Overstock.com Assembles Coders to Create a Bitcoin-Like Stock Market
wired.com
wired.com
Why go to the SEC? I feel like the advantage of doing something like this would be the ability to build a trading exchange without any authority over looking it.. I'd say that's what's wrong with the current system (NYSE,NASDAQ,etc).
Also, Bitcoin being traded on a forex exchange has nothing to do with the article.
I'm generally pro-regulation, if the details are sensible, but regulatory capture is a real problem, and it is not an unreasonable stance that the cure is sometimes worse than the disease.
And there lies the rub. So the wealthy man can take advantage of start-up investing, but the government in its infinite wisdom, forbids the middle-class man from doing the same under penalty of imprisonment for the person offering the security.
Freeeeeeeedom!
For example, it becomes quite easy to hide fraud when a single entity is both an investment bank and a mortgage lender.
In my layman's opinion, a lot of the problem comes from the fact that accounting is not an exact science. For a large company with many revenue, expenditure and investment streams spread over the course of a year, accountants have a lot of leeway to massage the numbers as they see fit. Until the house of cards comes crashing down ala 2008 it can be very hard to pick apart what is actually going on from the outside.
When you have a bunch of poorly thought out regulation, much of it designed to exclude competition, that's when things go bad.
The cool thing about the internet is that regardless of what you or the SEC or John Q. Public thinks is a bad idea or improper, people are free to experiment with it anyway. Technology has outpaced the ability of governments to proscribe voluntary interaction.
HSBC got caught laundering billions of drug cartel and Iranian money. Do you know how many of the bankers went to jail? Zero. They had to pay a tiny fine equal to less than a month of their revenue.
How many bankers or Wall st guys went to jail for the largest freaking financial crisis they had caused?
Regulation in finance just doesn't work. Look at who the regulators are and who is in charge of the regulators. Half of t these folks are from Goldman.
I imagine there is also tremendous regulation surrounding venture capital, but I have never engaged in it much so I'm unaware of the complexities.
Too bad that, by nature of the fact the finance industry inherently has all the money, that money lets them buy the politicians to then use regulation to prevent competition and line their own pockets, while leaving them impervious to persecution when their greed fucks everything up.
I do not see how even the best intentioned regulation can work in finance. It is the proverbial tightening the fist while the actors slip through your fingers - if you try to restrict the flow of money, really big money, like drug money, then all you will find is you suffering for it.
One of the reasons that foreign companies list on US markets is that we have some of the strongest financial regulations in the world.
A simple analogy: San Francisco has a vigorous health department, and food safety scores are posted visibly in every restaurant. Does this reduce the vibrancy of the restaurant scene? No, it enhances it. Because I know when a place is likely safe to eat at, I spend more money in restaurants and I'm more willing to try new places. That increases the effectiveness of the market because newer restaurants compete on a more even footing with established ones.
And the inverse of this, is that if a restaurant listed food safety scores irrespective of state mandate, you would visit those restaurants more, and if most people agreed, those restaurants would prosper and those not adopting food safety scores would suffer.
Except in that situation there was no violence of the state to compel the individual restaurants to do something - the market naturally lead to that conclusion. It is not like there is any limit on your ability to learn information about a restaurant - I would say I am surprised that there is not some popular national database of website safety ratings made up of user reviews, but considering I have never searched for such a service - I just go by general user reviews, under the assumption that an unsafe food service locale would get trashed in criticism - I guess it makes sense not to exist.
> That increases the effectiveness of the market because newer restaurants compete on a more even footing with established ones.
Or it would be a competitive advantage if the markets truly benefited from food safety scores for newer restaurants to advertise them where their entrenched competition does no such thing.
I also don't buy your view that the magic sparkle ponies of the market will always take care of everything. I think your approach works in theory, with infinitely smart and well informed humans. But given that we're dealing with a bunch of hairless monkeys, I think cognitive limits make it relatively easy for bad actors to push market solutions away from optimum.
More than anything I'm trying to indicate that safety ratings are not actually benefiting the restaurants if they are not adopting similar systems elsewhere. And if they had a private rating system it would only mean anything if there was some consortium that posted standards. Consider the ESRB, which is not a state review board but exists to keep states from instituting review boards in the US on video games. They specify their rating criteria in available records and are utilized industry wide because the users of the rating board find it a net benefit.
I'm not going to argue that consumers do not benefit somewhat from food safety ratings, but it is also not purely black and white, because by compelling restaurants to produce them, if they are not a market positive effect (and like I said, the lack of a natural appearance of such a system outside mandate indicates it is most likely not) then the consumer pays for those reviews with a more significant expense on the part of restaurants than the restaurants make as a result of increased traffic, which means they must raise prices systemically to compensate, and you end up paying more.
Except in a sane market, you should be able to pay more if you want to only shop at restaurants that give safety ratings from some public consortium in the first place. But then you have the choice.
I don't know enough about food preparation and don't have access to the kitchen of a restaurant, so I have no idea how to properly assign it a health rating. The restaurant itself can obviously produce a health rating, but if they are the type of place to skimp on health issues, it isn't that much of a stretch to believe they may lie about health issues. The free market result will then be a mess. Customers who want a healthy restaurant won't know which ones are truly healthy. That makes it a hard to justify paying the premium for a health rating that could just be a lie. The restaurants then have little motivation to actually care about health since they can't prove it to their customers. In the end, you will have a market that is dominated by cheap and low quality goods (check out "the market for lemons" [1]).
The video game system is not an exact equal. The main difference is that there generally isn't information asymmetry in video games. The customer will be able to play the game and by the end of it have all the same information as the creators of the game. That provides accountability. A classic example of both that accountability and information asymmetry was GTA and the whole hot coffee scandal. The developers hid sexually explicit content in the game that was not factored into the rating. Once knowledge of that leaked out, there was a lot of backlash and the rating for the game was eventually changed.
Banking, finance, and Wall Street likely have even more information asymmetry than the food industry, hence the need for an external and trusted source of oversight.
I'm not saying the restaurant itself would give itself a rating, I'm saying that if there was an economic advantage to information garnered from food safety, a private company could charge restaurants to get rated, and restaurants would seek ratings to garner customers. The fact such a service does not exist indicates that customers don't care about food safety enough to change their dining preferences to restaurants that provide such information, or else restaurants would do it, and I would be the first to line up to found that company because it would be an unexploited profit center.
> accountability and information asymmetry was GTA...
You can falsify the state of your kitchen just as much to a state inspection agent as a private one. And in both cases being caught doing it has repercussions, the former would be police at your door, the later a slander campaign by the ratings board.
> But the OP postulates that through force of state having safety criteria restaurants must advertise is a systemic benefit to the food service industry, and if it actually was, then restaurants everywhere would naturally adopt it if it increases consumer participation and revenues.
You seem to treat that as an article of faith. In particular, you come across to me as a free-market fundamentalist. The creed seems to be something like: If a market does it, it's good; if a market doesn't do it, then it's definitionally not good. I've learned never to argue with fundamentalists, as they're impossible to convince.
Simplied question: if it is beneficial to restaurants to be forced to conform to food safety guidelines, inspections, and public ratings, it would stand to reason restaurants would naturally seek to self regulate and have their own common rating board if doing so attracted more business than it cost them to maintain said ratings.
Obviously it does not, since restaurants do not naturally do that. I'm not saying the idea of food safety mandates is good or not, I'm just saying the industry would implement it themselves if it was fiscally beneficial to the restaurants. And since it is not, that implies their rates are higher, they are less competitive as a result, and that consumers are paying for something they (in a natural market) were not willing to fork money over to see happen naturally (by way of not favoring publicly rated restaurants).
For example, as I already mentioned, public food safety ratings benefit new market entrants more than they do existing restaurants. Ergo, every existing restaurateur might oppose them (or at least decline to pay for them).
Another possible reason: dominant players benefit the least from public health ratings (because they already have a large established clientele and good word of mouth), but they are the ones with the largest surplus for things like this. So it might not happen because dominant players wouldn't work to make it happen. They might even oppose it.
Or another: humans have many known cognitive biases, including ones toward competition and zero-sum thinking. Perhaps prominent restaurateurs would oppose regulations that would benefit everybody because they would focus on benefit to competitors.
Or another: restaurateurs are very busy people, or perhaps very focused people, and so wouldn't have sufficient time or awareness to understand the benefits of a scheme like this.
Or another: even if they actually stand to benefit on average, individual restaurant owners might fear exposure of health issues, and would rather keep things quiet just in case (the loss aversion bias).
Or another: the costs of the program are short-term and obvious, but the benefits of the program appear speculative and/or long term, and nobody is willing to take the risk or take the short-term loss.
Or another: the program might not pay for itself purely in terms of increased restaurant business profits. However, it does pay for itself when health costs and human suffering are taken into account. In other worse, restaurants wouldn't do it because making people sick is a negative externality.
Or another: maybe nobody has gotten around to it yet. There are plenty of things that businesses do now that they didn't do at one point. Not because market conditions were different, but because things take time. Actual humans have to actually think of the idea and then get a lot of other actual humans to make it happen.
So off the top of my head, that's, what, eight holes in your argument from orthodox free-market dogma. Presumably an economist with relevant experience could find more, as could a public health expert or a restaurant owner.
Markets are a fine technology for accomplishing particular purposes. But like any real technology, they have practical limits and known failure modes. Which should be unsurprising given that they are implemented on people, who are rational to about the same extent that cows are spherical. [1]
Voluntary food safety postings are useless, because they allow fraudulent posting. Sure, it'll come out pretty soon - but by that time people are ill or dead due to food poisoning, and the person in question is likely long gone.
"The market" doesn't give a shit if actors are fraudulent or working with good intentions, and it has no way to prevent turning an iterated situation into a one-off situation. "The market" has no idea which reviews are genuine. If you'd like to see unregulated reviews in action, look at the direction yelp is turning lately. "The market" does not guarantee that consumers are fully (or even somewhat) informed, a condition that is necessary to a market actually working properly.
> Or it would be a competitive advantage if the markets truly benefited from food safety scores for newer restaurants to advertise them where their entrenched competition does no such thing.
No, it wouldn't, because you'd have no idea if you could trust the reviews. So you'd wait a while. Sooner or later, you have a bunch of restaurants that post reviews. And then new restaurants pop up, also posting their reviews. Do you still know which ones are trustworthy and which ones aren't?
Sure, you could ask your friends. Until you travel. At which point you're at the mercy of complete strangers.
"The market" is not an almighty force for good. It allows efficient exchange of goods. If a cost is externalized - say, the hospital bill of people eating at restaurants - the market does exactly nothing about it. Because the cost is externalized.
That's the whole point of regulations. Not to be a pain in the neck, but to ensure costs are not externalized. The only way to achieve that without enforcement is a society of entirely benevolent actors. That does not exist.
I'm genuinely interested in what you define "the market" to be, and how you define government, and lastly regulation. Avoid circular references if you can help it.
How can you have such disdain for markets when governments are operated by a market of politicians? That sounds like the worst kind of market society has to offer.
Overstock is already a publicly traded company - anything that remotely hints at trying to circumvent the regulations they're already subject to would be a very bad idea
Do you mean you don't think people can be trusted to keep their own shares safe? Securing a large value of cryptocurrency is challenging right now. But if you don't trust yourself to do it, you can hire a third party that you do trust to hold your shares for you.
The main thing I'm trying to say is that it's potentially easier to steal shares, and there is really no way of reversing it if it's decentralized. If you know some shares are stolen, can you invalidate them, or reissue shares? It's not really completely decentralized if you can. There is probably still a central authority for creating and issuing shares, but they will allow you to trade the shares in a peer-to-peer way.
It my understanding that the decentralized part refers to the networked validation.
I.e couldn't you imagine a setup where the network collectively invalidates a set of shares and re-issue them back to the original owner. A kind of distributed jury system.
Now the problem of course is that the jury could be wrong and I have no idea about the actual implementation but it seems to me like a potential solution in the future.
That sounds a lot like another set of private keys to me. We already know those are vulnerable to being stolen.
Ebay and Paypal solve 60million disputes a year using software.
http://techcircle.vccircle.com/2011/02/08/ebay-paypal-solve-...
I am not saying I know how to do this just saying that I don't think it's going to be as hard as some might thing. But sure I could be wrong.
And keep in mind. No system is perfect. Neither is the crypto-protocol. But it doesn't need to be. It just have to be good enough.
This doesn't meet any sane definition of "good enough". It gives up a bunch of protections for no real gains.
But I'm not psyched about having to think about Counterparty's internal XCP currency, even if it isn't used for most purposes. It's an annoying barrier to have to transact in an altcoin to access certain functionality.
Other implementations use pure Bitcoin only, and are much less overwrought with complexity than Counterparty: https://coins.assembly.com
I'm asking this sincerely, and not being sarcasm, as I don't know enough about either Bitcoin or stock market to make a judgement. And this seems ... different enough that I'm not sure my reaction should be "damn the future is here", or "what a bunch of craps".
A real exchange has an enormous team of well-paid people whose job it is to make sure things run smoothly. They also have incredible power: they can freeze the exchange, limit price movements, undo transactions, kick people out of the market, and who knows what else. They use this power rarely, but when they do market participants are generally glad they did.
I'm sure somebody can automate 90% of the cases, or 99%, or even 99.9%. Most trading is routine. But will this work when there's a war? A financial panic? A major fraud or theft? An exploitation of a previously unsuspected bug?
The New York Stock Exchange has been working this stuff out since 1817 (or 1792 depending on how you count). And we still have things like Black Monday [1] and the 2010 Flash Crash [2].
This will be an interesting experiment, but I will not be surprised at all if it's something most investors avoid for decades because it's a) novel and therefore risky, and b) lacking a lot of the regulatory protections of a real exchange.
I'm a big Bitcoin supporter mainly because of the interesting tech opportunities, but I don't like the extremist proponents to deregulation that come with Bitcoin in droves. Take a look at the posts from people who lost their families inheritance when the price drops.
Now I know it's not a level playing field, and I can spend my inheritance on forex in a few hours. I'm not saying that's a good thing, but the fact it's not a level playing field does not mean it's a green light to let these things run without any regulation at all.
People who advocate freedom from all regulation generally are in my experience wholly unsympathetic to those who suffer as a result of it, and are unable to recognise that the theory behind it all is flawed.
It you are a non U.S. based company you will be chased by the SEC for issuing shares to U.S. citizens, which brings you under their jurisdiction(so says them).