One of the things that's highlighted here, though, is that the short-sale concept is perhaps not what you would create if you were designing the market system top-down from whole cloth:
Just transfer 10 shares from B to A, in exchange for a smart contract to return them, and then sell those shares from A to C over the blockchain. Easy as blockchain. C now owns the shares on the blockchain's ledger, while A also "owns" them in the sense that she has a recorded claim to get them back from B.This is how short-selling works; if A wants to sell short, A borrows the stock from someone (B) and then sells it to someone else (C). If you introduce brokers, the way our current system works, the actual beneficial owner B won't even know that the shares have been lent out; both B and C think they own the shares. The big change the blockchain makes is that, at least in principle, B can see that the "shares" B owns are actually an agreement by A to deliver them in the future.
There's some sense in which the borrow and sale are superfluous, though; the promise to (re-)deliver in the future is what you're trying to create by doing a short sale. What you would think, from first principles in the absence of market structure concerns, would be the way to get there is let C buy the shares from B while A enters a forward contract with B, or, if C is just as happy to be on the receiving end of a forward contract, leave B out of it altogether and have a forward contract from A to deliver shares to C. There are exchanges for stocks, and a less centralized market for lending securities, and these grew up (one and then the other) to facilitate short sales; in our current world, then, it's hard (especially for retail customers) to enter bilateral forward contracts, and the institutions for effecting the same result are set up to facilitate it in a somewhat baroque manner. If you're moving to blockchain for settlement, and need to change the structure of the market to accommodate that, then
A blockchain would need to do something similar: let some people create new securities on the blockchain, but carefully control who gets that access.doesn't seem to me like my first choice approach; what would make more sense to me would be a market in which buyers see offers to enter into forward contracts as well, and where the borrow gets left out altogether.