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Homepage / News November 25, 2017 363 views

Here&#039s What&#039s Standing in the Way of a Tokenized Economy

Here&#039s What&#039s Standing in the Way of a Tokenized Economy

Dr. Pavel Kravchenko holds a PhD in technical sciences and is the founder of Distributed Lab.

In this opinion piece, the second of two components, he describes the obstacles that have to be overcome ahead of blockchain technologies can provide on the promise of tokenization.

In my preceding post, I described the potential benefits of tokenizing assets. Proper now there are two main problems standing in the way of this transformation.

The 1st relates to the most clear advantage: potential access to any asset for anyone in the world.

From a regulatory compliance point of view, the ability for anyone to open an account and then purchase or sell an asset is a mess.

Let’s just take the instance of EU banks that never deal with U.S. persons. As quickly as they accept them as consumers, they have to comply with U.S. regulations (regardless of jurisdiction) and that could be quite painful since the U.S. has true energy to punish any deviation from their guidelines. Therefore, the risks from possessing a U.S. buyer are considerably larger than the income from them.

Clearly, the procedures for compliance and anti-income-laundering (AML) rules, and generally regulation on the whole, usually rely on the specific jurisdiction, and may not necessarily meet the requirements of the market.

There are a couple of tendencies, however, that will at some point make it achievable to trade securities (tokenized assets will be mostly regarded securities) globally.

Digital identity

Very first, thisthorny problem will be resolved by unification of AML and know-your-consumer procedures and supported by industry leaders, as, for instance, the U.S. Securities and Exchange Commission’s Howey test has turn into the de facto standard for determining when a token is a security.

Second, sooner or later developed nations will begin employing digital identities, as is necessary to automate KYC and AML procedures. The spread of digital identity solutions such as Estonia’s e-residency is already underway and it will positively influence the possibilities for tokenization, since digital passports are also capable of signing transactions. As quickly as digital identity is utilized, all document flows can also turn out to be digital, which will substantially simplify compliance procedures.

Third, initiatives that develop requirements for data sharing and protection – such as BankID schemes in Sweden, Norway and the Ukraine and the EU’s PSD2 and GDPR regulations – amplify the need for alterations at organizations.

Organizations at the very heart of the financial globe, the banks, governments, card payment networks, have already woken up and, understanding the prospective of a global market, are prepared to discard a lot of of the intermediaries and regulations that surrounded them on all sides.

We can see signs of movement towards that objective as banks are launching digital services, the European Commission is issuing directives to the monetary sector primarily based on the principle of open data and competition, and cardnetworks are producing open APIs.

In the meantime, the question of KYC in tokenization can be resolved by limiting the circle of investors or use circumstances for which all processes can be digitized – for instance, keeping them in a sandbox environment.

Standards missing

The second obstacle to tokenization is the lack of infrastructure and some standardized approaches to tokenization.

Really usually people associate tokenization basically with the creation of a token on a public blockchain. But that’s just ten % of the whole procedure.

A public or private blockchain in itself only supplies the function of storing info about the asset, with restricted capacity to carry out transactions. Any total tokenization system will include:

  • Managing the privileges of users and method administrators
  • Life-cycle management of an asset (issuance, withdrawal from circulation, and so forth.)
  • Security management
  • Integration of KYC and AML systems
  • Integration with payment gateways
  • Managing trading commissions and limits
  • Mobile and net apps
  • Exchange modules or integration with external exchanges

In addition, there is a noticeable trend where each and every organization that manages assets seeks to produce its owntokenizationtechnique, as in the case of actual estate tokenization platforms that have been popping up. This makes sense, since it prevents centralization and enables various systems to compete for users.

Therefore, it is probably that in the future every organization will personal its personal system – just like now each and every organization has its own accounting and reporting systems. For that explanation, the improvement of across-the-board technical standards for the design and versioning of a technique and the creation of all its elements is a critical factor for integration into organization.

Properly documented technologies tends to make it feasible to use the identical components of a platform repeatedly, increasing reliability and predictability, mitigating dangers in development and integration, and most importantly, minimizing the time to bring a solution to market.

Motivated to alter

The excellent news is that there is a robust impetus to construct such linkages, even among incumbents that stand to be disrupted by a tokenized economy.

Businesses will drive changes in regulation and infrastructure, voting with their cash, and finally the community will move to resolve larger-order problems – such as the interaction of numerous ecosystems, demonstrable security, joint asset management, mathematically provable settlement and auditing, and much far more.

I strongly think that tokenization will be the next big thing that will drive development of globe GDP and make entrepreneurs’ lives easier.

Everything that can be tokenized, will be tokenized.

Hurdles image by means of Shutterstock.

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Published at Sat, 25 Nov 2017 11:00:11 +0000