Category Archives: Digital Currency

Crypto-currency to be backed by publicly traded stock.

This was an interesting problem that I worked on between 2006-2010, making a crypto-currency that was backed by publicly traded stock. It’s a complex problem to protect against those that want to game the system. MetaWallet had some great ideas about detecting bad actors and made real progress there. Reddit Article

Link

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Strengthening U.S. Securities Via Crypto-Currency Lessons

Bitcoin has received a lot of attention since Satoshi Nakomoto published a paper in 2009 that explained the the potential for currency to be exchanged online without involvement of a financial institution (i.e. a bank). (Checkout: http://bitcoin.org/bitcoin.pdf).

The last four years, however, have seen Bitcoin experienced considerable shifts in the scale of interest and support. They developed a gold-rush-like following, then crashed. The last year of stabilization efforts including a high-profile accumulation by the Winklevii – twins Cameron and Tyler Winklevoss. (Checkout: http://dealbook.nytimes.com/2013/04/11/as-big-investors-emerge-bitcoin-gets-ready-for-its-close-up/).

The currency allows for irreversible transactions, peer-to-peer transactions, double spending prevention through block chaining, and a fixed currency pool of 21 million. Given that the 21 million Bitcoins can themselves be divisible by 8 decimal places (100 million) or 21 x 10^14 units, well, the pool is substantial.

The computing network of Bitcoin has been running for over four years, generating block chains in the hundreds of thousands, facilitating the millions in daily transactions in the tens of thousands (See: http://blockchain.info).

With only one security issue to date (https://en.bitcoin.it/wiki/Incidents#Value_overflow), the hash proof-of-work (https://en.bitcoin.it/wiki/Proof_of_work) expense can scale to the applicable systems or infrastructure. For example, a simpler proof-of-work can be created for fixed private pools of currency. And more expensive proof-of-work can apply for already issued crypto-currencies, for say, U.S. Corporate securities.

Unlike the purely digital crypto-currency, U.S. Securities from corporations are issued by the companies and managed by attorneys, often prone to making errors as there are no requirements for corporate stock ledgers to be managed by any sophisticated software or third party audit system. There is no infrastructure for brokerage houses to handle anything more than corporate seal stocks or electronic ledgers. There is no technical component for the authentication of such security. And the existence of crypto-stocks has yet to be invented. Yet, the private holdings of corporate securities in the U.S. are the center of financial wealth and, as percentages go, the target for the most abuse.

While capitalistic-minded traders and business owners would like to be less regulated, everyone can agree that some agency has to take the role of oversight for wrong-doers. A peer-to-peer network of broker-dealers could be created for the crypto-stock infrastructure. With government oversight as a peer node – processing the block-chains and issuing user IDs could ensure true registered users.

Cryptography and digital certificate management are emerging trends in the corporate governance space, too, spanning from contract workflow and execution, corporate records (including board minutes and shareholder ratification) to the proposed stock issuance and sale. A large next generation infrastructure needs to be created to support this, but the enhancements could be analogous to the digitalization of the Superior Courts and Federal Courts with PACER and ECF.