Bitcoin is the first digitally-native, scarce, online asset ever created. When I say this I mean that Bitcoin cannot be copied. It can’t be duplicated. It’s a currency whose digital scarcity is verified through open-source software and the power of the crowd. Much like the Internet is free and borderless, Bitcoin is free and open source money. Bitcoin doesn’t care where you live, what you do, how much money you make, or what you spend your money on. Bitcoin’s beauty is in its unbiased simplicity. Simple, cleverly-written, computer code that ensures trust between two parties when exchanging goods or services online.
The Tokenization of Existing Stock
Now that feature for Bitcoin we mentioned earlier, digital scarcity, is something that is poised to revolutionize financial asset markets the world over. Something that many in the crypto industry call, “the tokenization of everything”. Let’s look at the stock market for a second. Say, for example, that you own a share of Apple stock. You log onto your Fidelity brokerage account and it shows you own 1 whole share of Apple stock at $180. You have every inclination to believe that you own that stock, I mean it says your name on the account and everything, but in reality you own nothing. That stock is actually owned by Fidelity who holds it on your behalf. And Fidelity doesn’t actually own the stock either, because the stock is basically just an agreement with the New York Stock Exchange that your 1 stock of Apple is actually worth 1 stock of Apple. And this whole process is usually backed up by a long paper trail, involving multiple parties and multiple days. A transaction doesn’t “settle” till days after you logged onto your brokerage account and purchase that Apple stock. Wonder why all the major brokerages and banks on Wall Street were built on the same block? Because back in the pre-Internet era, traders would have to be constantly running back and forth with their trades. Their trade wouldn’t execute until their stock bids were physically delivered. The close proximity to one another helped to speed up this process, so all day would be a frantic mess of people rushing to and from, yelling and screaming trades at one another.
Modern Day Trading
Modern-day trading is a lot more global in scale, and a lot less frantic, but not totally different from the system we had before. While the Internet may have expanded the reach of stock ownership options for people, it also introduced an ever-increasing number of intermediaries and middlemen. That stock you buy on your brokerage account with the click of a button, doesn’t actually settle till days later, and in the age of the instant exchange of information made possible through the Internet, the whole idea of having to wait days and rely on multiple parties to relay your trade information, isn’t acceptable. You can send an email all the way around the world in 3 seconds but have to wait days for that stock you bought online to ‘settle.’ And once your stock settles, you don’t actually own the stock yourself but a series of I owe you’s, all the way up to the very company issuing the stock themselves, whether that be Apple or another publicly-traded company.
Internet of Information vs Internet of Exchange
Now what’s the key difference here between sending an email and executing a trade? The difference is that the former is an exchange of information, while the latter is an exchange of value. Sending an email is simply the exchange of information. Every email you send is a digital copy of your original email. A copy and pasting of the information you want to portray sent to whoever you want in the world. Because information is free and open on the Internet, it doesn’t have any inherent value and can thus be duplicated and copied and spread around. This is not something that you want to have when dealing with currencies online or executing trades. Because these things have an agreed upon value, there must exist a series of gatekeepers and middlemen to control the movement of them. The monetary value associated with your 1 share of Apple stock means that you must entrust other people and companies online. You must have faith that the whole system of “I owe you’s” will honor your investment. You have to have faith that they will ensure the digital scarcity of your Apple stock and that their not going to duplicate it and send it to 100 other people. Your bank works in much the same manner. The lack of ability to have digitally-native assets and a digital scarcity ensures that we have to rely on others to artificially create it. We have to rely on banks and brokerages to ensure that those numbers on the screen actually represent a value in real-life.
The Merging of Worlds
Bitcoin has shown us that it’s possible to create a digitally scarce asset. That it’s possible to assign a monetary value to something created online. Much like the Internet has created a global marketplace enabling the exchange of information, Bitcoin has enabled a global marketplace for the exchanging of value. Bitcoin is merging these two worlds together and it’s doing this by creating digital scarcity native to the free and open-source Internet.
Digital Scarcity Applied to Stocks
Now lets apply this concept of digital scarcity to the stock market. Say we use the Apple stock example again, but instead of Apple issuing their stock on the New York Stock Exchange using the current systems we have, lets suppose they tokenize their stock and issue it on a blockchain database, such that Bitcoin is built on top of. Say that Apple issues 10,000 shares of their stock. Each of these shares is tokenized and put on a blockchain. Each one of these stock tokens is uniquely scarce in its online environment. These digital tokens cannot not be duplicated. They can not be replicated. They cannot be copied. Being issued on a blockchain ensures that the 10,000 tokens created from issuing 10,000 shares of Apple stock will always be worth those 10,000 shares, without having to have a third-party intermediary verify that information. 10,000 digitally-native, scarce tokens exist representing real-life ownership of a publicly-traded company.
So why does it matter?
This matters because it allows for financial asset ownership models never before possible. It allows for absolute ownership of any stock, bond, currency or other financial instrument. It allows for financial assets and stocks to have the same sort of fluidity and movement as information does on the Internet. People and companies can actually own these tokenized stocks they buy. Someone who buys a share of Apple stock could be delivered that Apple token to an account of their choosing. Maybe they wanted to store their Apple stock with their Fidelity brokerage account. Or with Charles Schwab. Or maybe they want to self-custody thestock. Maybe they want to handle everything themselves and trust nobody else with their Apple stock? Because of the absolute digital ownership of tokenized Apple stock, you are free to do with it as you please. Owe a friend a few bucks for a meal last night but have all your money tied up? Send him a tenth of a share of your tokenized Apple stock to pay him back. Or send him a few pennies worth of a handful of stocks. Or maybe you own tokenized Starbucks stock and use it to buy your morning cup of coffee, exchanging it directly at your local Starbucks shop using crypto-payment terminals. Legal regulations aside, blockchain allows us to do things with financial markets never before possible in old systems. It allows for a sort of free-market for financial tools.
Divisibility of Tokenized Stock Options
Another great thing about the tokenization of stocks is the divisibility of them. Micro-investing becomes a possibility now. Maybe your a farmer in Africa who makes only a few dollars a day. With tokenized stock options that farmer could choose to invest whatever spare money they have into stocks of companies halfway around the world. They could effectively invest their pennies of profit into .01 shares of Apple and do it without having to trust any middleman or intermediary between them and Apple. The farmer could have access to global financial markets never before possible in their life. Almost half the world lives on less than $5 a day. Can you imagine if suddenly these people could invest their small amount of spare change into global stocks? If suddenly billions of people with very little income could suddenly participate in global financial markets and watch their meager net worth compound and grow? In past models this would have never been possible, but suddenly, with the creation of Bitcoin open-financial markets were made possible. Financial tools and resources were now open-sourced and readily accessible to every person on earth with an Internet connection.
Reimagining Global Financial Markets
The whole point of the matter is that Bitcoin gives us a model to rethink global financial markets. It gives us a chance to make access to financial resources a right for everyone, and not just a privilege for the fortunate few. It allows for new business models and new peer-to-peer marketplaces to be created. It allows for the financial empowerment of the individual. At the end of the day, it’s a matter of principle. If the Internet was created so everyone could have free and open access to information around the world, why can’t our financial markets do the same? Why shouldn’t financial resources be available to anyone with an Internet connection? Why can’t everyone on earth have access to the financial tools necessary to chase their dreams? Why can’t financial markets and stock options be available in a tokenized and open-sourced format? Only once we embrace this idea of open-source financial markets and value exchange will we discover the true power of the Internet.