Overstock has filed a prospectus with the SEC (the Securities and Exchange Commission) and asked permission to issue up to $500 million in stock that is controlled by a Bitcoin-like network. The new concept may transform the way the traditional stock market is perceived. However, permission is still awaited from the SEC.
Also read: Interview With Overstock CEO, Patrick Byrne
The filing to the SEC reads:
“We may decide to offer securities as digital securities…the ownership and transfer of which are recorded on a cryptographically-secured distributed ledger system using technology similar to (or the same as) the distributed ledger technology used for trading digital currencies.”
The idea to issue a “cryptosecurity” using Bitcoin-like technology came from Overstock’s free-thinking CEO, Patrick Byrne. He even hired developers and the lawyers to work on this project. However, to execute the idea, Byrne needs permission from the SEC. Byrne admitted that his idea is at the mercy of the establishment, and has appealed to SEC to “sprinkle holy water” on his push towards digital securities.
The Nature of Cryptosecurity
Once Byrne’s project receives “shelf registration” from the SEC, it will be able to sell any kind of security, such as common stock, preferred, debt, and warrants. Byrne hopes to offer stock that is not controlled not by a centralized exchange, but by a network of machines spread across the Internet. Byrne calls this network an “Alternative Trading System,” or ATS; even this system needs to be registered and approved by the SEC and ask for permission.
Patrick Byrne and Overstock see a lot of loopholes in existing stock markets that they believe can be rectified — provided a new, blockchain-based technology is used. For instance, using cryptographic algorithms, the ATS will mathematically verify all trades and record them in an online ledger. These records will be available for everyone to examine at any time, just like transactions on the Bitcoin blockchain.
This is an ambitious project from Patrick Byrne, who believes that the digital currency can free the economy from the grip of big banks and big government. ‘Cryptosecurity’ is one of many ways that seek remake the stock market using Bitcoin technology. However, Overstock’s SEC admits that, initially, very few shareholders will choose to hold their shares in digital form because of the technological uncertainty.
Overstock’s SEC filing says,
“An investment in our securities involves a high degree of risk. The prospectus supplement applicable to each offering of our securities will contain a discussion of the risks applicable to an investment in our securities.”
Industry experts believe that the SEC may approve the filing. However, they also advise that the approval process may take a while because the SEC’s corporate finance staff is notoriously risk averse when it comes to new technology. Although the blockchain technology impressive, it is uncertain how SEC officials will feel about the technology.
Like the SEC, investors tend to be very risk-averse about things like custody; they want proper regulatory oversight by the SEC and insurance organizations such as the SIPC. Though the SEC has not yet commented on the filing, Byrne and Overstock spokesperson Judd Bagley expect the SEC to open a review of the filing in the near future.
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