Criticizing the Wall Street practice of naked short-selling garnered Patrick Byrneattention more than a decade ago, and the outspoken CEO of Overstock.com has since become an advocate of innovations in cryptocurrencies such as bitcoin – and now blockchain.
Last December, the e-commerce retailer made history by becoming the first publicly traded company to issue stock on the blockchain, distributing more than 126,000 company shares. In early 2014, Byrne's company also was the first major online retailer to accept payments in bitcoin.
In an interview at the LendIt USA 2017 conference in New York, Byrne spoke to LinkedIn about the potential of blockchain to transform the banking industry.
The following are edited excerpts:
Walden Siew: What exactly is blockchain? And why are banks so interested in this technology?
Patrick Byrne: Basically the way to think of it is to imagine if your grandfather ran a hardware store and had one of those big, old-fashioned ledgers. Imagine if that ledger were public and immutable. Any entries that were made couldn't be erased. The world could see it, and it was cryptographically protected so no one could cheat and there would be no phony entries. That's what a blockchain is.
The real excitement about blockchain is that people have realized you can use that system to solve a lot of problems on Wall Street and banking, where there are a lot of back office processes, where one system feeds another system, and they swap files back and forth and there's all these error checks. There are all these people involved in it and all these companies and huge amounts of money involved in the settlement system. It turns out that can all be done with blockchain for free.
You can disrupt these entire industries, and you can make them foolproof.
There’s all kinds of mischief on Wall Street, as we all know, and that mischief becomes impossible if Wall Street is based on blockchain because everything is traceable and trackable and there’s no way to game the system in the ways certain people do now.
WS: Why is blockchain more secure than say bitcoin, which has had its own issues, and how do you gauge the security risk of such a new system of accounting?
PB: Early bitcoin companies “got afoul of the law in different ways and Mt. Gox stole or didn’t protect some of their customers’ deposits. But it should be pointed out that bitcoin itself has never been hacked. You know, in the early days of the Internet, there were Internet companies that went broke, but that didn’t mean there was something wrong with the Internet. It was just a certain business model that went broke. Similarly with bitcoin and blockchain, there are companies in this area that went broke or had their computers hacked or something, but that doesn’t mean bitcoin itself has ever been hacked.
No software program in history has been the subject of so much targeted hacking as the blockchain, and no one has ever broken it. If you can break the blockchain, you can break into every bank and every security system that exists.
WS: Why are banks with digital assets so interested, or why should they be?
PB: Basically 80 to 90 percent of the back office costs can be stripped out of the equation if you move to the blockchain. That’s what we believe and what Wall Street is starting to learn. We’re building a version of Wall Street that operates on a blockchain.
As far as we estimate, it looks like it’s going to be 80 to 90 percent cheaper to clear trades.
WS: During your presentation at the LendIt conference, you talked about entrenched interests. Why do you think traditional banks feel threatened, and what do you think forward-looking leaders should be doing to create the modern bank?
PB: Banks feel threatened because at the end of the day, banks didn’t come out of some burning bush. They’re just an institution we created to match savers with borrowers. They need to find each other, and the bank is the matching engine. Or you need banks to run Wall Street, allegedly, to manage these back office institutions that clear trades. Well, if you rebuild all that on blockchain, there’s not really a need for the bank. Savers and borrowers can find each other, or we can have a capital markets where people trade securities without these mammoth banks overseeing it all. And in fact, it can be done honestly, transparently, and with no chance for mischief.
For the few of us who may not trust Goldman Sachs and others as much as we may have decades ago, I think there are a lot of Americans who want to check out of the financial system as it stands, and this lets them have an alternative financial system when they don’t have to do business with entities they don’t trust.
Do you agree or disagree with Patrick Byrne’s assessment? Can blockchain technology transform Wall Street to make it more transparent and trustworthy? Go to http://lnkd.in/write and join the conversation using #BlockchainWallSt
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