Your company’s stock ledger on a blockchain

The simplest way to maintain a private stock ledger on a public blockchain

TL;DR

Implementing your company’s private stock ledger on a public blockchain can actually be pretty easy. Here’s how: The person in charge of maintaining your company’s stock ledger can record every stock transaction using a single privately held Bitcoin address and a simple protocol like https://memo.cash.

Memo.cash is a protocol and web app that allows you to record text based messages on the public Bitcoin Cash blockchain for almost free. Transactions on the blockchain cannot be edited or deleted, so after you’ve added some text messages to your Bitcoin address anyone can then go view an immutable history of messages posted to that Bitcoin address. Doing so is pretty easy and I’ve provided some tips for maintaining a company ledger below.

For a cost of ~$0.003 per ledger entry, this approach can help maximize the reliability, transparency and trust of your company’s stock ledger between shareholders; which can be especially useful with several partners and when uncertificated shares are being used.

To make things legal you would need to include a special provision in a board resolution, operating agreement, or By Laws to make it binding. Within the provision you’d want to include the Bitcoin address being used as the ledger.

Why

Stock ledgers in private companies are often saved in an excel spreadsheet or database which can easily be lost or changed at any time. Many recent articles have discussed use of blockchain for stock ledgers and transactions for private/public companies, but nearly all of these articles are void of implementation detail.

Some articles imply that each stock transfer should be backed by a unique digital cryptographic token to be held by the stockholder (similar to an ICO token). I believe that a token-based approach would be flawed and far more complicated than a ledger should be. If you have ever used Etherium, digital ICO tokens, or Bitcoin you know that they can easily be lost and then the value is gone. This “flawed” token-based approach requires the shareholder to personally hold and secure their digital token in order to prove their own stake in a company. Asking a shareholder to properly store a digital token is entirely too much to expect and it wouldn’t work in practice.

Anyways, who on earth would want their own stake in a real company to be reliant solely upon a digital token… well not me, and probably not most of us. Stake and ownership in a private company should based on written agreements (using words) not digital contracts or tokens.

What we’re really after is the ability to maintain an immutable stock ledger that is transparent to a group of shareholders. This goal can be achieved using a simple protocol like memo.cash.

You can achieve a private stock ledger that’s publically visible and immutable for basically free using the recommendations below:

How to utilize https://memo.cash as a stock ledger

1. Signup for an account at https://memo.cash, your login name doesn’t matter because it won’t be publically visible to anyone.
2. Cost: This ledger will cost you almost nothing. But you will need to fund a Bitcoin Cash address in order to make transactions (it should cost you no more than a couple dollars to get started). Each transaction will cost about $0.003, so you can calculate how much you want to start with.
3. Identity: Don’t “Set Name”: As a private company you don’t really want anyone to be able to look you up, I would recommend sharing just the bitcoin address with shareholders and potential partners. As long as they have the address, then “Set Name” doesn’t matter, unless you do want anyone to be able to search for you. Share the bitcoin address (or memo.cash profile) with anyone for full transparency.
4. Records: Create a note for each stock authorization and transaction (i.e., “2017/01/01 — 5000 shares common stock authorized”, “2018/01/01— 1000 shares issued to XYZ on CS-01”, “2020/05/05–1000 shares transferred from XYZ to ABC”, etc.)
5. Proving ledger ownership (advanced/optional): You can prove to anyone that the ledger is indeed the real ledger maintained and owned by the company by using the private key associated with the Bitcoin address to sign a personal message to an inquiring person. That person can then use a verification tool associated with that blockchain to verify the message is genuine with the signature you provide.
6. Regaining Privacy (optional): If you feel that you’ve shared your Bitcoin address with too many people all is not lost, at anytime you can start using a new address to regain privacy of your ledger for recording transactions moving forward. Simply send a final message to the old address like: “LEDGER SUPERSEDED” or “VOID”, so that anyone who that might view the old address transactions would know the ledger is no longer actively being maintained at that particular address.

Pros/Cons

The downside to using this approach is each transaction message is currently limited to ~80 characters, so you have to be pretty efficient with your transaction messages. However, in May 2018 this will be changed to 220 characters.

Using initials or a unique id for each shareholder can help reduce the character count. And since privacy can be a concern for some, I think using initials or id for each shareholder makes sense. The private details for each id can then be resolved in private between the shareholder and the company.

A separate spreadsheet can be used to keep track of holder’s id and the private details of each shareholder. So the stock ledger in it’s entirety is a combination of a public blockchain used to record transaction history and other supporting documents to fill in the gaps where privacy from public is desired.

Conclusion

This approach allows you to maintain the privacy of your company’s shareholders while improving the integrity of your private stock ledger by using a single bitcoin address. Overall, this approach is simple, almost free with Bitcoin Cash, and doesn’t have many downsides other than the message length limitation of 80 characters (soon to be 220 characters).

I don’t foresee widespread adoption of other token based approaches for blockchain backed stock ledgers due to the technical knowhow involved for each stakeholder; and the implied risk for a shareholder to maintain his/her digital token asset to provide “proof of ownership”.

Disclaimer: I am not affiliated with Bitcoin Cash and I was not paid to write this article. This article does not provide legal advice and you should consult with your attorney the legal implications of using a blockchain for a company stock ledger.