It's fascinating that the financial system has evolved this kind of layered abstraction (humans owning stocks is a fiction maintained by brokers owning stocks, which is a fiction maintained by DTC owning stocks, which is a fiction maintained...) reminiscent of hallowed engineering kludges like TCP/IP. Its especially interesting since, unlike data packets, stocks are purely an abstraction to begin with, but the systems around them have become sufficiently complicated that it can't function without this kind of structure.
A blockchain likely wouldn't help this issue either- high-speed traders would inevitably be dissatisfied with blockchain latencies and re-invent brokers that abstracted over blockchain transactions at a faster pace. These brokers would wind up causing bureaucratic meltdowns and become managed by some overarching structure similar to the DTC. Etc. If anything, a blockchain-based system would become more complicated, because it reduces the task of adding another financial sub-mechanism to an engineering problem.
Something about large distributed systems of non- or imperfectly-cooperative agents breed complexity. (There's probably already formalized versions of that principle, but none are presently coming to mind.)
It reminds me of the last wave of distributed P2P filesharing, c. 2000-2005. First we got Napster, which realized that by taking advantage of the bidirectional nature of TCP/IP, we could distribute copyright infringement so widely that it would become impossible to enforce. Then some techies at NullSoft realized that you don't actually need a central server for discovery at all, you can broadcast the existence of and metadata about files throughout the network for discovery, and put out Gnutella. Lots of excitement followed, with many people of that era believing P2P would be the Next Big Thing (among people working on this were such folks as Travis Kalanick of Red Swoosh -> Uber, Mark Zuckerburg of WireHog -> Facebook, Friis & Zenstrom of Kazaa -> Skype -> Rdio, and Robert Tappan Morris of Chord -> YCombinator).
And then folks realized that Gnutella was slow. Really slow, because folks on transient dialup connections in Estonia were critical nodes in file discovery. So they created the idea of super-peers, where the protocol was adapted to realize that some nodes are more equal than others and route requests through nodes with known-good connections. Then the next-generation P2P network (BitTorrent) decided that it was easier just to rely on HTTP for metadata exchange and went to centralized trackers, and the ecosystem that grew up around BitTorrent realized branding & centralized search engines were important for non-technical users and we got big torrent search engines like ThePirateBay and Mininova.
Eventually, the market seemed to settle on convenience & performance over distribution, and the real winners in the mass market were DropBox, Google, and Apple. There's probably a lesson in there, but as someone who's been fascinated by P2P technologies since high school and wasted a lot of time thinking about the problem in college, the lesson is pretty depressing. If hierarchy, market concentration, and single points of failure don't already exist, they will be reinvented.
> Then the next-generation P2P network (BitTorrent) decided that it was easier just to rely on HTTP for metadata exchange and went to centralized trackers, and the ecosystem that grew up around BitTorrent realized branding & centralized search engines were important for non-technical users and we got big torrent search engines like ThePirateBay and Mininova.
Followed by those trackers getting taken down, we went from distributing .torrent files over HTTP, to distributing magnet links and getting the torrent metadata over DHT.
Yeah, Bittorrent has actually gotten more decentralized in recent years, both on the tracker front and on an increasing number of Torrent search engines being small operations.
I just find it sad that apparently the only reason that things tend to get more distributed is to evade some powerful authority. I wanted distributed systems to become mainstream, because of their freedom, equality, & competition benefits, but it appears that when given the choice, the mainstream would rather play kingmaker and live under centralized overlords.
> Yeah, Bittorrent has actually gotten more decentralized in recent years
Only due to sustained pressure to keep it decentralized. If TPB was acquired by Google and rebranded to 'Google Bay', bittorrent would be just another Google fiefdom, and be as entrenched as Docs or YouTube.
>I wanted distributed systems to become mainstream, because of their freedom, equality, & competition benefits
Unfortunately you're in the vast minority of people who understand what distributed systems are, and how to connect them to anything as abstract as freedom, equality, etc. Most people just want an easy-to-remember, easier-to-use, not sketchy looking way to consume content. Profit-seeking companies are simply better equipped and more motivated to provide that service than the open-source community is, because they don't have to worry about freedom, equality, and certainly competition.
You forget that the mainstream had no choice. The old centralized authorities fought and fought hard.
As an older user I'm surprised you conceded this point so quickly by calling it copyright infringement. These are the same guys who made CDs cost magically more than cassettes, stood at every juncture against moving society forwards and have constantly pushed American copy right life higher because they can afford the lawyers normal people can't.
People didn't give up anything - they lost something they didn't know they had because media firms beat them.
But once these kinds of distributed schemes are developed they're available for other things.
The real problem is any time you develop a system a government doesn't control they can always shut it down by convincing the average joe that it's just being used for child porn.
Yup. Same with Git. Nobody uses Git in a truly p2p fashion.
Distributed systems are useful for a variety of reasons, but so is authority. Most successful systems seem to use a distributed p2p system because it adds useful functionality to a system that will still ultimately have a master server.
Interesting that you wrote Spotify out of that narrative. They were a really interesting early take on P2P there for awhile too, keeping legality and centralization but leveraging the technology for increased quality of service. It's a large part of why they're the market leader now. It's not like the idea of a subscription music service was novel, their execution was unusually good as a result.
> If hierarchy, market concentration, and single points of failure don't already exist, they will be reinvented.
From another point of view, if at least one point of responsibility does not exist, it will have to be reinvented. There have been plenty of times when I can't download something because, while I can find the torrent on a tracker, nobody is actually seeding it anymore. Sometimes nobody has been seeding some obscure file for years.
Nobody in the distributed protocol is responsible for keeping up old torrents, so nobody actually does. Then it becomes easier to go as Netflix or iTunes for an unpopular old movie than to torrent it.
I'm pretty sure this happened with Iron Sky when I wanted to watch it.
There's a book called "The Social Construction of Reality." Some of it is a little difficult to grasp as it gets into a lot of social science elements, but the basic gist is that everything in our societies are abstractions we have to believe in collectively.
School systems, justice departments, police departments, et. al. don't really exist. They exist because we believe they do. Enough people believe money system works that we can trade money in exchange for labor, potentially adding value to something and building capitol. You can chose to believe such things don't exist and murder 10 people, but enough people believe those structures exist that you'd quickly be put in a prison, or at least a mental institution.
Money and markets are one of the most interesting abstractions of our time. I highly recommend Debt The First 5,000 Years, in which Graeber argues that the earliest forms of money in human history were credit based (not barter like you learn in high school). Wealth was always an abstract belief, and hard money (like coins) came about directly through war (conquerors had to tax areas they took, paid their soliders with coins and where thereby supported by the regions they held as the people were forced to give goods to solders in order to pay taxes) and markets cannot exist without states.
Money is useful because it allows for delayed reciprocity. Delayed reciprocity can help overcome environmental uncertainty for the individual human that next to zero other animals can benefit from. From there you get the productivity of networks.
I sometimes wonder what the future of money will be if AI takes off - will non-human autonomous intelligence have a use for money, for trade and store of value?
AI requires energy in order to function. I've seen a handful of sci-fi scenarios where money is replaced with energy, and units of energy are traded and stored just like money. The second law of thermodynamics even ensures a certain amount of inflation.
The irony is that if you were to build a securities markets from scratch as an electronic system, blockchain architecture for the ledger is one way you could absolutely guarantee that the authoritative record would only be eventually consistent with microsecond trades people actually place, and brokers' own independent records would still be absolutely essential to determining who owned what when a particular acquisition was allowed to go through.
There's no benefit to trustlessness in settling a transaction when you're still reliant on a counterparty to actually make it for you, especially not in a situation like the one in the article which begins with legislation that means the regulator can determine if and when a takeover is allowed to go through. Even if it could settle transactions at market speed, there's not really much point in aiming for a distributed ledger if one party's legal status means they must be given sufficient control to hard fork it anyway.
Ethereum's raiden network can achieve market speed while maintaining the property that an exchange happens or it doesn't (a single transaction can contain the transfer of both assets being exchanged) the way it works is that transactions are made but not immediately submitted to the blockchain. If a new transaction happens it is designed so that the later transaction if submitted prevents or even undoes all previous transactions on the same channel. Combine that with funds held in escrow (on chain) and a challenge period and you have a way to transfer funds back and forth at communication speed rather than blockchain speed and if there is a dispute or the trading parties wish to go their separate ways everything becomes finalized to the chain.
In this model there would be the equivalent of brokers. These are parties who are willing to act as nodes in a network of buyers and sellers. These brokers do not take ownership of user funds though. They do have the ability to refuse to act as a relay for whoever they want to refuse but they don't have the ability to confiscate funds, do fractional accounting or prevent users from using another note to rout their transactions through.
These entities could also be anonymous because there is no need to trust them but they could also be identified and only relay transactions for KYC compliant users.
> blockchain architecture for the ledger is one way you could absolutely guarantee that the authoritative record would only be eventually consistent with microsecond trades people actually place
There are architectures that can reach consistency in seconds rather than minutes. And transactions requiring seconds rather than microseconds could potentially represent a feature, not a bug.
As for things like dividends, with a distributed ledger, the company owning the stock could issue a dividend to everyone who owns the stock at time T, and meanwhile anyone who owns fictitious borrowed shares can take their claims up with whoever claimed to buy/sell a share without entering it into the official record.
Legal restrictions against certain transactions (such as mergers or acquisitions) wouldn't necessarily prevent the ledger from serving as a purely financial record. They'd just make it more difficult to use that record for shareholder voting and other questions of control.
Bitsquare, BitShares are good examples of a decentralized exchange.
> There's no benefit to trustlessness in settling a transaction when you're still reliant on a counterparty to actually make it for you
The whole point of a blockchain is that you don't rely on the counter-party to actually make the trade for you. The exchange happens at the exact same time on a blockchain.
> if one party's legal status means they must be given sufficient control to hard fork it anyway.
I don't think hard fork is the right concept here. Hard fork implies an entire network change; I think what you are talking about is the ability for a company to issue more shares, etc... They could be given this control through smart contracts.
As my banking law professor said on day one of his class, money started when someone traded a seashell for a coconut. It's all abstractions, until you get to the coconuts.
That is so over simplified that it is basically nonsense. There are properties of ideal money which explains why gold, fiat, and currencies all have value.
The fact that so few people seem to know this is a big reason why money continues to baffle people. Most haven't been able to figure out the real underlying principles that give a dollar bill value, they just know that it does.
Gold is heavy, corrosion-resistant, shiny, pliant, and scarce. For those reasons, it makes a good coin. But you can't eat or drink a coin. Its value is still based on being able to exchange it for a coconut.
Why don't you take a break from patting yourself on the back and explain to us simpletons the inherent value of a currency?
The inherent value of ideal money should be obvious. It allows the universal exchange of time-shifted value. It is so fundamental that from cigarettes to cell phone minutes, groups of people tend to gravitate towards some combination of currencies, if if they lack in some properties of ideal money.
A shared ledger of value does not help someone on the edge of biological survival. Once the most basic needs are met, money happens one way or another.
"Distributed processing is not only more complex to implement but also turns out to be less efficient in most if not all cases" -- not sure where I got that one. Google tells me it's not literal, or NotOnTheInternet(tm).
>A blockchain likely wouldn't help this issue either- high-speed traders would inevitably be dissatisfied with blockchain latencies and re-invent brokers that abstracted over blockchain transactions at a faster pace.
It's funny you mention that, because that's exactly what's already happened. Major bitcoin exchanges are internally handling matching and settlement for trading BTC<=>fiat, and part of it is because people do high-frequency and algo trading and need the lower latencies and fast execution, and certainly can't wait for confirmations to know if they really bought/sold the BTC.
I don't know if exchanges end up posting the moves of BTC to the blockchain, or if it's all just a big balance sheet internally and BTC only really moves on the blockchain when you withdraw/deposit. Probably varies between exchanges.
stocks, or shares as they are called in the article aren't that abstract. If you own a business you have ownership of the assets and if you own 50% of the shares you own half of them and some others own half. Unless you are arguing owning anything is an abstraction?
Blockchains wouldn't help? You would actually own the stock in minutes. Anyone wanting to buy stock would have it settled in less time than it takes to order stock through e-trade. How long does it take to actually own stock through DCT?
Instead of having chain of trust through all these different entities trust would be instilled in a blockchain. I would prefer one source of truth rather than truth that is built up through a chain of private intermediaries.
As for the high speed traders they would depend on layers built on top of a blockchain that allow them to transfer ownership quickly while still using a blockchain as an eventually consistent record.
A blockchain likely wouldn't help this issue either- high-speed traders would inevitably be dissatisfied with blockchain latencies and re-invent brokers that abstracted over blockchain transactions at a faster pace. These brokers would wind up causing bureaucratic meltdowns and become managed by some overarching structure similar to the DTC. Etc. If anything, a blockchain-based system would become more complicated, because it reduces the task of adding another financial sub-mechanism to an engineering problem.
Something about large distributed systems of non- or imperfectly-cooperative agents breed complexity. (There's probably already formalized versions of that principle, but none are presently coming to mind.)