4 ms·

You are correct regarding the low tps and the incompatibility with stock market transactions, but the rest of wall street dwarfs the stock market in market capi

by nissimk 11y ago

You are correct regarding the low tps and the incompatibility with stock market transactions, but the rest of wall street dwarfs the stock market in market capitalization. The bank debt market they discussed in the article is very low transaction volume but high value and it would most definitely benefit from bitcoin or 'blockchain' technology. Recording and transferring ownership of securities is really just the tip of the iceberg. If interest payments could be made through the ledger then default status would just be a query into the public database. With smart contracts you could also produce automated structured securities where the waterfall rules are encoded and executed in the network. The main difficulty is the border where the network interfaces with the real world. The network cannot enforce collateral transfers, foreclosures, seizures or similar transactions that occur on physical assets so you still need a system of courts and sheriff's.

danbruc 11y ago
The bank debt market [...] would most definitely benefit from bitcoin or 'blockchain' technology. Why?
- nissimk 11y ago
  In the primary market, when debt is first issued through a syndicate of banks, there is not really much of a problem. There is a really great chapter about this process I think in the "The new Market Wizards" book by Schwager, though it might be in the first book, "Market Wizards." The banks call all of their customers and get commitments for dollar amounts towards the deal. Then they put together the paperwork and issue securities. It's kind of like a bond, but it's technically a loan. Each of those investors receive some sort of documentation that they own some piece of that loan and the bank (or some administrator) distributes interest payments to the holders. The problem arises in the secondary market where initial holders want to sell their piece prior to maturity. There is a long process by which they have to prove ownership and transfer ownership. It's kind of like the process of closing on a home where there is a title search and deed transfer. During this period the buyer and seller are both open to shenanigans from the other party trying to back out of the trade or change the terms. It's also very labor intensive and archaic. If title was stored and transfered through a public trusted distributed ledger system then it could be done instantaneously with minimal effort. As I said above, there is much more potential here, which makes bitcoin way more promising than just a system for recording and transfering ownership of assets.
  - danbruc 11y ago
    Why does it have to be public and distributed? Why not a central authority?
    - JoachimSchipper 11y ago
      To add to this, note that the central authority does not need to be trusted beyond Bitcoin's "incentive-compatible" assumption. Consider e.g. a public Merkle tree (I believe Cryptolog runs one of those): a dishonest authority could refuse to accept your messages (and your money), but changing the past would be easily detected. (Consider storing a signature from the authority on "as of $TODAY, the root of the Merkle tree is $HASH".) You need something like the blockchain if you demand a fully distributed solution, but it's easy enough to build a system which does not need a trusted central party.

by nissimk 11y ago

danbruc 11y ago

The bank debt market [...] would most definitely benefit from bitcoin or 'blockchain' technology. Why?

nissimk 11y ago
In the primary market, when debt is first issued through a syndicate of banks, there is not really much of a problem. There is a really great chapter about this process I think in the "The new Market Wizards" book by Schwager, though it might be in the first book, "Market Wizards." The banks call all of their customers and get commitments for dollar amounts towards the deal. Then they put together the paperwork and issue securities. It's kind of like a bond, but it's technically a loan. Each of those investors receive some sort of documentation that they own some piece of that loan and the bank (or some administrator) distributes interest payments to the holders. The problem arises in the secondary market where initial holders want to sell their piece prior to maturity. There is a long process by which they have to prove ownership and transfer ownership. It's kind of like the process of closing on a home where there is a title search and deed transfer. During this period the buyer and seller are both open to shenanigans from the other party trying to back out of the trade or change the terms. It's also very labor intensive and archaic. If title was stored and transfered through a public trusted distributed ledger system then it could be done instantaneously with minimal effort. As I said above, there is much more potential here, which makes bitcoin way more promising than just a system for recording and transfering ownership of assets.
- danbruc 11y ago
  Why does it have to be public and distributed? Why not a central authority?
  - JoachimSchipper 11y ago
    To add to this, note that the central authority does not need to be trusted beyond Bitcoin's "incentive-compatible" assumption. Consider e.g. a public Merkle tree (I believe Cryptolog runs one of those): a dishonest authority could refuse to accept your messages (and your money), but changing the past would be easily detected. (Consider storing a signature from the authority on "as of $TODAY, the root of the Merkle tree is $HASH".) You need something like the blockchain if you demand a fully distributed solution, but it's easy enough to build a system which does not need a trusted central party.