[Paper Review] Equibit: A Peer-to-Peer Electronic Equity System

Brent Kievit-Kylar, Chris Horlacher+2 more|arXiv (Cornell University)|Dec 21, 2016

Blockchain Technology Applications and Security3 references3 citations

TL;DR

Equibit proposes a peer-to-peer electronic equity system built on blockchain technology that enables direct issuance, transfer, and settlement of shares without intermediaries. By using digital signatures to bind equity ownership to specific issuers and holders, it maintains fungibility while solving the challenge of tracking delisted companies, thus enabling a decentralized, transparent, and accessible equity market.

ABSTRACT

The registration, transfer, clearing and settlement of equities represents a significant part of economic activity currently underserved by modern technological innovation. In addition, recent events have revealed problems of transparency, inviting public criticism and scrutiny from regulatory authorities. A peer-to-peer platform facilitating the creation and exchange of directly registered shares represents a shift in equity markets towards more efficient, transparent operations as well as greater accessibility to the investing public and issuing companies. Blockchain technology solves the problem of transaction processing and clearing but the fungibility of their units pose a challenge in identifying the issuers and holders of specific equities. Furthermore, as the issuers are in a constant state of flux the benefits of a decentralized network are lost if a central manager is required to cancel equities from companies that no longer exist. We propose a solution to these problems using digital signatures, based on blockchain technology.

Motivation & Objective

• To address inefficiencies and lack of transparency in traditional equity markets by enabling direct, peer-to-peer registration and transfer of shares.
• To solve the challenge of identifying issuers and holders in a fungible blockchain-based system where equities are represented as digital tokens.
• To maintain decentralization by eliminating the need for a central authority to cancel shares from defunct companies.
• To enhance accessibility and transparency for both issuing companies and individual investors through a trustless, cryptographically secured platform.

Proposed method

• The system uses blockchain technology as the underlying ledger for transaction processing and clearing.
• Digital signatures are employed to cryptographically bind each share to its specific issuer and holder, enabling traceability despite fungibility.
• Each share is issued with a unique digital signature tied to the issuer’s public key, ensuring authenticity and ownership verification.
• The protocol supports the revocation of shares from defunct companies through a decentralized consensus mechanism that does not require a central manager.
• Ownership transfers are validated via cryptographic verification of signatures, ensuring integrity and non-repudiation.
• The system maintains fungibility of shares while preserving issuer and holder identity through a hybrid approach of on-chain metadata and cryptographic binding.

Experimental results

Research questions

• RQ1 How can a decentralized, peer-to-peer system issue and trade equities without relying on central intermediaries?
• RQ2 How can digital signatures be used to maintain ownership traceability in a fungible blockchain-based system?
• RQ3 What mechanisms can ensure that shares from defunct companies are properly invalidated without requiring a central authority?
• RQ4 How can transparency and security be achieved in equity registration and settlement using cryptographic techniques?

Key findings

• The system successfully decouples share fungibility from ownership traceability by binding digital signatures to issuer and holder identities.
• Equibit enables direct, peer-to-peer share issuance and transfer without intermediaries, reducing settlement time and counterparty risk.
• The use of cryptographic signatures allows for decentralized validation of share ownership and revocation of shares from inactive issuers.
• The platform maintains transparency and auditability through public blockchain records while preserving privacy via cryptographic binding.