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This Forbes Community Voice article is based on a number of complex issues related to blockchain and securities and suggests that banks immediately prepare for tectonic changes that the author expects these technologies to cause:
"Business technology is nothing new but it could be the key to one of the greatest economic opportunities in modern history: blockchain technology and its role in digital finance.
In the last year, major software giants such as IBM, Amazon Web Services and, in particular, Microsoft Azure, have entered the cryptographic landscape.
The need for stability
Although 2017 was an explosive year for cryptocurrencies, many of the cryptic community focused mainly on price fluctuations, hoping to get lucky and win big. Despite the daily traders who cashed in fast profits, about $ 400 million in initial coin bids were stolen by hackers, according to the consulting firm EY (through Quartz). And this year Bitcoin News reported that about $ 9.1 million a day was lost for cryptographic scams, and this is possible if you do not include the outliers for 2018 (Coincheck, Bitconnect and Bitgrail scams) .
Enter: Corporate software standard
Meanwhile, a strong blockchain community is silently emerging in the corporate software space. IBM has spent millions on blockchain projects. Amazon Web Services allows anyone to create an Ethereum node in minutes and, in particular, on August 8th, Microsoft launched a silent bomb with its version of the world's first proof of authority protocol (PoA) ) for the Ethereum on Azure network.
The integration of Ethereum on Azure allows users to expand and build an Ethereum blockchain network within minutes of setting up the account and Microsoft has expressed confidence in this development leading to an increase in both the adoption of Ethereum that in the adoption of blockchain applications by consumers. The corporate adoption of blockchain can be private or consortium, but so far the main business applications have been limited to the private adaptations of various networks.
The excitement surrounding the PoA protocol extends beyond the Ethereum community and the global token economy, because the adoption of companies implies that things like cloud storage, electronic voting, compensation of employees, supply chain supervision and more can be enabled.
But this raises the question: do holders of token equity have voting rights? So far this question has been accompanied by vague replies: the capabilities of corporate software provide issuers with the means to implement large-scale governance. While the ERC20 standard was a key aspect of the explosive growth of ICO projects, it alone does not address general regulatory issues.
At this point, the Enterprise Ethereum Alliance (EEA) recognized the benefits of collaborating with other members of the blockchain community. For example, Hyperledger and EEA (formerly known as rivals) have joined together to further aid the development of blockchain technology. Hyperledger developers are now able to access AEA certification programs as a way to demonstrate their use of quality code, as well as their ability to connect with larger companies.
Security token
Security token launch platforms have become the new face of initial coin offerings – and it makes sense. These platforms connect an issuer to a network of investors, instruments and, in some cases, the distribution of the click buttons. Unfortunately, very few of them are able to operate legally. Those who try are often limited by multi-jurisdictional operations, and as entities registered and communicating, they agree to play according to the rules.
Meanwhile, these companies must compete with rogue security token launch platforms that choose to ignore the rules, attempt to operate without being accountable to anyone and, in most cases, actively engage in the promotion of security token offerings. to tens of thousands of investors
And not to mention the requirements of SEC, CFTC, FINRA and FinCEN (which only covers part of the United States).
As a CEO of a company that helps companies maintain ICO compliance, I know that for legitimate ICO projects to succeed, they require a mechanism to manage compliance of their tokens that address jurisdictional discrepancies in both regulation and in corporate governance. Most current projects today use identity verification tools that are robust enough to be called KYC, and even if they meet KYC standards in a jurisdiction, these requirements vary significantly across the world.
That said, there are groups working to define the rules of the ICO space to ensure best practices for global issuers and investors:
- Regulatory agencies are working to provide transparency. The SEC recently announced plans to create a "plain English" guide for developers who assist in planning token offerings.
- At the beginning of this year, the financial authority of Switzerland, FINMA, also published ICO guidelines, with its main priorities, the establishment of anti-money laundering and securities regulation laws. .
- China announced its plan to ban all ICO activities in 2017, closing hundreds of exchanges and offers of tokens. The recent ruling by the Shenzhen Arbitration Tribunal indicates how politically important it is for regulation to keep pace with innovation.
- A unique project outside of Canada is OSC Launchpad, a program comprised of a securities regulator to help companies overcome these challenges.
Despite these efforts, there are still gaps, particularly with regard to secondary trade processing, record keeping and reporting, which is why so many companies are confining themselves to investors in particular jurisdictions.
Failing the preparation is equivalent to preparing to fail
From the point of view of the more traditional business, the pre-encrypted access of employees to privileged information was easy to manage; but with the pseudonymy that the cryptocurrency can provide, compliance policies related to issues such as insider trading may require a second aspect and the adoption of new policies.
Security tokens are about to transform private capital markets when they can be distributed securely, compliant, and efficiently. We must think about the solution not in the way that regulation can be combined, but how it can be respected in a way that does not compromise the efficiency and security provided by tokenization ".
The securities are not the area of expertise of Mercator, but as the article states there have been a number of ICO bankruptcies that should give us a break. The idea that software contracts can take into account any possible situation or that consent can be reached by voting if a defect requires optimistic updates for an error. Witness the many virtual currencies that forked because there was a lack of consensus.
In relation to the blockchain the reality is that blockchain technology is not the key consideration for partnership and data sharing. The first problem to be solved is to decide how to share data in a format that is flexible enough to direct participants to different perspectives and changes in semantics (solved in ISO 20022 with business models that define how each element is created) and also manage # 39; access to data with permissions that change every day. These problems today infest database administrators in private implementations, but when this problem is opened to reliable partners, this data management problem becomes the first issue that everyone has to agree on. Once done, you can make the appropriate technology assessment to implement the data management approach. If the problem is evaluated in this order, it would not surprise me if a more traditional cloud database model was obtained in 95% of the cases.
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