "premine" which creates all of the tokens that will ever exist. These are then distributed to the initial group of trusted members of the private blockchain. From there, the blockchain can eliminate the need for a trusted authority to serve as the system of record of ownership.
  - cmollis 10y ago
    Complete noob (in both FinTech and Blockchain), but in my limited experience in FinTech, if you could eliminate the need for the trusted nth party (Bank Of New York, for example, cleared all of the bond trades we made), then you could save a few 1/32's of a trade (my last client in FinTech was like 15 years ago so I don't even know if those fees are even valid anymore). In any case, as you indicate, this seems to be the canonical use-case for the block chain...
  - smileysteve 10y ago
    > A spreadsheet needs someone to manage it. That person, and that data, must be very trustworthy, else they can simply change the data for their benefit. Google Docs has a change log could be a first step.
- mvnsnp 10y ago
  As an attorney, I can tell you I have spent countless hours simply verifying that cap tables/spreadsheets are accurately tied to the underlying capitalization documents in connection with VC financings and M&A deals. If this process was reliably automated, thousands of dollars in legal fees could be saved on a given transaction.
  - amluto 10y ago
    So ISTM what you want is a log of all underlying documents along with some machine-readable format for these documents so you can aggregate them into a cap table. Using a blockchain for the log would work, but so would any other means of checkpointing the thing periodically and verifying that the audit log is really append-only. IMO the real benefit of a blockchain is that an owner of some interest in a company could plausibly validate that their interest is actually logged in the source data for the cap table. But this would depend on having some way for the owner to know the current blockchain head, and this isn't going to happen by magic.

amluto 10y ago

> Blockchain is so badly needed in the startup world when allocating shares of a company. Eshares is promising but too pricey for bootstrapping entrepreneurs. What, exactly, does a blockchain have to do with this? ISTM all that's needed is a spreadsheet with an audit log, and even the audit log is somewhat optional.

riprowan 10y ago
In theory, an open blockchain like Bitcoin eliminates the need for a trusted authority to be the system of record. A spreadsheet needs someone to manage it. That person, and that data, must be very trustworthy, else they can simply change the data for their benefit. The compliance procedures that assure trustworthiness cost money. Lots of money. And they still fail. Blockchains, in theory, could also serve as a voting mechanism on splits, which could be manifested as blockchain hardforks. As Satoshi Nakamoto wrote: > The proof-of-work also solves the problem of determining representation in majority decision making. If the majority were based on one-IP-address-one-vote, it could be subverted by anyone able to allocate many IPs. Proof-of-work is essentially one-CPU-one-vote. The majority decision is represented by the longest chain, which has the greatest proof-of-work effort invested in it. Essentially a blockchain can codify the ownership of a stock share into a smart contract. That's the theory, and only insofar as it applies to a Proof of Work blockchain like Bitcoin. A private blockchain is more likely to be a Proof of Stake blockchain, in which shares (or tokens of other sorts) are issued in a "premine" which creates all of the tokens that will ever exist. These are then distributed to the initial group of trusted members of the private blockchain. From there, the blockchain can eliminate the need for a trusted authority to serve as the system of record of ownership.
- cmollis 10y ago
  Complete noob (in both FinTech and Blockchain), but in my limited experience in FinTech, if you could eliminate the need for the trusted nth party (Bank Of New York, for example, cleared all of the bond trades we made), then you could save a few 1/32's of a trade (my last client in FinTech was like 15 years ago so I don't even know if those fees are even valid anymore). In any case, as you indicate, this seems to be the canonical use-case for the block chain...
- smileysteve 10y ago
  > A spreadsheet needs someone to manage it. That person, and that data, must be very trustworthy, else they can simply change the data for their benefit. Google Docs has a change log could be a first step.
mvnsnp 10y ago
As an attorney, I can tell you I have spent countless hours simply verifying that cap tables/spreadsheets are accurately tied to the underlying capitalization documents in connection with VC financings and M&A deals. If this process was reliably automated, thousands of dollars in legal fees could be saved on a given transaction.
- amluto 10y ago
  So ISTM what you want is a log of all underlying documents along with some machine-readable format for these documents so you can aggregate them into a cap table. Using a blockchain for the log would work, but so would any other means of checkpointing the thing periodically and verifying that the audit log is really append-only. IMO the real benefit of a blockchain is that an owner of some interest in a company could plausibly validate that their interest is actually logged in the source data for the cap table. But this would depend on having some way for the owner to know the current blockchain head, and this isn't going to happen by magic.