Patrick Byrne, CEO of Overstock, speaks with CoinTelegraph about the company’s new projects, including Medici and whether it will work with the Counterparty platform, how Wall Street and regulators are receiving the project, and how the old system has allowed financial predators to roam free.
“You do not replace cancer. You instead cut out the tumor.”
CoinTelegraph: We can start with your new project, Medici. How have Wall Street traders and executives reacted regarding your plans to build a crypto-security application? Has it been positive or negative overall?
Patrick Byrne: Well, first of all, we must understand that any of these crypto-security conventions that you attend, there are a lot of spies there, sent by the banks. They identify themselves as working for one company or another, and say that their job is keeping track of the crypto revolution. They understand that this is going to be extraordinarily disruptive. Generally, these people are nice to me. But there are people who get how disruptive this is.
The banks, regulators—in particular, people from the CTFC— understand that an industry that has done things the same way for between 150 and 800 years might not be able to cope with crypto, which changes all of that. Actually, I would have thought that they would be less hospitable, but the truth is that they seem to be bending over backwards to be nice to me. Maybe they understand that we are good guys to be nice to at this point.
PB: No. There are two different projects. Medici is one product, and Counterparty is a different set of developers. They are not tied together, although they will have certain shared relationships.
CT: What and when is the first deliverable for Medici?
PB: The technology platform that would allow us to issue a crypto-security and have our own crypto-coin, we can finish in Q1 [first quarter], but then we have to convince the government to allow us to issue it. It is difficult to say how long this might take, but so far the regulators have been open. They have made it clear that they see that this is a revolution coming, and only want to see it develop in a proper way.
“Generally we want to trade with each other and treat each other on a fair basis. But there are those who would abuse the system, find loopholes to take advantage of others. My goal is to destroy those institutions that these people use for cover.”
CT: It seems to be a common misconception in the Bitcoin community that regulators are “out to get us.” The regulators seem to think that everyone in the Bitcoin community is adverse to any regulation. What we have is two sides of the same coin not being willing to flip over.
PB: Well, I am not totally sympathetic with that idea. Personally, I think that some of the institutions that we now have need to be ended. I think most humans are the same, but not all. There is a class among us that can best be described as “predators.” Generally we want to trade with each other and treat each other on a fair basis. But there are those who would abuse the system, find loopholes to take advantage of others. My goal is to destroy those institutions that these people use for cover.
“The current system is filled with people who have figured out how to gain things without adding any value to society, driving Porsches that are paid for with other people’s savings. This has been building for a long time, and it is why I get so excited about crypto.”
CT: Can you tell us what those institutions are, and what experiences did you have that made you decide that you had to do something about this?
PB: Well, Wall Street has predatory institutions, and ultimately the Central Bank is predatory, and as Thomas Sowell said a couple of years ago, “It is a cancer on America.” When asked what we replace it with, he said that you do not replace cancer. You instead cut out the tumor. I also think that the DTCC, the central party clearing system on Wall Street, at least structured as it is now, is inherently predatory. The settlement system for the stock market is another example. It was built to allow fault tolerance. This is good, but unfortunately predators have figured out how to use fault tolerance loopholes to rig the market. This does not happen on the whole market. What they do is rig the apparent supply to affect prices.
The problem is that most people do not connect the loopholes to the scams. I made a statement to a Columbia class back in 2005 that was used by Fortune Magazine to try to make me look crazy. I said, “There are grandmothers eating dog food for dinner so that some asshole on Wall Street can drive a Porsche.” That was in 2005, and over the last decade we can see that what I described back then is actually happening today. The current system is filled with people who have figured out how to gain things without adding any value to society, driving Porsches that are paid for with other people’s savings. This has been building for a long time, and it is why I get so excited about crypto.
CT: Will your platform support trading of all US stocks and ETFs, or a subset?
PB: I believe that we will be a national market system compliant and able to trade everything.
CT: How is the process of price discovery going to work? In other words, how will the platform integrate with legacy trading environments?
PB: I do not want to give too much away, but it will be fully integrated with legacy platforms and wired into the national market systems.
“This technology is so overwhelming, so disruptive, that we tend to think that everyone is sitting there plotting on how to stop it.”
CT: What are some lessons at this point in the project with respect to technology issues and interactions with regulators that you have learned and that other people can grow from?
PB: This technology is so overwhelming, so disruptive, that we tend to think that everyone is sitting there plotting on how to stop it. Maybe some are, but there are also many who are thinking about how to get on top of this before it disrupts us. Basically, these people do not want to be the “buggy whip manufacturer,” putting all of their effort into stopping something and falling behind, when the smarter move would be to think about how to start making auto parts instead of buggy whips.
CT: Where are the biggest pain points that these predatory people attack, who is the most vulnerable, and how do we protect them?
PB: There are a lot of people doing startups with a crowdfunding model that looks really close to issuing a security. Doing that is basically giving yourself as a hostage to fortune. The reason is that you can get halfway into your funding and here comes the SEC to shut you down over some obscure definition of a security as compared to a coin. Doing anything that is not KYC [Know Your Customer] compliant will also bring federal agencies down on you before long. There are a lot of companies that, while they probably had no ill intent, went down because of problems like this.
CT: One of the things we are in dire need of is regulatory clarity. There is a large disparity between what we have with Bitcoin and these legacy systems. How can these grandmothers who are losing their savings be protected from the predators who are still using these old systems? Can we build a solution within the crypto system?
PB: Those people can be helped by having a crypto version of the stock market, removing the need for a centralized settlement system. This will be a big idea in the developing world because it would open the door for a land-titling system. There is an economist from Peru named Hernando de Soto who argued for a valid land-titling system. He used Haiti as an example. In that country it takes 36 years to get your land titled. This essentially means that people cannot approve their land, and banks will not give loans without clear titles. If we build a land-titling system in crypto, it will dramatically speed this process up and change the world by allowing capital to flow more freely.
One of the things we are doing is building a “crypto incubator.” We are hiring developers and crypto experts to come up with new ideas on how crypto can be used to improve the way we live and do business. We are going to have quite a crypto team here over the next few months.
PB: I really do not think it will affect Overstock. There are a lot of things that we do, such as advertising and warehousing, that go far beyond building a financial transaction system. They do have an interesting project though.
“The day will come when [Bitcoin] will be a major source of revenue, when people will be looking for a place to buy coffee with bitcoin.”
CT: Do you have any recommendations to business owners who are considering accepting Bitcoin?
PB: Bitcoin is easy to integrate and it will generate more revenue. It may not rock your sails now, but the day will come when it will be a major source of revenue, when people will be looking for a place to buy coffee with bitcoin.
CT: You are known as a person who thinks outside the box. Where are the areas that you would consider yourself more of a traditional thinker?
PB: Well, I think in terms of ethical obligations to my shareholders. I think of myself as working for 6,000 little old widows and orphans who have given me their capital, their life savings, and they are asking me every day, “What have you done with my money?”
CT: Have you experienced any backlash from either your customers or shareholders over your acceptance of Bitcoin?
PB: No, not at all. Actually the shareholders are grateful for the worldwide publicity that we have received.
“I started out in online sales in 1999, and we had a sense back then that we were doing something as revolutionary as the people who were printing the Gutenberg Bible were. I get that same feeling when I think about Bitcoin and crypto.”
CT: What percentages of purchases are made in bitcoin on a daily basis?
PB: It’s still less than one tenth of one percent. It has been going up, but it is hard to separate which part comes from publicity and which part comes from the Christmas season. I started out in online sales in 1999, and we had a sense back then that we were doing something as revolutionary as the people who were printing the Gutenberg Bible were. I get that same feeling when I think about Bitcoin and crypto. I suspect that this will be as great a revolution as the internet was when it began.
[Q&A by Toni Lane Casserly, written by Carlo Caraluzzo.]
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