Thanks for posting to clarify the change.
In other words, the private details of each transaction will be recorded on a proprietary ledger so that those details can remain private. But the fact of each transaction's occurrence will be recorded publicly on Bitcoin's blockchain, and recorded in a form that allows parties privy to the transaction details to verify cryptographically that the entries in the proprietary ledger correspond to the sequence of transactions published to Bitcoin's blockchain. Basically, this scheme uses Bitcoin's blockchain to provide security (immutability) and public accountability while keeping private information private.
(This insert-a-hash scheme is typical of "colored coin" implementations even when privacy is not desired, since each Bitcoin transaction can insert only a small amount of data into the blockchain.)
The amended S3 filing [0] spells all of this out in detail. The most relevant section starts on page 35, and the first paragraph of page 36 describes the core of the scheme:
In connection with a digital securities transaction, the
tØ software will publish the transaction to the proprietary
ledger ... . Concurrently, the tØ software will electronically
publish the proprietary ledger and commence the process of
embedding in the Bitcoin blockchain information necessary
to mathematically prove the validity of available copies
of the proprietary ledger. Specifically, after a set of
transactions in our digital securities have been executed
and recorded to the proprietary ledger, the Pro
Securities ATS will send a de minimis amount of Bitcoin
from an ATS-controlled Bitcoin wallet to another ATS-
controlled Bitcoin wallet using the blockchain protocol.
This blockchain protocol provides for an editable field
that can be used to implant code or other data within the
Bitcoin transaction that will be embedded into the
blockchain, and the tØ software will use this field to
implant anonymized cryptographic hash functions for the
digital securities transactions reflected on the
proprietary ledger into the Bitcoin transfer made by the
ATS. The blockchain will validate this de minimis Bitcoin
transaction and embed it, together with the implanted
anonymized cryptographic hash function, into the Bitcoin
blockchain. As a result, once the Bitcoin transaction is
immutably embedded into the Bitcoin blockchain, an
immutable record of the digital securities transactions
reflected on the proprietary ledger is also recorded
within the Bitcoin blockchain. ...
You get all the the security of a 6.6 billion network without the costs.
Private blockchains don't need to be as inefficient as cryptocurrencies either because they can have a very small, specific use case and feature set.
Even if we disagree on the merits of HFT, we can surely agree that settlement is an unnecessarily slow and unreliable process. In September, 2011 (the most recent date for which I could easily find data), there was a failure to deliver $200M worth of stock per day! [1] In the Treasury market, the daily average is currently $50B! [2] Blockchain technology has the potential to solve this problem.
[1] https://en.wikipedia.org/wiki/Failure_to_deliver
[2] http://www.dtcc.com/charts/daily-total-us-treasury-trade-fai...
Patrick Byrne from t0 will agree with you, but that's b/c he's against naked shorts.
[1] https://t0.com/
I read his speech from a charity event back several years back, periodically, to keep perspective.
http://www.pmc.org/blog/2015/9/17/pmc-threshold-moment-billy... (scroll down)
a) The blockchain protocol is the final arbiter of ownership, and those who purchased the stock in the other branch of the chain no longer own the stock. Caveat emptor.
b) Courts rule in favor of the people who actually bought the stocks and marks the attack branch as invalid. This is possible because the attack was witnessed by so many people.
It's unlikely that a fork would be resolved with (a), but if it does, there would be a lot of very pissed of investors and lawsuits. All it takes for such a fork to happen is someone with the motive to do it and the means to lean on a few mining pool operators.
It's more likely that we would see outcome (b), in which case, the courts are the final authority and then what the heck is the point of using an expensive, slow, poorly scalable, decentralized consensus system?
I totally see the value of a decentralized system despite the shortcomings, but if you're coming to do away with that aspect, what on earth is the point?
Of course stealing the private key of the hot wallet representing 10% of Overstock.com, well that would be a very juicy target indeed.
The point is that you don't have to trust each other since everything is in the open and shared between participants.
You should check out archive.org. You'd be amazed how much better a job it does at retaining records than blockchain.
> You seem to be a pretty big fan of bitcoin. I've noticed a huge blindspot in bitcoin proponents when it comes to private chains almost like they are threatened by them.
Because blockchains are bad at this, and most of us are in a position to know that.
> Bitcoin was never going to win the markets/use cases
Agreed
> private chains make sense in
Not compared to databases. Do you know when NYSE and Nasdaq will switch to a blockchain? The answer is 'never'
> Bitcoin went the way of ultra generalisation which has resulted in it being pretty much worse than everything else for everything else.
Agreed.
Settlement is a deep market, and it works very well. Is it your belief that the errors in settlement are due to sql servers losing data?
I'm not talking about correcting errors in settlement I'm talking about removing the need for settlement.
You seem to be a pretty big fan of bitcoin. I've noticed a huge blindspot in bitcoin proponents when it comes to private chains almost like they are threatened by them.
Bitcoin was never going to win the markets/use cases private chains make sense in. Bitcoin went the way of ultra generalisation which has resulted in it being pretty much worse than everything else for everything else. But it can do lots of things. Just not well.
I understand what archive.org can do I'm asking how it can help solve the situation I described? You have your web page with what on it exactly? How does that help cut down settlement requirements?
Also archive.org is centralized so all the participants would have to trust them. The people investigating blockchain alternatives are looking for ways around that.
>Because blockchains are bad at this, and most of us are in a position to know that.
But they aren't. Bitcoin is bad at it but that doesn't mean blockchains have to be it just means they will be if you go into the problem with bitcoin as your only toolset. One you remove the need for PoW they are barely any more inefficient than a master-master DB with the combination of immutability and known entry ordering.
>Not compared to databases. Do you know when NYSE and Nasdaq will switch to a blockchain? The answer is 'never'
Did I say it was better than databases for every usecase? The NYSE and Nasdaq are already centally trusted figures. There is little benefit they would get from a blockchain.
I gave you a use case a few posts ago.
Once you remove the PoW - it's no longer a blockchain. That is what a blockchain is. If you believe that blockchain's don't require PoW - then off the bat you have major security problems. But in addition to that - your definition of blockchains would mean that we've been using blockchains since the 80's
PoW literally has nothing to do with what the blockchain is only in deciding who can add the next block and there are a lot of ways to do that when you know all the participants.