It’s fairly easy to categorize Patrick Byrne, the founder of Overstock.com, as a visionary, although he is usually described in less glowing terms in the mainstream media, a typical adjective being “controversial”. Byrne founded the $1.4 billion internet retailer of mainly “closeout” merchandise in 1997. In January 2014, Overstock became the first major online retailer to accept Bitcoin in payment for goods. Byrne explained how he became an advocate of cryptocurrencies in an interview with Adam Taggart of PeakProsperity.com.
In the 1980s, I was a graduate student at Stanford in philosophy, but with a heavy quantitative and logic approach. I studied the mathematics that underlies cryptography. It’s called computation theory. It was a fascinating field, probably the only religious experience I’ve ever had in my life. I felt like I was seeing the face of God -- I loved it. So, in about 2012, I was reading Fast Company or Wired, and I saw this blurb about this new form of money that no government was behind, based on cryptography. And, I realized, Gee, this is like an application of that math I’d studied 30 years earlier. Someday I want Overstock.com to be one of the first companies to take it.
In 2017, Overstock’s share price has more than doubled due to its blockchain investments rather than its online retailing activities, which have seen it categorised as a cryptocurrency “play”. Blockchain investments are contained in its Medici Ventures business and include a digital currency trading platform tZero. As the Financial Times notes.
Medici’s most closely watched bet is tZERO, a regulation compliant exchange geared towards initial coin offerings, which has been touted as Wall St meets blockchain. It will launch its own much-hyped initial coin offering to raise funds next week.
On Monday, Overstock’s share price surged 23% after Morgan Stanley Investment Management disclosed an 11.4% stake in the company.
In an interview published in the Financial Times today, Byrne discussed how he’s planning on selling the online retailing business to develop a global blockchain business focused on the property sector. According to the FT.
Patrick Byrne, the controversial entrepreneur who runs Overstock.com, is exploring options to sell the online retailer, whose stock has soared amid this year’s cryptocurrency mania, to fund an ambitious attempt to make a global property registry on blockchain. Hernando de Soto, a well-known Peruvian economist who argues that formalising land rights is key to alleviating poverty, has joined forces with Mr Byrne in the latest attempt to leverage the distributed ledger technology to tackle social problems. Mr de Soto and Mr Byrne, a long-term cryptocurrency and blockchain enthusiast who waged a campaign against short selling, have formed a non-profit venture called De Soto, Inc. that intends to gather local informal ownership records into a blockchain database. A pilot is expected early 2018.
“One of the possibilities is I sell the (Overstock) business and we have all the capital we need” to fund the new venture, Mr Byrne told the Financial Times on Tuesday, adding that he would cherry-pick a dozen of Overstock’s top talent to take over to De Soto by late January. “I feel a great moral obligation to refocus my life around this,” he added.
You could be forgiven for getting confused between Hernando de Soto the Spanish conquistador who led the first European expedition deep into the modern United States (he was the first European to cross the Mississippi) and Hernando de Soto Polar, the economist and President of the Institute for Liberty and Democracy (ILD) in Lima. The ILD is credited with more than 400 initiatives, laws and regulations which have changed the Peruvian economy. On de Soto Polar, Wikipedia notes.
The main message of de Soto's work and writings is that no nation can have a strong market economy without adequate participation in an information framework that records ownership of property and other economic information. Unreported, unrecorded economic activity results in many small entrepreneurs who lack legal ownership of their property, making it difficult for them to obtain credit, sell the business, or expand. They cannot seek legal remedies to business conflicts in court, since they do not have legal ownership. Lack of information on income prevents governments from collecting taxes and acting for the public welfare.
In its special May 1999 issue, Time Magazine named de Soto as one of the “five leading innovators of the century” while Forbes’ 85th anniversary edition named him as one of the fifteen innovators “who will reinvent your future”.
In May 2015, de Soto attended the 1st Annual Block Chain Summit hosted by British billionaire, Richard Branson, at this private Caribbean residence, Necker Island. De Soto was one of three moderators along with a former WSJ columnist and an editor of The Economist.
Byrne, who owns 40% of Overstock’s equity with other family members, has committed himself for five years to set up the blockchain property registry. The FT reviews the three options for selling Overstock which Byrne is mulling.
One option is selling Overstock’s retail business to a bricks and mortar company seeking a strong online presence, to avoid disruption by Amazon. “Really, since this summer there’s a mass freak-out in corporate America,” Mr Byrne observed.
The second is for the entire company to be bought by or take a large investment from a multibillion-dollar investment fund that does not “want to cede the earth to Amazon”. Mr Byrne claimed that one such fund had approached the company two months ago. He would not name the fund, but hinted that interest from Asia was especially strong.
The third option is to be bought out by a large private equity firm, which would allow Mr Byrne to step away from Overstock to pursue the De Soto project. Mr de Soto, a recipient of the $500,000 Milton Friedman Prize from the Cato Institute, a conservative think-tank, was linked to a land registry blockchain project with the Republic of Georgia in April 2016. But he says that after the inauguration ceremony, he was not consulted further.
The combination of Byrne and de Soto could be powerful force for good, exploiting blockchain technology in a positive way for free market capitalism. However, they will no doubt have to contend with central planners and central bankers who will attempt to hijack the technology for collectivist purposes. This was Ronald Reagan’s view on de Soto’s work.
"De Soto and his colleagues have examined the only ladder for upward mobility. The free market is the other path to development and the one true path. It is the people's path… it leads somewhere. It works.”