(Part 1 of 4: Intro to How Distributed Ledgers Can Improve Existing Systems)
Securities and Corporate Ownership in a Post-Crypto World
For those who prefer articles here is a Medium version of my recent securities token video series minicourse.
Securities have been a part of global commerce for hundreds of years are a massively important part of the global economy today and will continue to be such in the coming decades.
The distributed ledger technology created by Bitcoin is unlike previous methods of tracking ledgers. Because of the very complex and counter-intuitive way global securities ledgers currently interact, this technology could be a solution to problems of scaling and capacity which have plagued Wall Street and other major global financial centers for decades.
The goal of this series is to explain why stocks and securities are a foundation of global commerce, how the ledgers work now, why Wall Street bankers, Cypherpunks, Bitcoiners & free market economists should care and how blockchain/ bitcoin and distributed ledger technology might fit into this.
This will be broken into four parts: this intro, the Past — covering the first securities and how markets rose because of new capital structures, the Present — which covers the crazy world of how ledgers currently work and what challenges this causes & the Future — which covers what the world might look like if this tech can change how we trade.
Understanding the problems and how ledgers currently work is key to addressing some major points people often ask about:
— what is the value of a blockchain or token
— why a database can’t be used
Before discussing securities tokens we should briefly define securities.
Some people cringe at the term securities tokens and what seems to be replacing ICO’s as “STO’s”.
This cringing is with good reason.
Securities tokens will likely indeed include many scams and many low quality offerings. If a securities token revolution occurs it may bring with it a large number of fraudulent and low quality offerings just like the ICO wave. However legitimate securities themselves are a key part of sound trade and economics. There is no reason that a security token cannot have good terms, enforcement and parties just like any other security.
I have a great connection with two worlds: the world of Wall Street and the world of cypherpunks.
People working on Wall Street and other global financial centers will be amazed at how significantly and rapidly this technology could change our world. We are talking about having a lot more public companies, much more global markets and value placed on lots of things that dont have value placed easily on them now.
Cypherpunks in crypto tend to focus on currency/ money — but I think they will care about this for a lot of reasons. Anyone who cares about commerce, the economy or Austrian economics should care a lot about the capital markets.
Why do I care? It starts with my mom, a former waitress who became a stockbroker in 1977.
I pretty much grew up in a brokerage firm — I played with the Quotron computer, read the pink sheets after school Got my first job at 14 at Dean Witter, became a broker at 19 or so and eventually ran my own firm — then an RIA then I got into crypto in 2012.
If securities is in your DNA you might think about things differently than if currency is your main focus. Most important is that current and securities are VERY different. Features which make Bitcoin good money are irrelevant or counterproductive and its a big mistake to judge securities or securities tokens by things like decentralization.
Trust and trust assumptions are very important in evaluating money.
We evaluate Bitcoin the way we evaluate money, by the same properties which have been used since long before Bitcoin:
Scarcity, limited supply, durability, portability, acceptability and divisibility.
These are key metrics for currency…but not for securities.
Bitcoin meets these factors well. If you own Berkshire Hathaway stock you dont care (as much) how divisible it is for example.
What matters for a security is what the terms of the agreement are and how it can be enforced. A good agreement with a financially sound partner has value.
When evaluating digital assets there are many layers: first you should categorize if it’s a stock or other security, an illegal security, utility, collectible, protocol etc. Then you can evaluate chain strength, security etc. then you evaluate other items. SPACESUIT X is a cheat sheet.
This simple tool is Free and Open Source. It’s yours! Use it, copy, make it into an analysis business, fund, issue reports etc. Hopefully the tool gives some ideas to think about when you evaluate digital assets.
For this series we will talk specifically about securities tokens.
In its most simple form, a “security” is basically and agreement which is tradeable. In reality and under most legal jurisdictions such as the US, this definition is broad in practice.
This article and video series is educational and does not serve as an offering of securities or investment advice.