Why Industry Leaders and Regulators Favor Compliant Private Blockchains
The lack of accountability and regulation in public blockchains continues to be an issue for their implementation by ethical companies. The transactions that are executed on them are irreversible and many users have already been snared by their own miscalculations or even by multi-million-dollar hacks, with no one to answer for them. To say nothing about the ambiguous legal situation of the so-called utility tokens that fuel these transactions. It’s no secret that many are used by frauds in order to bypass scrutiny by the Securities Exchange Commission.
The finality of the blockchain is one of its salient features, but it can also be a worrisome bug. It is especially so, considering that The MIT Technology Review now warns of an increasing number of security holes appearing in smart contract platforms. This is why big players such as IBM, JP Morgan, Airbus, SAP, and more, have decided to embrace the new technology while keeping matters in their own hands. Private blockchains are accountable. They allow selective transparency that allows token holders to share their transactions history or account balances with specific third parties, while maintaining full financial privacy. Their take on smart contracts makes for better solutions given that they can easily comply with existing regulations and users can expect all the guarantees made by responsible institutions.
New companies such as BRITE Investments are making the most of this shift by introducing private blockchain smart contracts into equity crowdfunding initiatives and other financial operations. Instead of relying on the utility tokens made popular by Initial Coin Offerings, these companies are deploying it. A new financial instrument which combines all the assurances of officially registered assets with the liquidity of virtual markets.
This asset class allows for financial operations that were impossible before blockchain enabled the tokenization of real-world ownership. Users on platforms such as BRITE could just as easily invest in new startups as they could purchase affordable percentages of real estate and other previously illiquid assets. More so, they could crowdfund their own projects and sell small pieces of valuable possessions, without depending on the volatility of virtual asset markets that are undergirded by fickle cryptocurrencies such as Bitcoin and Ether. This is made possible through the concept of fractional ownership.
Security tokens are regulated as assets
Another advantage of security tokens is their legal standing. On top of being registered securities, they may benefit from new dispositions regarding the validity of blockchain records. According to a publication by the Columbia University Science and Technology Law Review, states such as Arizona already recognize smart contracts, while Vermont accepts blockchain transactions as evidence. The State of Delaware is even considering the registration of shares in blockchain form. It’s hard to think of a Fortune 500 company that wouldn’t save millions in procedures and legal fees once reliable blockchain solutions are implemented.
However, none of these benefits would apply to platforms that rely on tokens of unclear legality. As SEC Chairman Jay Clayton has said, “I think if we don’t stop the fraudsters, there is a serious risk that the regulatory pendulum — the regulatory actions will be so severe that they will restrict the capacity of this new security.” There is a strong case for the convenience of regulated implementations of blockchain technology in the form of security tokens and others. Companies that offer services within these boundaries are choosing what’s best for users and the development of the technology in general.
Perhaps what the blockchain industry needs right now is the development of enterprise friendly, well structured, regulated platforms such as BRITE, that operate on private blockchains and enable asset tokenization. These could become a more viable alternative to the wild-west antics of 2017’s ICO season. Industry leaders are already taking the lead with their own permissioned implementations and government institutions are supporting security token initiatives as a way forward.