January 4, 2016
1. To start, could you provide a brief about EDC and its blockchain-based securities exchange service?
EDC is the company behind Equibit, a peer-to-peer securities registry that works alongside bitcoin and Bitmessage to deliver a complete investor relations service to private issuers. These stocks trade in a market that is many times larger than that of the public exchanges and is known as over-the-counter (OTC). While extremely large, this market can be rather cumbersome and expensive to deal in; Equibit has been designed with these problems in mind.
2. Could you explain how the overall flow of process should be for a company/investor to issue/buy shares on EDC?
Step one would be obtaining some Equibits. They could purchase them from another user, or start running the Eb.CORE software and mine some of their own. The Equibit blockchain is very similar to bitcoin but with two key differences. The units contain fields for issuers to add their information to (company name, issuance name, etc.), as well as a routing system so issuers know the corresponding bitcoin and Bitmessage addresses for a particular Equibit address. This is important because it’s not enough for an issuer to simply be able to know who all their investors are and what their ownership share is. Once the Equibits have been signed, it’s an easy matter transferring them out to investors.
3. Considering the interest that major stock exchanges have shown in it (Ex.: NASDAQ, ASX), does EDC plan to move into the public stock exchange in the future?
We’ve thought about it, and other companies are working on that right now. However in the world of securities, stock exchanges are a relatively late development. They’re market makers, and the problem they solve is one of price discovery, not share registration. It’s a different animal altogether, requiring a very different approach. Principal amongst what makes a stock exchange is a matching engine, something that doesn’t lend itself particularly easily to being blockchained since it’s not actually a database.
4. In a market which has recently seen a large number of players like Chain, Chromaway, Otonomos aiming to provide similar services, where does EDC see maximum competition and how does EDC differentiate itself?
So far, no other company is offering a complete solution for investor relations. Making a blockchain-based share registry is the easy part. The difficulty lay in how companies can then communicate with their investors and distribute their earnings. EDC is the only development company that’s taking this holistic approach to investor relations. In my career, I’ve worked with numerous private issuers, some of the largest in the world, and it can get very cumbersome and expensive when you have tens of thousands of investors around the world that you need to send messages and dividends to, and collect votes from.
These tasks are traditionally outsourced to companies known as transfer agents. There’s a tremendous amount of mail involved, not to mention security checks and a laundry list of other functions that are all part of investor relations. EDC is building software that can handle all the major tasks of a transfer agent, but on a peer-to-peer network whose only cost is the electricity and machines that connect to it.
5. Does EDC partner or plan to provide its solution for online funding or crowdfunding platforms?
The primary piece of software we’re working on will be open-sourced and so there’s no telling what systems it could wind up getting integrated into. However, crowdfunding and equity funding are entirely different things, so I don’t necessarily see Kickstarter adding Equibit to its website.
However, I do see existing investor relations software packages integrating Equibit, not to mention the many companies out there writing software for private equity firms.
6. What would be the major revenue sources for EDC?
After the initial launch, EDC will begin offering trust certificates to investors and issuers that want to purchase them. Investing is based on trust and real-world identities are very important. The pseudo-anonymity of the blockchain frustrates this somewhat, so we decided to integrate a trust system. This way, an issuer can see that EDC (or some other trustworthy party) has already conducted due diligence on the status of an accredited investor, or that a company is duly organized and compliant with their regional securities laws.
We’ll also be offering the option to EDC portal users to lease a security device for two-factor authentication. Anyone who’s done commercial banking should be familiar with these devices that generate a code each time a button is pressed. This code is entered into the portal to perform certain operations; sending Equibits, for example.
7. Which geographies do you think are ready for blockchain trading technologies? What role does regulation play?
We’re operating under the assumption that securities regulators will recognize Equibits as securities. Firms using Equibit to conduct their issuances will still be required to comply with the securities laws in their home jurisdiction. To that end, several features are being built into the network to make it easier than ever before for issuers to comply with the securities law.
From the perspective of a regulator, Equibit is a huge leap forward in the transparency of the OTC market. For the first time ever, every market participant has complete visibility into the number of issuing companies and complete trading information for all the securities on the network. This lack of transparency plagues the current system and can be very expensive getting trade information on companies an investor may be interested in.
It’s hard to say where it will see the greatest initial adoption rates. Companies from developed countries have been reaching out to us asking how soon they can migrate over to Equibit. This is very encouraging for us. I anticipate a lot of interest from less developed countries as well since Equibit lowers the cost of issuing shares to such an extent that the only real costs anymore are regulatory compliance. By lowering the costs of entry, we’re likely to see a great many firms enter the network from all over the world that otherwise wouldn’t be able to afford to raise capital from widespread sources.