Patrick Byrne, CEO and chairman of Overstock.com. Joe Pugliese/WIRED

Overstock.com is one step closer to offering a new kind of stock intended to remake the stock market in much the same way the bitcoin digital currency remade our money system.

On Friday, the Salt Lake City-based online retailer filed a prospectus with the Securities and Exchange Commission that indicates it may issue up to $500 million in stock or other securities using technology akin to the online software system that underpins bitcoin. "We may decide to offer securities as digital securities...the ownership and transfer of which are recorded on a cryptographically-secured distributed ledger system using technology similar to (or the same as) the distributed ledger technology used for trading digital currencies," the filing reads.

This past summer, Overstock's free-thinking CEO, Patrick Byrne, said that the company was hoping to issue a "cryptosecurity" using bitcoin-like technology, and he hired both the developers and the lawyers needed to do so. Now, he and his company have taken the idea to government regulators. As Byrne puts it, he's calling on the SEC to "sprinkle holy water" on his push towards digital securities. "This is a decision point for the establishment," he says.

Byrne hopes to offer stock that's controlled not by a central stock exchange such as the NYSE or the NASDAQ, but by a network of machines spread across the internet.

Basically, Byrne hopes to offer stock that's controlled not by a central stock exchange such as the NYSE or the NASDAQ, but by a network of machines spread across the internet—machines outside the control of any one central authority. Using cryptographic algorithms, these machines would mathematically verify all trades and record them in an online ledger that anyone could examine at any time, much as the worldwide bitcoin network verifies and records the exchange of money. Byrne and Overstock have long complained of loop holes in our existing stock markets, and he believes that technology can help shore up these holes.

"The prospect of using a blockchain-like public ledger to hold securities or other assets is quite exciting and one that should be explored," says James Angel, a professor of finance at Georgetown University who specializes in the details of the U.S. financial system. "This will make a great test case as to whether it really works or whether it will suffer Mt. Gox-like problems." Mt. Gox is the popular bitcoin exchange that descended into bankruptcy after hackers broke into its online system and eventually made off with the equivalent of $460 million in bitcoin.

A Free Market

Last year, Overstock became the first major online retailer to accept payments in bitcoin. Like so many others, Byrne argues that the digital currency can free our economy from the grip of big banks and big government. Now, he's bringing this same attitude to stocks. His project is just one of many that seek to remake the stock market using bitcoin technology, such as NXT, Mastercoin, Bitshares, and Counterparty. At one point, Overstock hired some of the primary developers behind Counterparty, but these engineers have since left the company.

On Friday, Overstock filed what is called a "shelf registration." Basically, this would allow the company to sell any kind of security—common stock, preferred, debt, warrants, etc.—if and when it chooses to. Such filings are not uncommon–though this one is unusual in that it says the company could issue the securities in digital form.

According to Overstock's filing, the company would offer its digital security through what's called an alternative trading system, or ATS. This is essentially a stock market alternative that must be registered with the SEC. Overstock would have to make arrangements with an existing ATS or somehow create a new one. It must also answer any objections from the SEC.

Initially very few shareholders will choose to hold their shares in digital form because of the technological uncertainty. James Angel, Georgetown

Georgetown's Angel expects the SEC to approve the filing, but he says this may take a while. "The SEC staff in corporate finance is notoriously risk averse when it comes to new technology, so they may delay things for a long while and request lots of additional disclosures," he says. "[But] the parade of horribles in the disclosure is very complete, so I would think that it would get approved eventually."

Angel adds, however, that if Overstock does offer a digital security, he expects few investors to take advantage of it—at least initially. "My own prediction is that initially very few shareholders will choose to hold their shares in digital form because of the technological uncertainty. Investors tend to be very risk averse about things such as custody," he says. To succeed, he says, such an offering must have proper regulatory oversight by the SEC and carry insurance from an organization such as the SIPC.

The SEC declined to comment on Overstock's filing. But according to Byrne and company spokesperson Judd Bagley, Overstock expects the SEC to open a review of the filing. Byrne has an unusually combative history with the SEC, but he says that he intends to take a more diplomatic route towards a cryptosecurity. Of the filing, he says: "I wouldn't have taken all the time and trouble and expense to do this if I didn't plan on using it someday soon."