Improving Safety and Security by Preparing Blockchains for Enterprise Use
Improving Safety and Security – How to Prepare Blockchains for Enterprise Use
Public blockchains thrive on the fact that they hold all parties accountable for the transactions that occur. The ledger cannot be modified, and companies cannot hide behind any improper practices. Private blockchains have managed to thrive in many industries, but the public blockchain is more efficient for companies without permission-based requirements for sharing.
If the industry remains faithful to the use of private networks instead of public, they cannot grow. However, by bringing the needs of enterprise commerce together with decentralized networks, the industry can innovate, and honest business practices become much more commonplace.
The key, at that point, is that public networks need to come through on their promises, but there are two changes that need to occur for these commitments to come to fruition. To start, regulators needs to stop this back-and-forth debate over the rules, establishing something solid about how the public blockchain is meant to handle tokens, assets, and smart contracts. The second half of the changes is that there must be companies that cater to these rules with their decentralized, public networks.
The first of those two tasks are already in motion for some areas of the world. The regulators of the United States, some parts of Europe, and the rest of the world have already started establishing the definitions of an asset, a currency, and a security. At this point, it is not really necessary or expected that these definitions will be shared, but many companies are coming to similar conclusions. Cryptocurrencies are taking on the role of currencies or assets, while Utility Settlement Coins are being classified as securities, for the most part.
One big concern that comes to like will be how the lawmakers decide to regulate fiat currency that has been tokenized. For instance, if an investor holds a $1 token, which is supported by $1 USD in escrow, regulators would still need to choose if the dollar is considers a security or a currency. Right now, that discussion is not really happening, and the concept has not been addressed directly.
The other concern that is most alarming is that the rules have to be applied to tokens and smart contracts, which can be difficult. The whole point of a blockchain is to be decentralized, but any central bank will still need to have the option of establishing and eliminating their own currencies, even on the blockchain.
To understand why these components are important, there first must be a discussion about the ways that companies will interact with each other within the blockchain. When the inventory and assets of a company are applied to their contracts and financial services, they take on some of the regulatory responsibilities that come with that. Tokens can be moved around easily, but packaged goods must abide by the same regulations. Then, every item becomes tokenized, giving them an exchange rate that is easy to use in a deal, but it also makes these participating companies responsible for complying with KYC/AML protocols.
Unlike the assumption of some consumers, this is not a deterrent for enterprises to avoid the public network. Smart contacts and blockchain tokens can be programmed, which means that these regulations can be built into their smart contracts and tokens. Establishing how public blockchains handle tokens without centralization is possible, and banks still have the option to cancel and issue tokens as they see fit.
The way that blockchains can deliver on their commitment to maintain a decentralized ledger that still protects enterprises will be crucial in determining effectiveness. Compliance should not be issued through centralization, because it eliminates the main appeal of the blockchain in the first place. However, “regulatory compliance within a decentralized framework” could work, according to CoinDesk’s Paul Brody.
The decision would be available for the enterprise of whether they wanted to opt in on a case-by-case basis, and it means that companies would still use blockchain, but “without embracing undue risk.” However, the widespread knowledge of the blockchain across the industry may lead some startups and individuals to see if they can top these protocols in the future.