Which Blockchain Is Best Suited for Financial Services & Securities?
How can you ensure the security of digital assets on the blockchain? Is one blockchain better suited for security tokens than another?
When asked for his opinion of blockchains currently operational, Fred Krueger, the founder of EOS Lynx, spoke negatively about Ethereum (note that he works on EOS), stating “I gave up on the Ethereum platform. Ethereum does not work.” In his eyes, EOS and Stellar are viable platforms on which you can build things because they are fast and have low (read: none) transaction fees. Compared to Ethereum, they are lightning.
Boris Reznikov, the Director of Partnerships at Interstellar, quickly countered, noting that Ethereum was never designed for quick transactions or for token issuance. Rather, it was built to be a decentralized world computer and handle sophisticated computing, which it’s quite good at.
Mike Belshe, the Co-Founder & CEO of BitGo, took a neutral stance regarding individual blockchains, noting that “tech changes so rapidly that to say one chain is the final chain is not true.” He believes all blockchains need to update and change. Going back to Ethereum, Belshe said “Ethereum was here first, so it gets a lot of traction, but scalability issues have been seen. It’s one viral app away from failing. We’ve seen that with Crypto Kitties. It doesn’t mean it’s not fixable, but it’s a big challenge.”
When the conversation turned to smart contracts, the discussion was equal parts enthusiastic and wary. Krueger, a decentralized exchange enthusiast, believes that smart contracts should replace middle men altogether to create a more efficient market without intermediaries. On the other side of the argument, Reznikov stated his belief that “trade restrictions and issuance restrictions should live off-chain” because Solidity is such a hard language to program in and the code itself would need to be continually updated for changing restrictions.
Belshe took a stance between the two extremes, noting that smart contracts may well be the future, “but they may be farther off than we hope them to be.” His concern lies with the fact that “security has been elusive to computer professionals for decades.” As soon as we start talking about large-scale smart contract use, we are talking about moving around a lot of money. It will be hacked until people get better at writing secure code quickly and cheaply.
Krueger argued that not every business should develop smart contracts because “it’s like mixing nitrogen and glycerin.” It’s unstable, difficult to do, and there’s a good chance you forget something critical to the functionality of the smart contract. However, Krueger believes that there will be standardized smart contract usage on decentralized exchanges run by businesses who are solely built around a smart contract. He pointed to IDEX as a current use case example.
Belshe agreed that decentralized exchanges are a big innovation, noting that the removal of middlemen brings transparency, the ability for an individual to hold their assets and for more assets to be listed than you possibly could on a centralized exchange or even a decentralized one with centralized gateways. The problem Belshe noted is that when it comes to the flow of large amounts of money, “people care. We care about what happens to our assets when we die, what happens in terms of fire, theft, forgetting our passwords.” Decentralized exchanges in their current form don’t provide that.
Reznikov chimed in, noting that in the context of securities, “if someone loses their private keys, there is fiduciary duty to give people access back to their assets. My view is that decentralization isn’t the real innovation here, but the token as a format. Having a security represented in the token format creates an opportunity for interoperability and that’s what’s missing.”
While a decentralized means of trading could radically transform global markets, and it’s something that both Krueger and Belshe spoke in favor of, Rezniko noted that “there’s a lot of value that can be unlocked through tokens with today’s regulatory environment.”