Blockchain technology has reached a significant milestone as Overstock.com became the first publically traded company to issue stock via the internet. Using blockchain-based tech, they distributed over 126,000 company shares to existing shareholders. This is a great example of an early use case because they’re actively using the blockchain in an existing market. They had announced back in October at Money20/20 in Las Vegas that any current shareholders would be able to participate in the online-only stock sale.
This was all made possible through Overstock CEO and Founder Patrick Byrne’s blockchain technology company, T ZERO. While T ZERO’s blockchain is a private one, they publish all of their transactions to bitcoin’s public blockchain. This makes their transaction record transparent, which is an ideal Byrne would like to see the finance industry adopt.
Stocks moved into investor accounts December 15, 2016, and investors are able to start trading those 126,565 shares on December 16, 2016. This was all made possible through blockchain technology. The Securities and Exchange Commission green-lit the whole project a year ago, last December. CEO Patrick Byrne said his company spent $5-6 million in legal fees to get regulatory approval from both the SEC and the Financial Industry Regulatory Authority (FINRA). While the blockchain is all about cutting out the middleman, there were still several intermediaries involved in this online stock issuance Regulations and current compliance procedures can’t be changed overnight, but it was important that the blockchain was able to work within the existing regulatory framework. This was a necessary development for opening the potential of blockchain technology to integrate with, or disrupt, current systems.
The way the industry is set up now, it can take up to three days (T-3) to settle a stock trade. Utilizing blockchain technology would allow that time to be cut from T-3 to T-0, or rather, zero days. That’s where the company T ZERO gets their name from. This speaks to the efficiency of conducting transactions on a blockchain. Byrne addressed the importance of this step by calling it a ‘sputnik moment,’ and saying, “It’s not a big Titan rocket. It’s not a moonshot, but it demonstrates that we’re live.”
Any adoption of blockchain-based technology is good for the entire blockchain ecosystem. Every successful integration/implementation serves as proof of this disruptive tech’s viability. Even though middlemen, like stock brokers, were involved in the online-only transactions, it was only to satisfy regulators. It’s a vastly important milestone that people are actually conducting business on the blockchain in an industry that’s prime for disruption. Once regulations are adjusted to make way for the future of finance, trading will be simplified and streamlined.
Today’s financial markets are driven by central security depositories, brokers, and stock exchanges. Byrne thinks that if any one of those three parties begins to utilize blockchain technologies, the other two will become superfluous and disappear. This would help to reduce the cost of trading securities.
The blockchain really is the way of the future, especially in finance. While this is an early step on a long road ahead, it’s still an important one as far as showing the benefits of where the blockchain is concerned. Since T ZERO is pioneering fintech innovation, other enterprises will hopefully be more confident to follow their lead.