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From Paper Trading, To Contractual Rights, To Blockchain

February 25, 2019


Overstock.com’s investment subsidiary Medici Ventures has continually highlighted CEO Patrick Bryne’s drive to forge their path in the new industry, and help make drastic improvements to current financial systems. Overstock.com was one of the early adopters for accepting cryptocurrency payments, but now Patrick Byrne is moving his interest entirely to the blockchain and cryptocurrency industries with the tZero investment platform. He plans to sell Overstock.com entirely, while working to onboard new businesses and new retail investors into the fintech space.


Do you know what you own?


Last week Patrick Byrne was the keynote speaker for the topic of investing in blockchain at an event hosted by Oppenheimer & Co. in New York City. For the majority of people, even including those familiar with the traditional investment world, blockchain technology and cryptocurrencies are more or less a mystery. But rather than dive into the details of this foreign technology, Byrne took a step back to help the crowd reassess their understanding of the investment model they currently feel comfortable with.


Paper Trading



In the early 1900’s, stock exchanges operated by literal paper trading. Pieces of paper that represented actual shares of a company changed hands daily. These certificates were then round up each day and transferred my couriers to their new ownership. As world wide stock exchange trading grew dramatically in the 1960’s this became a major issue. In New York City, it reached a tipping point with the great “paper blizzard” of 1970. The amount of physical paper was too much. The NYSE attempted to dull the effects by switching to a four day week with abbreviated trading hours, but it wasn’t enough.


Indirect Ownership


The eventual fix to the problem was that central depositories would hold the true certificates of ownership, while the shares traded by investors would represent a contractual agreement to the third party depository that they own the share.

“All the corporate shares in America are owned by the company called Cede & Co, and what you actually have is a contractual claim against a corporation, that has a contractual claim against another corporation, that has a contractual claim against DTCC, that has a contractual claim against Cede & Co. What can go wrong?” - Patrick Byrne


Blockchain Transparency


Patrick Byrne continued to highlight the aspects of blockchain technology that would improve market structures and processes, such as full transaction and ownership transparency along with removing the need for a third party depository -  “all kinds of systemic risks go away… Imagine we have a magic ledger which is cryptographically protected, public and transparent – no way to cheat.”



By: BGN Editorial Staff

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