History of Bitcoin Stock Exchanges
Centralised Bitcoin stock exchanges show what will be possible with decentralised crypto assets. To attract investors on a Bitcoin stock exchange, all a person has to do is write up a business plan and explain how they are going to make money for their shareholders. Whilst many early crypto equities were scams, these centralised stock exchanges enabled investment opportunities in respectable companies, including ASICMiner and Satoshi Dice.
Global Bitcoin Stock Exchange (GLBSE)
GLBSE was the first major player in the crypto equity market. While most assets issued through this service were alleged scams, it did introduce a brand new concept to the financial world. Entrepreneurs wanting to start a business were able to go to GLBSE, create shares of their company within minutes and then issue profits to investors in the form of dividends. GLBSE was closed after a year when one of the founders of GLBSE in the UK asked for legal advice regarding his online, anonymous stock exchange and was advised to close the exchange immediately to avoid accusations of money laundering, operating a stock exchange without a license, and other criminal offences.
MPEx and Satoshi Dice
At the same time that GLBSE was successful, another exchange was also operating under the radar. MPEx offers cryptographic security for investors and asset issuers allowing them to remain somewhat anonymous. MPEx’s initial offering was for Satoshi Dice, one of the first businesses to ever operate strictly in the Bitcoin world, and is still used today by thousands of Bitcoiners globally, where users bet bitcoins on a random number generated by the Satoshi Dice website. Satoshi Dice generated roughly USD500,000 worth of profits in 2012, but the shares were eventually bought back from investors and the company eventually sold to an anonymous individual for USD11.5 million worth of bitcoins.
BTC-TC and Bitfunder
BTC-TC and Bitfunder were the two most widely used Bitcoin stock exchanges in 2013, and they were both viewed as replacements for GLBSE. When governments started to take a closer look at Bitcoin, both were closed by their owners, evidence of a need for decentralised exchanges in the world of cryptocurrencies.
Havelock and Cryptostocks
The remaining major player in this market is Havelock Investments, owned by The Panama Fund, a licensed private investment company based in Panama and possibly the best version of a centralised Bitcoin stock exchange to date. Cryptostocks worked in the legal grey area which may explain the cessation of services on 30 April, 2017.
The Problems with centralised Bitcoin Stock Exchanges
New features of the Bitcoin protocol under construction will avoid the need for a centralised exchange authority. The technology behind Bitcoin needs applying to the exchange market for the following reasons:
Regulation: most versions of centralised Bitcoin stock markets have to close due to the regulations around issuing securities in various parts of the world. Havelock Investments are operating legally, but the lack of due diligence leaves them vulnerable to being shut down.
Censorship: centralised exchanges have the final say when it comes to whether or not a user’s asset will be allowed on the market. A decentralised exchange has no filter between the assets created and the assets on the exchange.
Fees: centralised exchanges charge fees for each trade, but a decentralised exchange has minimal or zero fees.
