June 15, 2015 By Joseph P. Farrell

Ms. S.H. shared this one, and it's so significant that it simply has to be passed along: Moves are afoot to create a kind of "bitcoin" alternative to the conventional stock market, one which has the potential, perhaps, to replace the various bourses around the world, including Wall Street:

Patrick Byrne, CEO of Overstock, has taken the first steps toward putting Wall Street out of business.

There's been much hype about bitcoin, and about how it bypasses bankers, but I remain skeptical for a variety of reasons. But those reasons aside, the idea behind bitcoin is being expanded now to securities markets:

"Basically, this new blockchain based securities exchange, which Byrne calls “Medici,” is a decentralized, open source, peer-to-peer, system that posts all transactions in chronological order on a public ledger. Under this system, users will be empowered to send money over the Internet simply and efficiently with little to no transaction fees depending on how the money is spent or traded.

Last Friday, thanks to Byrne and Overstock, the world’s first-ever cryptobond has officially been offered. According to the story, which first appeared in Politico, this is a huge deal. Here’s why:

“This system would do something no other stock exchange has ever done. It would skip the centralized clearinghouse entirely, and keep track of trading, clearance, and ownership on everyone’s computers at once. It would transform processes that now depend on centralized institutions for trust, and let people instead transact directly with one another.”

This is the SEC’s first move in regulating Bitcoin 2.0. For many people, Bitcoin seems like a crazy futuristic type of currency that will never take off. But those people tend not to be informed about the technology behind it. The same thing happened when email was created. People didn’t understand the point of it or what it meant and many of them poo-pooed it. It’s now hard to even imagine a world where email didn’t exist.(Emphases are in the original)

There are a number of potentialities that all this poses, but the one that alarms me the most concerns all such "internet" and "electronic" based systems: records, regardless of the security or encryption, are ultimately liable to be hacked. We are assured that the new systems are secure. We were also assured that God Himself could not sink the Titanic. The point here is that electronic information-based systems are the new version of cannon versus armor: security systems and encryption evolve, countermeasures are developed to penetrate them, and a cycle begins.

At stake is the information itself, and its vulnerability to sudden deletion or alteration. This is what has concerned me about ebooks of any sort, especially those systems named after the suggestive idea that they are designed to burn books, to burn, or alter, the information they contain. For this reason, I have always urged people that if books are worth the purchase, then the physical copy is worth owning and holding.

The same, it seems to me, holds even more true with media of exchange, and the necessity to maintain analogue systems of actual physical media of exchange - currency, coinage, securities - and their actual physical movement and transfer. Indeed, this is a redundancy in case any purely digital system should break down. Don't get me wrong, I use electronic currency just as much as anyone else. But I also continue to use cash and paper checks to create a physical backup trail should electronic systems fail. Thus, I remain skeptical of the touted advantages and supposed privacy of such crypto-currencies and now, crypto-securities. If it was easy before to bundle securities of dubious value into the "bundles" that caused the previous meltdown, think how much more easy it will be to do so under such circumstances.

There's a final high octane speculation to consider here: assume that all public financial exchange does move entirely digital: what will become of any hidden system of finance or black budget? THese can be handled digitally, of course, by all the standard tactics. But I suggest that hidden systems will continue to involve good old fashioned analogue physical currency and securities instruments, and their physical exchange. The alternative, of course, is a "dark internet" of finance. And with high frequency trading algorithms, and potential penetration of such systems, it becomes easy to imagine that in the milliseconds of trade executions, small amounts can be siphoned off, used for other things, profits taken, and then the original amounts restored as a trade is concluded. Think of it as a hidden system....

...on steroids.

See you on the flip side...