Bitcoin and Digital Securities…a Perfect Match

Bruce Fenton

Bitcoin as the global currency of choice for a new global securities market could be the ultimate catalyst

For good reason, many Bitcoiners are skeptical of tokenized securities/ digital securities.

Reasons for skepticism:

1) Unclear understanding of exactly why a blockchain offers a benefit to something like a securities ledger which is already centralized.

2) A sea of low quality ICOs and outright scams surround the digital securities ecosystem.

Stocks and other securities are an important part of how the world works. It’s worth looking at how they will interact with or be influenced by how money moves in a Bitcoin world.

Bitcoin as global money can complement securities whether they are tokenized or not.

Corporations and stock will exist and therefor have value if tokenized (unless the act of tokenizing wipes out value). This thesis can co-exist with the thesis that Bitcoin will be a major global currency.

The biggest chunk, by far, of usage of the USD and other major currencies comes from the capital markets and securities trading. If we replace a portion of global securities trading with Bitcoin as the settlement currency it would be much larger than most people realize.

All the coffees and alpaca socks on earth pale in comparison to securities, it is the mother of all industries.

It goes without saying that a stock market is a key part of any economy.

Markets of the future are going to be much more broad, more global and more distributed. Bitcoin, a programable and movable decentralized global money, can and should play a key role in these new markets.

Bitcoin’s utility and value will be influenced by securities markets:

  • If Bitcoin becomes a major global reserve currency it will need to interact with securities.
  • Securities are a multi-deca trillion dollar market and will remain so, the size and scale of these markets dwarfs others.
  • If the securities market becomes more global and less siloed, a global money standard will be useful — right now stocks typically trade only in their own country and their own currency — Bitcoin is a natural fit…especially if the securities of the future are tokenized with the ledgers decentralized.
  • Bitcoin is programmable money. Cross chain atomic swaps and other capabilities make Bitcoin a natural currency of choice for digital assets.
  • Bitcoin will serve as rails for some securities — you can already issue a securities token using Bitcoin, this has been done by me and others.

People will use Bitcoin to issue securities

The market will likely continue to see tokens issued and many of these asset issuers will seek the strongest and most secure chain. If the current lead on security and chain strength continues, many will select Bitcoin. (I’ve issued a security on Bitcoin using Counterparty for an example, it was never sold or transfered)

There are several ways bitcoin can serve as rails for securities:

Mastercoin/ Omnilayer / Counterparty — Mastercoin was the first method of using the UTXO model of Bitcoin to issue tokens — Omnilayer is used for Tether

RSK — seeks to use pegs to allow the Solidity language used by Ethereum on the Bitcoin chain

Liquid by Blockstream is a customizable institutional grade sidechain

Various other sidechain projects

and many more.

(Disclaimer, our company is a member of the Liquid network, I am an investor in RSK)

There are also several projects which use Bitcoin via pegs etc.

(Please send me a one line description / link to your project and I’ll update it here if it’s a fit)

Won’t Securities Tokens be Scams?

Sure, many of them will be. Most will just be low quality.

Weary of the never-ending slew of tokens and copycat chains and other projects which have entered into the industry since 2011 or so, many Bitcoin fans have adopted a mantra of “everything other than Bitcoin is a scam”.

When you are talking specifically about cryptocurrencies or alt coins — this may be true depending what your definition is. But it’s very important to remember that securities are just agreements that can trade and agreements are good overall- it’s just the terms which might be bad. This is what we saw with most ICOs: terms which didn’t align with purchasers.

Be careful not to say “securities tokens are scams” because eventually more serious issuers will issue real securities with real value represented by tokens. To discount that value to zero simply due to the way the security is issued would be illogical.

Confusing the concept of Bitcoin being the best cryptocurrency or form of money with whether securities will have value in token form is flawed logic.

No matter how successful Bitcoin becomes, stocks will still exist.

Stocks, corporations and tradeable agreements will continue to exist whether Bitcoin or something else is a major or the major global currency.

So what does the world look like if bitcoin wins as money?

1: There needs to be a way to buy and sell stocks — global money will be used for this just as many use it for coffee now.

2: Many securities will use the Bitcoin chain -like it or not — and regardless of whether you see advantages, stocks will be tokenized and they will inevitably trade just like crypto and tokens trade today.

One way or another these tokens are going to trade and exist and interact with forms of money whether that’s the US dollar, the EUR Bitcoin or something else.

If you believe in securities and you believe in shares and you believe in the concept of companies being able to share risk and sell a portion of ownership then it makes sense to look at digital securities and consider what their value may be on a case by case basis based on the fundamentals of that company stock.