One of the talks from the latter category was by Bruce Fenton, a 20-year Wall Street veteran who has brought his knowledge of traditional finance to cryptocurrency.
“At 21, I became a Vice President at Morgan Stanley, [but then] left and founded the first full-service investment firm to use the Internet.”
In 2013, Bruce set his successful traditional finance business aside to take advantage of the great opportunity he saw in blockchain, moving to “a combination of my old career as stock broker and this new technology.”
Now, Bruce directs Satoshi Roundtable — an invite-only retreat for top leaders in the space. He’s a board member at The Bitcoin Foundation and tZero, a security token exchange associated with Overstock.com, as well as successful investment group Medici Ventures. Besides being creator and/or CEO of a number of other projects.
Yet he found time to present at the World Blockchain Forum. His motivation was clear: as security tokens become more popular, he sees naïveté and moderating influences both and is concerned.
In his session, “Cypherpunks and Wall Street,” Bruce explained securities, the drawbacks of the current system, and the revolution of cryptocurrency.
1. Securities are agreements
“Securities under U.S. laws are basically agreements. As long as agreements exist … they will be considered securities.”
Agreements can reference a blockchain, even when the blockchain itself is unaware of the outside world. Many philosophical debates over security tokens miss this simple point, complicating the matter beyond its simple core: agreements are securities, agreements can reference blockchains, and agreements will be regulated.
Securities can be purchased by everyone, but sometimes companies register under exceptions, like Regulation D, that limit what U.S. citizens can invest.
2. The current system is a mess
Securities are managed by hundreds of separate parties who do not trust each other and have to rely on trusted third parties.
“Try moving 100 trillion dollars in volume with 350 broker firms managing security ledgers who don’t even trust each other — and they don’t even trust the issuer!”
The current system is a mess of ledgers, and the controllers of each ledger are unwilling to share with each other, for good reason. Their incentives are opposed to each others’. Goldman Sachs doesn’t want Merrill Lynch to know its ledger. And neither wants Apple to know who owns Apple shares, especially since their contact at Apple, or someone at Apple who manages to access that ledger, might be a bad actor.
3. Security tokens promise to fix the problem
“Cryptocurrency is a $40 trillion+ market … as significant as the Internet, maybe just as significant as the printing press.”
Bruce put up the Cypherpunk’s Manifesto. If you’re not about the revolution,
“You’re in the wrong space, man!”
Bruce’s favorite line in the manifesto is simply this: “cypherpunks write code.”
That’s it! It’s an idea, you express it in the form of code, and you publish it for the world. That difference changes the alignment. It aligns interests in a way like nothing else ever has.
Unlike the clumsy securities framework we have set up, incentives are aligned and trustless transactions are possible.
Bruce said this also brings everyone down to “the same field.” Unlike the old financial system, which is so dependent on knowing and becoming powerful people.
“There’s no advantage that anyone has.”
Commentary: Three Problems
This is the ideal situation: A level playing field, the enforcement of contracts by unprejudiced code, regulation allowing the revolution to proceed.
This cypherpunk utopia, though, brings up some discussions we have to have — unless we want to risk a slide into cyberpunk dystopia.
1. Unforeseen Dangers
I noted this possibility a few months ago:
A number of the new “advantages” that people find to seize power and oppress others in a world of decentralization may not be obvious, and will — like mining pools and the domination ASICs — be predictable only with a good deal of thought. We can’t be so afraid of spreading FUD that we don’t talk about the potential dangers to come.
2. Unbending Enforcement
The idea of removing prejudice by subjecting agreements to the arbitration of code is an alluring one, but as Nassim Nicholas Taleb points out in Skin in the Game, “ethical rules aren’t universal.”
I’ll save this — and Taleb’s points — for a later discussion, but legal frameworks without flexibility and mercy devolve into disturbing dystopias when subjected to a few thought experiments. We’ll need to create hybrid systems that provide enforcement by code in some cases and flexibility in others.
3. Unrevolutionary Revolution
The cryptocurrency and even security token space is in a difficult place, trying to have its cake and eat it too. Revolutionizing the regulations of the financial system without violating those regulations.
Bruce made it clear he’s not an activist, at least not in the sense that he’s planning to buck regulation for the sake of breaking unjust laws and go to jail for the cause. How will people avoiding revolutionary behavior successfully pull off a revolution?
We’ll look at each of these discussions in a future post.