In 2015, Patrick Bryne (CEO of Overstock.com) gave a keynote address at the Mises Institute's Austrian Economics Research Conference. In his talk, he asked audience members to raise their hands if they owned any stock. Predictably, lots of hands shot into the air. However, they were extremely surprised when they heard his response to their hands:
Every single one of you with your hand up is incorrect -- none of you own any stock. That's not how the system works.
At the time, this gave me great pause. But, I continued to listen. He then went on to explain how the system of securities settlement in the U.S. has divorced the transfer of money from the transfer of securities. Anyone invested in the stock market has a broker -- either full-service or discount online broker -- who handles settlements for him or her. Most people think that these brokers move money and securities around between the accounts of buyers and sellers. Indeed,
that's how the system did work prior to 1973.Back then, brokers would transfer physical stock certificates and keep real-time ownership records.
BUT, just as everything changed pre-WWI w/ the advent of the Federal Reserve system, to a lesser degree, everything changed in 1973 with the creation of The Depository Trust and Clearing Corporation (DTCC). Settlement for securities transactions in the US is now centralized here - in the DTCC - and all brokers involved in US financial markets are plumbed into this private organization.
So, in essence, money and securities do not actually move between the accounts of buyers and sellers. They move between accounts housed centrally within the DTCC. BUT, the system takes centralization one step further.
US stocks are registered in the name of an organization called Cede & Co., a subsidiary of the DTCC. This means Cede and Co.,
is the legal owner of the vast majority of all US equities. Unless you take the necessary steps to register a stock in your name,
you don't technically own it (this is the state of the significant portion of so called stockholders). What you actually own is a contractual right, or and IOU, to that stock. Actually, it's a bit more complicated than that.
Because there are several layers of counterparties involved, you really own a contractual right (your broker) to a contractual right (DTCC) to a contractual right (Cede & Co.) of the stock that appears in your brokerage account.
NOW, you may be thinking: "What the F***, bizarro! I just don't care!" And, that's all fine and good. But, I will contend: here's why you should...This system was set-up during a time when records were not kept in computer databases, but on pieces of paper in filing cabinets. Record keeping in the financial markets had become extremely costly, inefficient, and problematic. This was back in the 70's when mainframe computing was still the choice technology.
Regardless of intent, this system deliberately separates investors (you and I) from their ownership rights. Not to mention, this system is extremely inefficient and fragile, as it is based on 40 year-old technology. Well, guess what? Securities settlement--both in the equity markets and the credit markets--is a fantastic application
for blockchain technology. The very same technology Bitcoin is based on and that is spreading through the world at breakneck speed. It's early. We're in the dial-up phase. But, make no mistake it is spreading like wildfire well-beyond the Bitcoin phenomenon.
The blockchain can return securities ownership directly to investors and enable peer-to-peer settlement in which the buyer sends money directly to the seller, who delivers the security directly to the buyer. P2P settlement on the blockchain renders high-frequency trading, front-running, and market manipulation nearly impossible. Here's the kicker -- if you move the financial markets onto the blockchain, then you cut 90% of the fed-backed crooks of Wall Street out of the picture entirely. And you make the SEC, FINRA (Financial Industry Regulatory Authority), and most of the financial regulatory apparatus obsolete. There's nothing for them to regulate
because the blockchain
cannot be gamed or corrupted.
If you cut out these intermediaries, then you also cut out most of the commissions, fees, taxes, ad overhead cost associated w/ the financial markets. These costs are relatively minor for each individual transaction, but greatly cumulative!
The DTCC settles nearly
$2 qaudrillion (!!) in value every single year. That's an insane amout of value. Even if total settlement costs, including taxes, average five basis points per transaction (or 0.05%), we are still talking about more than $1 trillion in cumulative ommissions, fees, and taxes being sucked away by Wall Street and government's regulatory complex.
Imagine, if you will, what the world looks like if that $1 trillion worth of investable capital is left
in the economy! You would witness an economic boom unprecedented before in human history...well, I propose, it is coming.
Blockchain is immense. It is huge. It isn't 'Bitcoin is going to fail because it isn't backed by anything'. This is the most preposterous thing I hear time in and again from those of us who just don't know what it is, why it is, or where it came from. The value in blockchain is simply too immense - the value in a system that is uncorruptible and entirely transparent. It really becomes questions of: will Bitcoin's limited scope and lagtime given its limited scope simply be bypassed by Ethereum and the Proof of Contract paradigm? will Ethereum be overtaken by the peer-reviewed but Ethereum-derived crypto 'Cardano'? How many more facets of global society will be impacted by this blockchain phenomenon? What about title rights of the so-called 3rd world (see the work of Bit Fury)? A De-Centralized mobile network (see Q Link)? A de-centralized internet server platform (See Substratum)? What about the welfare crisis? All of it and more will be addressed via blockchain, is being addressed by blockchain. Blockchain. Blockchain. Blockchain.
Did I mention blockchain?
So, if you're someone who can't leave their conventional paradigm, I get it. It's an unknown. It's too new. Hell, the internet didn't begin until 1989. Netscape didn't come about until 1994. We made it through the dial-up phase and then, bam, internet was everywhere seemingly overnight. It most certainly wasn't that way. Blockchain will be the same. Regardless, if you're going to stay strictly in the stock game at least do yourself the favor of seeing who the players are in that genre. Start with RIOT. Move from there.
My late night offering on the heels of the best start to a Packer non-playoff season in recent memory. Take it or leave it. My thoughts and my thoughts alone. Peace, brothers.
