Speaking at the Baltic Honeybadger 2018 Bitcoin Conference on September 23rd in Latvia, Bruce Fenton addressed the optimistic future of tokenized securities. Understanding the history of traditional financial securities, their current state, and the present capabilities of distributed ledger technology— said Fenton— are the key components in seeing the bright potential of securities tokenization.
Bruce Fenton’s History with Traditional Finance
Bruce Fenton is widely known for his involvement with both Bitcoin and Ravencoin. What some don’t know however, is his history with finance.
In fact, Fenton’s career is embedded in traditional finance. At the age of 14, he started his first job at a brokerage firm. At 19, he received his series 7 license allowing him to trade securities.
For the subsequent 18 years he worked as a stockbroker and general securities principal. He’s currently the CEO of Chainstone Labs and the founder of Atlantic Financial. So, it’s fair to say that when Fenton discusses traditional financial securities, he knows what he’s talking about.
How Traditional Securities are Outdated
The current methods of storing, trading, and maintaining traditional securities is simply obsolete. Look at stocks, for example. If you own a stock in Apple, says Fenton, how do you really know that you own such a security? Apple doesn’t record that information.
“Most people think there’s a company who has a database of shareholders. They think apple has a database of shareholders.”
But this just isn’t the case. Instead, a brokerage firm is the source of such verification. Once that stock is traded, say to Merrill Lynch, how does Merrill Lynch know that the original seller had those shares? They simply don’t, describes Fenton.
“If you own apple stock, how do you know? Well Charles Schwab says you have it. So how do you know they are trustworthy? Well, they’re regulated. But that’s not a good answer for cypher punks. Where’s the proof? […] When you take your Apple shares and sell them to someone at Merrill Lynch, how does Merrill Lynch know that they’re real? How does Merrill Lynch know that Schwab has those shares? How do they know that the seller has those shares? Think about it. They don’t.”
While each individual brokerage firm has their own ledger, they will never share this information. They just don’t trust each other.
Such circumstances have resulted in major problems. In 2012, trillions of dollars worth of paper stocks and securities were damaged due to Hurricane Sandy. In 2013, Dole Food believed they had just over 36 million shares— when the actual number was more than 49 million— causing a significant scandal.
How Securities Tokens will Help Traditional Finance
Yet despite such hardships, securities aren’t going anywhere, says Fenton. They’re simply a foundational aspect of our world’s current economic model. And with the added benefits of securities tokens, such as liquidity that is simply absent from today’s market, Fenton’s words suggest a solution is just around the corner.
“The token serves as a way to interact with a new kind of ledger. […] We can do better [than the traditional financial securities system, which] already is a distributed ledger, that’s what most people don’t understand. But a distributed trustless ledger based on systems like Bitcoin will work.”
The entirety of Bruce Fenton’s speech can be watched on YouTube, or read through a summary, via Twitter.
What do you think of Fenton’s recent remarks on the archaic traditional securities system? Will securities tokens provide the innovation needed to match the world’s current technological capabilities? We want to know what you think below.
Image courtesy of CoinDesk.