6 ms·

It's fascinating that the financial system has evolved this kind of layered abstraction (humans owning stocks is a fiction maintained by brokers owning stocks,

It's fascinating that the financial system has evolved this kind of layered abstraction (humans owning stocks is a fiction maintained by brokers owning stocks, which is a fiction maintained by DTC owning stocks, which is a fiction maintained...) reminiscent of hallowed engineering kludges like TCP/IP. Its especially interesting since, unlike data packets, stocks are purely an abstraction to begin with, but the systems around them have become sufficiently complicated that it can't function without this kind of structure. A blockchain likely wouldn't help this issue either- high-speed traders would inevitably be dissatisfied with blockchain latencies and re-invent brokers that abstracted over blockchain transactions at a faster pace. These brokers would wind up causing bureaucratic meltdowns and become managed by some overarching structure similar to the DTC. Etc. If anything, a blockchain-based system would become more complicated, because it reduces the task of adding another financial sub-mechanism to an engineering problem. Something about large distributed systems of non- or imperfectly-cooperative agents breed complexity. (There's probably already formalized versions of that principle, but none are presently coming to mind.)

notahacker 10y ago
The irony is that if you were to build a securities markets from scratch as an electronic system, blockchain architecture for the ledger is one way you could absolutely guarantee that the authoritative record would only be eventually consistent with microsecond trades people actually place, and brokers' own independent records would still be absolutely essential to determining who owned what when a particular acquisition was allowed to go through. There's no benefit to trustlessness in settling a transaction when you're still reliant on a counterparty to actually make it for you, especially not in a situation like the one in the article which begins with legislation that means the regulator can determine if and when a takeover is allowed to go through. Even if it could settle transactions at market speed, there's not really much point in aiming for a distributed ledger if one party's legal status means they must be given sufficient control to hard fork it anyway.
- chromox 10y ago
  What if the "broker" is not a centralized entity. Bitsquare, BitShares are good examples of a decentralized exchange. > There's no benefit to trustlessness in settling a transaction when you're still reliant on a counterparty to actually make it for you The whole point of a blockchain is that you don't rely on the counter-party to actually make the trade for you. The exchange happens at the exact same time on a blockchain. > if one party's legal status means they must be given sufficient control to hard fork it anyway. I don't think hard fork is the right concept here. Hard fork implies an entire network change; I think what you are talking about is the ability for a company to issue more shares, etc... They could be given this control through smart contracts. https://aragon.one/ https://aragon.one/
- JoshTriplett 10y ago
  > blockchain architecture for the ledger is one way you could absolutely guarantee that the authoritative record would only be eventually consistent with microsecond trades people actually place There are architectures that can reach consistency in seconds rather than minutes. And transactions requiring seconds rather than microseconds could potentially represent a feature, not a bug. As for things like dividends, with a distributed ledger, the company owning the stock could issue a dividend to everyone who owns the stock at time T, and meanwhile anyone who owns fictitious borrowed shares can take their claims up with whoever claimed to buy/sell a share without entering it into the official record. Legal restrictions against certain transactions (such as mergers or acquisitions) wouldn't necessarily prevent the ledger from serving as a purely financial record. They'd just make it more difficult to use that record for shareholder voting and other questions of control.
- jonnylatte 10y ago
  Ethereum's raiden network can achieve market speed while maintaining the property that an exchange happens or it doesn't (a single transaction can contain the transfer of both assets being exchanged) the way it works is that transactions are made but not immediately submitted to the blockchain. If a new transaction happens it is designed so that the later transaction if submitted prevents or even undoes all previous transactions on the same channel. Combine that with funds held in escrow (on chain) and a challenge period and you have a way to transfer funds back and forth at communication speed rather than blockchain speed and if there is a dispute or the trading parties wish to go their separate ways everything becomes finalized to the chain. In this model there would be the equivalent of brokers. These are parties who are willing to act as nodes in a network of buyers and sellers. These brokers do not take ownership of user funds though. They do have the ability to refuse to act as a relay for whoever they want to refuse but they don't have the ability to confiscate funds, do fractional accounting or prevent users from using another note to rout their transactions through. These entities could also be anonymous because there is no need to trust them but they could also be identified and only relay transactions for KYC compliant users.
throwawayish 10y ago
"Distributed processing is not only more complex to implement but also turns out to be less efficient in most if not all cases" -- not sure where I got that one. Google tells me it's not literal, or NotOnTheInternet(tm).
chromox 10y ago
Instead of having chain of trust through all these different entities trust would be instilled in a blockchain. I would prefer one source of truth rather than truth that is built up through a chain of private intermediaries. As for the high speed traders they would depend on layers built on top of a blockchain that allow them to transfer ownership quickly while still using a blockchain as an eventually consistent record.
djsumdog 10y ago
> stocks are purely an abstraction to begin with There's a book called "The Social Construction of Reality." Some of it is a little difficult to grasp as it gets into a lot of social science elements, but the basic gist is that everything in our societies are abstractions we have to believe in collectively. School systems, justice departments, police departments, et. al. don't really exist. They exist because we believe they do. Enough people believe money system works that we can trade money in exchange for labor, potentially adding value to something and building capitol. You can chose to believe such things don't exist and murder 10 people, but enough people believe those structures exist that you'd quickly be put in a prison, or at least a mental institution. Money and markets are one of the most interesting abstractions of our time. I highly recommend Debt The First 5,000 Years, in which Graeber argues that the earliest forms of money in human history were credit based (not barter like you learn in high school). Wealth was always an abstract belief, and hard money (like coins) came about directly through war (conquerors had to tax areas they took, paid their soliders with coins and where thereby supported by the regions they held as the people were forced to give goods to solders in order to pay taxes) and markets cannot exist without states.
- ftlio 10y ago
  The first 5000 years I can't recommend enough. As far as how abstract money and society get, I think a decent counterpoint exists in Nick Szabo's Shelling Out: http://nakamotoinstitute.org/shelling-out/ http://nakamotoinstitute.org/shelling-out/ Money is useful because it allows for delayed reciprocity. Delayed reciprocity can help overcome environmental uncertainty for the individual human that next to zero other animals can benefit from. From there you get the productivity of networks.
- dharma1 10y ago
  I sometimes wonder what the future of money will be if AI takes off - will non-human autonomous intelligence have a use for money, for trade and store of value?
  - kijin 10y ago
    AI requires energy in order to function. I've seen a handful of sci-fi scenarios where money is replaced with energy, and units of energy are traded and stored just like money. The second law of thermodynamics even ensures a certain amount of inflation.
deleted 10y ago
[deleted]
nostrademons 10y ago
It reminds me of the last wave of distributed P2P filesharing, c. 2000-2005. First we got Napster, which realized that by taking advantage of the bidirectional nature of TCP/IP, we could distribute copyright infringement so widely that it would become impossible to enforce. Then some techies at NullSoft realized that you don't actually need a central server for discovery at all, you can broadcast the existence of and metadata about files throughout the network for discovery, and put out Gnutella. Lots of excitement followed, with many people of that era believing P2P would be the Next Big Thing (among people working on this were such folks as Travis Kalanick of Red Swoosh -> Uber, Mark Zuckerburg of WireHog -> Facebook, Friis & Zenstrom of Kazaa -> Skype -> Rdio, and Robert Tappan Morris of Chord -> YCombinator). And then folks realized that Gnutella was slow. Really slow, because folks on transient dialup connections in Estonia were critical nodes in file discovery. So they created the idea of super-peers, where the protocol was adapted to realize that some nodes are more equal than others and route requests through nodes with known-good connections. Then the next-generation P2P network (BitTorrent) decided that it was easier just to rely on HTTP for metadata exchange and went to centralized trackers, and the ecosystem that grew up around BitTorrent realized branding & centralized search engines were important for non-technical users and we got big torrent search engines like ThePirateBay and Mininova. Eventually, the market seemed to settle on convenience & performance over distribution, and the real winners in the mass market were DropBox, Google, and Apple. There's probably a lesson in there, but as someone who's been fascinated by P2P technologies since high school and wasted a lot of time thinking about the problem in college, the lesson is pretty depressing. If hierarchy, market concentration, and single points of failure don't already exist, they will be reinvented.
- striking 10y ago
  This is probably the most enlightening comment I've read all day. I've been looking for a suitable explanation for this trend, and here it is.
- Pxtl 10y ago
  Yup. Same with Git. Nobody uses Git in a truly p2p fashion. Distributed systems are useful for a variety of reasons, but so is authority. Most successful systems seem to use a distributed p2p system because it adds useful functionality to a system that will still ultimately have a master server.
nihonde 10y ago
As my banking law professor said on day one of his class, money started when someone traded a seashell for a coconut. It's all abstractions, until you get to the coconuts.
- CyberDildonics 10y ago
  That is so over simplified that it is basically nonsense. There are properties of ideal money which explains why gold, fiat, and currencies all have value. The fact that so few people seem to know this is a big reason why money continues to baffle people. Most haven't been able to figure out the real underlying principles that give a dollar bill value, they just know that it does.
  - nihonde 10y ago
    Gold is heavy, corrosion-resistant, shiny, pliant, and scarce. For those reasons, it makes a good coin. But you can't eat or drink a coin. Its value is still based on being able to exchange it for a coconut. Why don't you take a break from patting yourself on the back and explain to us simpletons the inherent value of a currency?
    - CyberDildonics 10y ago
      The inherent value of ideal money should be obvious. It allows the universal exchange of time-shifted value. It is so fundamental that from cigarettes to cell phone minutes, groups of people tend to gravitate towards some combination of currencies, if if they lack in some properties of ideal money. A shared ledger of value does not help someone on the edge of biological survival. Once the most basic needs are met, money happens one way or another.
skookumchuck 10y ago
Money is a similar layered abstraction.
tim333 10y ago
>stocks are purely an abstraction stocks, or shares as they are called in the article aren't that abstract. If you own a business you have ownership of the assets and if you own 50% of the shares you own half of them and some others own half. Unless you are arguing owning anything is an abstraction?
- titanomachy 10y ago
  Ownership beyond immediate possession, at least.
deleted 10y ago
[deleted]
atomicnumber3 10y ago
>A blockchain likely wouldn't help this issue either- high-speed traders would inevitably be dissatisfied with blockchain latencies and re-invent brokers that abstracted over blockchain transactions at a faster pace. It's funny you mention that, because that's exactly what's already happened. Major bitcoin exchanges are internally handling matching and settlement for trading BTC<=>fiat, and part of it is because people do high-frequency and algo trading and need the lower latencies and fast execution, and certainly can't wait for confirmations to know if they really bought/sold the BTC. I don't know if exchanges end up posting the moves of BTC to the blockchain, or if it's all just a big balance sheet internally and BTC only really moves on the blockchain when you withdraw/deposit. Probably varies between exchanges.
CyberDildonics 10y ago
Blockchains wouldn't help? You would actually own the stock in minutes. Anyone wanting to buy stock would have it settled in less time than it takes to order stock through e-trade. How long does it take to actually own stock through DCT?

notahacker 10y ago

The irony is that if you were to build a securities markets from scratch as an electronic system, blockchain architecture for the ledger is one way you could absolutely guarantee that the authoritative record would only be eventually consistent with microsecond trades people actually place, and brokers' own independent records would still be absolutely essential to determining who owned what when a particular acquisition was allowed to go through. There's no benefit to trustlessness in settling a transaction when you're still reliant on a counterparty to actually make it for you, especially not in a situation like the one in the article which begins with legislation that means the regulator can determine if and when a takeover is allowed to go through. Even if it could settle transactions at market speed, there's not really much point in aiming for a distributed ledger if one party's legal status means they must be given sufficient control to hard fork it anyway.

chromox 10y ago
What if the "broker" is not a centralized entity. Bitsquare, BitShares are good examples of a decentralized exchange. > There's no benefit to trustlessness in settling a transaction when you're still reliant on a counterparty to actually make it for you The whole point of a blockchain is that you don't rely on the counter-party to actually make the trade for you. The exchange happens at the exact same time on a blockchain. > if one party's legal status means they must be given sufficient control to hard fork it anyway. I don't think hard fork is the right concept here. Hard fork implies an entire network change; I think what you are talking about is the ability for a company to issue more shares, etc... They could be given this control through smart contracts. https://aragon.one/ https://aragon.one/
JoshTriplett 10y ago
> blockchain architecture for the ledger is one way you could absolutely guarantee that the authoritative record would only be eventually consistent with microsecond trades people actually place There are architectures that can reach consistency in seconds rather than minutes. And transactions requiring seconds rather than microseconds could potentially represent a feature, not a bug. As for things like dividends, with a distributed ledger, the company owning the stock could issue a dividend to everyone who owns the stock at time T, and meanwhile anyone who owns fictitious borrowed shares can take their claims up with whoever claimed to buy/sell a share without entering it into the official record. Legal restrictions against certain transactions (such as mergers or acquisitions) wouldn't necessarily prevent the ledger from serving as a purely financial record. They'd just make it more difficult to use that record for shareholder voting and other questions of control.
jonnylatte 10y ago
Ethereum's raiden network can achieve market speed while maintaining the property that an exchange happens or it doesn't (a single transaction can contain the transfer of both assets being exchanged) the way it works is that transactions are made but not immediately submitted to the blockchain. If a new transaction happens it is designed so that the later transaction if submitted prevents or even undoes all previous transactions on the same channel. Combine that with funds held in escrow (on chain) and a challenge period and you have a way to transfer funds back and forth at communication speed rather than blockchain speed and if there is a dispute or the trading parties wish to go their separate ways everything becomes finalized to the chain. In this model there would be the equivalent of brokers. These are parties who are willing to act as nodes in a network of buyers and sellers. These brokers do not take ownership of user funds though. They do have the ability to refuse to act as a relay for whoever they want to refuse but they don't have the ability to confiscate funds, do fractional accounting or prevent users from using another note to rout their transactions through. These entities could also be anonymous because there is no need to trust them but they could also be identified and only relay transactions for KYC compliant users.

throwawayish 10y ago

"Distributed processing is not only more complex to implement but also turns out to be less efficient in most if not all cases" -- not sure where I got that one. Google tells me it's not literal, or NotOnTheInternet(tm).

chromox 10y ago

Instead of having chain of trust through all these different entities trust would be instilled in a blockchain. I would prefer one source of truth rather than truth that is built up through a chain of private intermediaries. As for the high speed traders they would depend on layers built on top of a blockchain that allow them to transfer ownership quickly while still using a blockchain as an eventually consistent record.

djsumdog 10y ago

> stocks are purely an abstraction to begin with There's a book called "The Social Construction of Reality." Some of it is a little difficult to grasp as it gets into a lot of social science elements, but the basic gist is that everything in our societies are abstractions we have to believe in collectively. School systems, justice departments, police departments, et. al. don't really exist. They exist because we believe they do. Enough people believe money system works that we can trade money in exchange for labor, potentially adding value to something and building capitol. You can chose to believe such things don't exist and murder 10 people, but enough people believe those structures exist that you'd quickly be put in a prison, or at least a mental institution. Money and markets are one of the most interesting abstractions of our time. I highly recommend Debt The First 5,000 Years, in which Graeber argues that the earliest forms of money in human history were credit based (not barter like you learn in high school). Wealth was always an abstract belief, and hard money (like coins) came about directly through war (conquerors had to tax areas they took, paid their soliders with coins and where thereby supported by the regions they held as the people were forced to give goods to solders in order to pay taxes) and markets cannot exist without states.

ftlio 10y ago
The first 5000 years I can't recommend enough. As far as how abstract money and society get, I think a decent counterpoint exists in Nick Szabo's Shelling Out: http://nakamotoinstitute.org/shelling-out/ http://nakamotoinstitute.org/shelling-out/ Money is useful because it allows for delayed reciprocity. Delayed reciprocity can help overcome environmental uncertainty for the individual human that next to zero other animals can benefit from. From there you get the productivity of networks.
dharma1 10y ago
I sometimes wonder what the future of money will be if AI takes off - will non-human autonomous intelligence have a use for money, for trade and store of value?
- kijin 10y ago
  AI requires energy in order to function. I've seen a handful of sci-fi scenarios where money is replaced with energy, and units of energy are traded and stored just like money. The second law of thermodynamics even ensures a certain amount of inflation.

deleted 10y ago

[deleted]

nostrademons 10y ago

It reminds me of the last wave of distributed P2P filesharing, c. 2000-2005. First we got Napster, which realized that by taking advantage of the bidirectional nature of TCP/IP, we could distribute copyright infringement so widely that it would become impossible to enforce. Then some techies at NullSoft realized that you don't actually need a central server for discovery at all, you can broadcast the existence of and metadata about files throughout the network for discovery, and put out Gnutella. Lots of excitement followed, with many people of that era believing P2P would be the Next Big Thing (among people working on this were such folks as Travis Kalanick of Red Swoosh -> Uber, Mark Zuckerburg of WireHog -> Facebook, Friis & Zenstrom of Kazaa -> Skype -> Rdio, and Robert Tappan Morris of Chord -> YCombinator). And then folks realized that Gnutella was slow. Really slow, because folks on transient dialup connections in Estonia were critical nodes in file discovery. So they created the idea of super-peers, where the protocol was adapted to realize that some nodes are more equal than others and route requests through nodes with known-good connections. Then the next-generation P2P network (BitTorrent) decided that it was easier just to rely on HTTP for metadata exchange and went to centralized trackers, and the ecosystem that grew up around BitTorrent realized branding & centralized search engines were important for non-technical users and we got big torrent search engines like ThePirateBay and Mininova. Eventually, the market seemed to settle on convenience & performance over distribution, and the real winners in the mass market were DropBox, Google, and Apple. There's probably a lesson in there, but as someone who's been fascinated by P2P technologies since high school and wasted a lot of time thinking about the problem in college, the lesson is pretty depressing. If hierarchy, market concentration, and single points of failure don't already exist, they will be reinvented.

striking 10y ago
This is probably the most enlightening comment I've read all day. I've been looking for a suitable explanation for this trend, and here it is.
Pxtl 10y ago
Yup. Same with Git. Nobody uses Git in a truly p2p fashion. Distributed systems are useful for a variety of reasons, but so is authority. Most successful systems seem to use a distributed p2p system because it adds useful functionality to a system that will still ultimately have a master server.

nihonde 10y ago

As my banking law professor said on day one of his class, money started when someone traded a seashell for a coconut. It's all abstractions, until you get to the coconuts.

CyberDildonics 10y ago
That is so over simplified that it is basically nonsense. There are properties of ideal money which explains why gold, fiat, and currencies all have value. The fact that so few people seem to know this is a big reason why money continues to baffle people. Most haven't been able to figure out the real underlying principles that give a dollar bill value, they just know that it does.
- nihonde 10y ago
  Gold is heavy, corrosion-resistant, shiny, pliant, and scarce. For those reasons, it makes a good coin. But you can't eat or drink a coin. Its value is still based on being able to exchange it for a coconut. Why don't you take a break from patting yourself on the back and explain to us simpletons the inherent value of a currency?
  - CyberDildonics 10y ago
    The inherent value of ideal money should be obvious. It allows the universal exchange of time-shifted value. It is so fundamental that from cigarettes to cell phone minutes, groups of people tend to gravitate towards some combination of currencies, if if they lack in some properties of ideal money. A shared ledger of value does not help someone on the edge of biological survival. Once the most basic needs are met, money happens one way or another.

skookumchuck 10y ago

Money is a similar layered abstraction.

tim333 10y ago

>stocks are purely an abstraction stocks, or shares as they are called in the article aren't that abstract. If you own a business you have ownership of the assets and if you own 50% of the shares you own half of them and some others own half. Unless you are arguing owning anything is an abstraction?

titanomachy 10y ago
Ownership beyond immediate possession, at least.

deleted 10y ago

[deleted]

atomicnumber3 10y ago

>A blockchain likely wouldn't help this issue either- high-speed traders would inevitably be dissatisfied with blockchain latencies and re-invent brokers that abstracted over blockchain transactions at a faster pace. It's funny you mention that, because that's exactly what's already happened. Major bitcoin exchanges are internally handling matching and settlement for trading BTC<=>fiat, and part of it is because people do high-frequency and algo trading and need the lower latencies and fast execution, and certainly can't wait for confirmations to know if they really bought/sold the BTC. I don't know if exchanges end up posting the moves of BTC to the blockchain, or if it's all just a big balance sheet internally and BTC only really moves on the blockchain when you withdraw/deposit. Probably varies between exchanges.

CyberDildonics 10y ago

Blockchains wouldn't help? You would actually own the stock in minutes. Anyone wanting to buy stock would have it settled in less time than it takes to order stock through e-trade. How long does it take to actually own stock through DCT?