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OVERVIEW: A tokenized version of assets should be able to demonstrate three key properties on the blockchain: the underlying asset: the virtual representation of the asset; the ownership of the asset: the identity of the asset owners; and the compliance rules of the asset: the set of regulatory and compliance rules governing the ownership and transaction of the asset. Currently, privacy and compliance seem to be the major challenges in launching STOs. Depending on the jurisdiction, investors have to go through strict Know Your Customer (KYC) and Anti-Money Laundering (AML) processes to be compliant and eligible to invest and trade securities. However, due to the borderless, peer-to-peer, transparent and decentralized natures of cryptocurrency, some frictions exist between tokenized assets and compliance. These challenges will have to be solved for the legacy system to transition into a tokenized system. Currently, a few issuance platforms are offering solutions for tokenizing securities. We have divided them into 3 categories: Protocols on Ethereum, Side-chains on Ethereum, and a Security Token blockchain. We then analyze the pros and cons of these different type of solutions, and discuss how the space could evolve. Introduction: As the hype for Initial Coin Offerings (ICOs) is weakening, the attention is now shifted toward the Security Token (ST) industry. The ST industry is currently at its nascent stage, in which many startups are trying to revolutionize the traditional financial ecosystem. The transition from traditional assets to tokenized assets involves a set of requirements on both technological and compliance perspectives, making the tokenization process more complicated than simple tokenization through ERC-20 like we’ve seen for ICOs in the past. In my research, I will discuss the various components and challenges in tokenizing securities, evaluate the pros/cons of other solutions, and create a thesis around how the space could evolve in the next couple of years. From a fundamental perspective, a tokenized version of assets should be able to demonstrate these key properties on the blockchain: The underlying asset: the virtual representation of the asset. The ownership of the asset: the identity of the asset owners. The compliance rules of the asset: the set of regulatory and compliance rules governing the ownership and transaction of the asset. Other desired properties include privacy, programmability, governance, disclosure, liquidity, and scalability. Smart contract introduced programmability, allowing the implementation of more complex assets, such as bonds, commodities or derivatives. For example, Tokenized real estate investment trust (tREIT) involves a series of real estate debt and equity assets in a single tradeable unit. In this case, smart contracts can support for complex dynamics such as risk, rebalancing, debt defaults, in addition to just simple ownership on the blockchain. Currently, privacy and compliance seem to be the major challenges in launching STOs. Financial securities are currently regulated and controlled by centralized authorities, following strict regulations such as GDPR, SWIFT, and FINRA, who ensure the privacy and protection of investors. Depending on the jurisdiction, investors have to go through strict Know Your Customer (KYC) and Anti-Money Laundering (AML) processes to be compliant and eligible to invest and trade securities. However, due to the borderless, peer-to-peer, transparent and decentralized natures of cryptocurrency, some frictions exist between tokenized assets and compliance. For instance, cryptocurrency uses pseudonymization, in which the investors’ addresses are not directly reflecting their real identities. However, FINRA and SEC require that the identity of the investors are fully known and their transactions and holdings are reported periodically by the companies and exchanges. In the tokenized securities space, a list of eligible investors who passed KYC and AML would have to depend on third parties to connect their real identities to their public addresses. Only then, the investor addresses are valid for investments and trades as they are approved at the code level and automatically compliant. Another example is that German laws require the data of tokenized assets issued in Germany to be traded among German parties and cannot leave the jurisdiction, which contradicts the way data is currently stored across nodes around the world on public blockchains. Moreover, privacy isn’t completely available to the investors because all the transactions and token holdings are visible and traceable on public blockchains. These challenges will have to be solved for the legacy system to transition into a tokenized system. Currently, a few issuance platforms are offering solutions for tokenizing securities. We have divided them into 3 categories: Protocols on Ethereum, Side-chains on , and a Security Token blockchain. Next, we will analyze the pros and cons of these different type of solutions, and discuss how the space could evolve. ethereum 1) Protocols Built on Ethereum: Currently, the most advanced Security Token issuance platforms, notably , and , are building their solutions on the top of existing blockchains, with Ethereum being the most utilized blockchain. STOs are issued through their token standards, respectively DS-Protocol, ST-20, and R-Token. These projects are operating as centralized entities and working with third-party compliance validators for KYC and AML. Securitize.io Polymath Harbor Ethereum, released in 2015, is the first and most proven secure blockchain with smart contract capabilities, allowing for more complex use cases to be implemented on the blockchain. Issuing STOs on the top of an existing blockchain does have its benefits, such as having access to the interoperability among different protocols, existing tools, developer community, and smart contract functionalities. Smart contracts can be used to define trading and governance rules, as well as dividend mechanisms. Pros and cons of protocols built on Ethereum Figure 1: On the other hand, addresses on are under pseudonyms, in which the identity of the token holders is hidden, causing friction with compliance. To solve this problem, issuance platforms have to verify that the investors actually own the addresses themselves by 1) Asking the investors to submit their addresses and link back to their email 2) Create an address directly for the investors 3) Utilize an address verification tool (like the one provided by ), in which the ownership of addresses are verified by asking investors to conduct micro-transactions through . After all the investors are verified, the list of approved addresses (whitelist) is included into a smart contract for the token issuance, specifying the list of eligible investors for investing/trading as well as other trading permissions. For any new addition or subtraction of investors, the smart contract will have to be updated through various mechanisms. ethereum Vertalo MetaMask Additionally, Ethereum is a general purpose blockchain, which doesn’t have functionalities specifically catered towards the needs of STs. Ethereum can easily represent fractional ownership on the blockchain through ERC-20, as well as transfer restrictions and simple dividend mechanisms through smart contracts. However, adapting to the legacy system, standard securities laws and more complex use cases such as debt, derivatives, disclosures, and voting would require a significant amount of coding efforts to bypass the challenges from the constrained code-semantics of smart contracts. Moreover, smart contracts have limitation in size due to the higher cost of deploying larger smart contracts for more complex use cases and limitation in portability as Solidity cannot be carried over to other blockchains’ smart contracts. This could impact the overall scalability for conducting transactions, building new functionalities, and providing trust in the system. 2) Side-Chain Built on Ethereum: While we haven’t seen a side-chain focused on STs, some existing Ethereum sidechain solutions include , Loom ( / @mcu11inan), Skalelabs ( / ), etc. A sidechain is a separate blockchain that is attached to its parent blockchain using a two-way peg, that enables interchangeability of assets at a predetermined rate between the parent blockchain and the sidechain. POA Network 👽 Dilanka @ LOOM Jack O’Holleran Chadwick Strange Specialized side-chains on can be an interesting alternative, as it can offload specific sets of computation to isolated environments then reflect the results back to the main-chain. As not every process needs to live on-chain, components such as disclosures, compliance, voting/governance, and integration with external sources can be achieved with a side-chain, making transactions more scalable while utilizing the security of Ethereum. Additionally, the challenges around privacy can be solved on side-chains. The cost, time and effort of creating a side chain are also much less than creating a new blockchain. Side chains also allow cryptocurrencies to interact with each other. For example, an issuer can test out the tokens on the sidechain, before pushing them on to the main chain. ethereum Pros and cons of side chain built on Ethereum Figure 2: Some of the cons of side-chains are around the requirements for its security. Sidechains need their own miners, and without enough mining power, they could be compromised. Therefore, there’s an initial requirement for an extensive network of miners to help secure side-chains. Additionally, a federation needs to be assigned by the side-chain developers to serve as an intermediate point between the main chain and the side-chains. This designated centralized group has the power to lock and release tokens, creating a risk for attack or bribery. 3) A Blockchain Focused on Security Token: A Security Token focused blockchain can help solve some of the fundamental challenges around privacy and governance, as well as improve trust and scalability. The co-founder and managing director of , who also previously launched Securitize, , is a major proponent of the idea of creating a blockchain for Security Tokens. He recently introduced his new project, Ownerna, which offers a new blockchain infrastructure solely focused on Security Tokens. SPiCE VC Ami Ben-David The nodes are composed of experts who are financial and commercial entities (for example. SEC approved in the US), understand the legal ramifications of securities, and authorized to do ownership management, KYC (Know-Your-Customer), KYA (Know-Your-Asset) and transactions. In the proof-of-ownership system, the chosen primary node takes care of KYA, a full set of documents that legally define the ownership of off-chain asset and the rights of token holders, stakes its reputation, uploads the asset onto the blockchain and writes all the transactions to the blocks. In return, the primary node is rewarded with the asset’s lifetime revenues for helping validate its transactions. This way, only the primary node can access the details, allowing for privacy for the investors. Owners and assets can also manage their privacy level as needed. Additionally, having specific nodes validating transactions can allow for higher transaction speed, providing a more scalable infrastructure that can support a larger volume of transactions required in traditional exchanges such as . Nasdaq Ownera also plans on offering an open-source regulation repository containing regulation Add-Ons, each covering a specific regulation per country, asset type, etc. Any asset can choose which regulations to enable, saving the effort for different protocols that go through this process themselves. Additionally, exchanges can save energy from supporting different issuance protocols separately by directly supporting the Security Token blockchain instead. New consensus models can also be implemented to be optimized for Security Tokens at the blockchain level, instead of creating artificial consensus mechanisms on the top of existing blockchains. Pros and cons of Security Token focused Blockchain Figure 3: Although a new blockchain might sound to be the better solution, the creation of a new blockchain will take significant effort and time to be built out, meaning that it can take years before any applications are built out. A new blockchain would also require the design of a new native cryptocurrency to incentivize network participants, in which the token economics will have to be well defined to ensure sustainability. Also, once deployed, the viability and security of the new blockchain will also have to be tested over time. Furthermore, the development of the developer community, and tools would also have to start from nothing. Conclusion: Most of the current solutions are protocols built on the top of Ethereum, and some new projects are looking to develop an ST-focused blockchain. We believe that the privacy issue will take time to be solved in different phases, as we are in the early stage of the STO revolution. First, privacy will most likely be off-chain, heavily relying on trusted centralized authorities that have access to the investor information and keeping them stored locally. Next, privacy solutions based on side-chains could help segregate data into different sets, hiding them from the public network as a whole. Finally, privacy can directly live on-chain on a more specialized Security Token blockchain, which can allow owners and assets to control their privacy access level. Evolution of privacy for Security Tokens Figure 4: As of now, the issuance solutions offered are protocols based on Ethereum, allowing for simpler use cases of tokenization. Although we believe that a more specialized blockchain will eventually appear, it doesn’t mean that previous Ethereum-based protocols are not valuable and will go out of use in the future. For instance, the privacy issue in public blockchains might also be solved in the future if privacy solutions such as ZKP (Zero Knowledge Proof) technology, or Bulletproof are successfully implemented. Some of the companies who are exploring ways to implement ZKP on Ethereum include , and Ernst & Young ( ). The existing protocols can also transition to different blockchains if they prove to be better. For example, Securitize’s first protocol implementation will work over the Ethereum blockchain, but they also plan on transferring its architectural model to additional distributed ledger systems. Zcoin Project EY Ops Chain Public Edition prototype Evolution of Apps and infrastructure from Figure 5: Union Square Ventures On a side note, recently introduced an interesting relationship theory between infrastructure and applications. We think that the space will evolve in a similar way in which breakthrough applications in specific verticals, for example, real estate, will appear first to disrupt the space and inspire for a new protocol or blockchain to be developed to allow for similar applications to be built at scale. This process will be repeated among different verticals that are related to securities. Over time, the one size fits all protocol or blockchain will emerge as different use cases are fully explored and understood, providing a more powerful and scalable platform that would be the equivalent of AWS for securities. Union Square Ventures Hype cycle of the Security Token industry Figure 6: As of now, we are still in the early stages of the Security Token ecosystem, in which different issuance solutions are still being developed and tested. We believe that it will take at least another 4 years for the STO ecosystem to grow and mature from both a technical and regulatory perspective, allowing for a sustainable transition from the traditional securities system into a tokenized system. Until the space becomes more mature and viable, the majority of the early adopters of STs are going to be from the cryptocurrency space rather than the traditional players. As the different STOs and exchanges launch next year, we predict that the lack of liquidity and challenges around implementing complex use cases and securities laws will bring us closer to the reality and decrease the overall hype and expectations around STOs. Over time, more efficient technology and new regulations will appear and help drive the growth and adoption from the traditional players. Please let me know your comments, and feel free to reach me out at remi@8dcapital.com if you have any more questions about this topic. Sources White Papers: , , , Harbor Securitize.io Polymath OpenFinance Dani Grant & from Union Square Ventures: Nick Grossman https://www.usv.com/blog/the-myth-of-the-infrastructure-phase from : Yogita Khatri CoinDesk https://www.coindesk.com/ey-reveals-zero-knowledge-proof-privacy-solution-for-ethereum of / : Sebastian Wurst Zcoin ($XZC) Cryptocurrency Zcoin Project https://zcoin.io/zcoin-implement-zero-knowledge-proofs-ethereum/ from : vasa Hackernoon https://hackernoon.com/difference-between-sidechains-and-state-channels-2f5dfbd10707 Owerna: https://ownera.io/wp-content/uploads/2018/10/Ownera-Presentation.pdf from : Jesus Rodriguez Hackernoon https://hackernoon.com/do-security-tokens-need-a-new-blockchain-benefits-challenges-part-i-48f281f5101e from : Jesus Rodriguez Hackernoon https://hackernoon.com/do-security-tokens-need-a-new-blockchain-benefits-and-challenges-part-ii-de480e54c12a from : Jesus Rodriguez Hackernoon https://hackernoon.com/do-security-tokens-need-a-new-blockchain-part-iii-the-building-blocks-7adfa7239bb0 from : Jesus Rodriguez Hackernoon https://hackernoon.com/do-security-tokens-need-a-new-blockchain-part-iv-how-about-a-sidechain-acd8686d8fae from : Jesus Rodriguez Hackernoon https://hackernoon.com/security-token-2-0-some-thoughts-off-chain-vs-on-chain-governance-2cba087389ab from : Jesus Rodriguez Hackernoon https://hackernoon.com/some-cool-protocols-to-consider-for-the-next-generation-of-security-token-platforms-98697f0c55e6 from : Jesus Rodriguez Hackernoon https://hackernoon.com/the-elephant-in-the-room-security-and-privacy-protocols-in-security-tokens-a6687af8d1d6 from : Julianne Sloane Hackernoon https://hackernoon.com/can-security-tokens-fulfill-their-promise-of-liquidity-938022e53133 from : Deepa Sathaye @Fluidity https://medium.com/fluidity/automatic-regulatory-compliance-with-ethereum-892f01ef9eaa from : Jesus Rodriguez Hackernoon https://medium.com/@jrodthoughts/about-disclosures-and-information-asymmetry-in-security-tokens-fc83c350548a from : Julianne Sloane Hackernoon https://hackernoon.com/can-security-tokens-fulfill-their-promise-of-liquidity-938022e53133

Should There Be a Blockchain for Security Tokens?

The immense competition in the app development world has prompted mobile app developers from across the world to adopt evolving technologies to develop competition-rich, functionally superior products. With so many technologies, it is no surprise if developers find themselves in a dilemma to choose the best development ecosystem for their project. The main worry that most businesses face is the app development time, and in a day and age when everything thrives on automation, the focus is to create an app with just a few clicks. A successful developer will grab his hands on the newest technologies the second they enter the market because once they touch the ground, they become obsolete. So, developers have to make the best of these technologies while they last. In this article, we will talk about why React Native is one of the best technologies currently in the market for app development. Facebook founded React Native, a Javascript framework based on React, in 2015. It has since then evolved to be the perfect choice for building mobile and hybrid apps. The technology uses XML-esque markup and Javascript for building world-class mobile apps with stunning user interfaces. If you review the populace enjoying their apps, you can see that it is mostly run on Android and iOS. And one of the best features about this technology is that it compiles to native mobile app components and is a fine choice for building Android, iOS, and Windows mobile applications in Javascript. The steps in building native apps are quite streamlined, and the code is built from scratch using Java and Swift. Whereas, in cross-platform app development, the possible choices are HTML5 and CSS. So, where does React Native figure in? The technology combines the benefits of Javascript and Native APIs, giving off an amazing combination of scalability, portability, and performance. Web app development becomes easier as it outlines the UX required for developing native apps. Examples of mobile apps built with React Native: Skype, Airbnb, Walmart, Facebook, Instagram, Tesla, UberEats, Myntra, and Bloomberg. Benefits of React Native for Mobile Apps It’s Portability The technology’s major attribute is its capacity to allow mobile developers to code seamlessly. At least 50% of the code with its crucial logic can be easily copied to another platform. This way, you don’t have to worry about additional bugs entering the application. It’s a Modern, Developer-friendly Tool Through React Native CLI, you can create a native app that runs on both Android and iOS right away. Yes, that’s right. You don’t have to spend time working on the setup and configuration part because of the superior tools of the framework. The tools are uncannily similar to Xcode and Android Studio, so it would be easier to work if you have knowledge of those. It Has Live Reload With the live reload feature, you don’t have to recreate the steps each time you need to reset the application. You also don’t have to go through the Google Play or iTunes Connect submission processes, thanks to tools like CodePush to push updates to the app. Every time you make a change in the application, you don’t have to recompile the app in its entirety, but choose the option Cmd+R and refresh it. It Works Well with Small Teams If you are tight on resources or budget, React Native would help you stretch what you have to the maximum limit and make the best use of it. Developers with good knowledge of JS and React can easily start working on iOS and Android apps. It Has Fewer Review Cycles Through the App Store and Google Play The framework provides fewer but highly qualitative review cycles for app revisions. So, for example, if you want to make any Javascript changes on your iOS app, you can make it on air; the review cycle will not be affected. It Has Reusable Components With the reusable components in the framework, you can easily compile directly to native. The components in iOS and Android have equal counterparts in React Native, making it easy to develop apps with a native feel, look, and consistency. The functionalities and speed of the app will conform automatically to whichever platform you are building it in. This lets you build apps with agile techniques and adopt a web-style approach to development. It’s Free and Open Source React Native is free, and developers can use the libraries, the APIs, and the code without any operability issues. And since Facebook launched it, the company monitors it fully, complete with a huge developer community that’s ready to help. The completely authenticated ecosystem is also an added advantage. The Focus is Totally on the UI Compare React Native with frameworks like Meteor JS and Angular JS, and you will find it is more UI-focused. This means, when you develop an app with the framework, it gives a fluid, natural feel and has a better load time than a typical hybrid app. There’s Less Memory Usage, Third-party Compatibility If you want to add new functionalities, such as Google Maps, to your app, then the framework lets you connect the plugin with a native module to help link the device’s functions like zoom, rotate, and use the compass with the map. This gives a smoother user experience and uses less memory but with faster loading capabilities. Closing Thoughts React Native has evolved to be the most popular Javascript framework developers love, especially since it allows them to convert instantly from a front-end developer to a mobile developer. You can start working with the framework if you are familiar with JavaScript, native UI elements, platform APIs, and other platform-specific design patterns. Once you are done developing the app, you can use the framework’s library features like Flexbox CSS styling, inline styling, debugging, and support to deploy it to both Apple and Google Play Stores. It is true that React Native is fairly new, but with the efforts, Facebook is taking to perfect it, there is no doubt it will emerge to be the first choice in mobile app development.

React Native is The Perfect Choice for Your Next Mobile App: Here's Why

Over the past decade, giant strides in the world of technology and communications have made geographical distance and time zones practically irrelevant. Having a distributed workforce has become the norm, rather than the exception. Companies worldwide are actively looking for ways to increase employee productivity and reduce management costs while getting their projects delivered in an effective manner. The advantages of hiring remote contract workers, especially in the IT industry, are many: - the expense of looking for, interviewing, and hiring new employees is minimized. Lower Costs t - Since remote contract employees use systems and resources at their own locations, there's less maintenance overhead. Less Infrastructure Managemen - Distance, location, office space restrictions and updated visa rules do not hinder you from getting talented, creative workers for your project. Unhindered Access to Great Talent - The number of people working on a particular project can be easily scaled according to the requirement. Scalable Team - You can have a wide variety of people across race, gender, religion, and ethnicity working for you. Increased Diversity While the world of remote contracting has been in existence for a few years, companies are still getting the hang of managing remote teams and communicating effectively. It’s best to adhere to the following best practices to ensure seamless management of your remote contractors. 1. Pick the Right Team You might have several options when it comes to contracting remote workers, but it’s recommended that you hire people who are associated with a proven tech company. Peruse the company’s website and go through their client list. Reviews on reputed websites would give you a better indication of the company you’re entering into a partnership with. Since your team will be working remotely, it’s essential that you are absolutely certain of the specific people you’ll be working with. Set up meetings to converse with potential members of your remote team and be sure of their knowledge and skills before you hire them. 2. Set Expectations Early When you enter into a legally binding remote contract agreement, it’s better to be as clear as possible. The project scope, duration, number of work hours, cost agreed upon and other provisions must be spelled out. The remote contract worker must be also aware of the goals and objectives of the project they are hired for. Give them a clear indication of their roles and responsibilities, and specific expectations with respect to the project. 3. Keep Communication Lines Open One of the main challenges of managing a remote team is making sure everyone is on the same page. The only way to overcome this challenge is to have as many open and honest conversations as required. While regular emails, calls, and meetings might be time-consuming, they are essential in this case. Consistent communication is key for effective management of remote contractors. If you’re working with a team from another time zone, do factor in the time difference when scheduling meetings. Let the remote worker know you are reachable, and maintain consistent email communication, so there’s no miscommunication. 4. Insist on Process Adherence Employees of your own company may be well aware of the in-house processes they need to follow, but remote contractors may not know the nuances of your systems and processes. Take time to get them up to speed when they start working on your project; this will save a lot of misunderstanding and rework in the long run. Documentation is an important part of any project, and more so if a remote worker is involved. Let them know the details of what needs to be documented and at which stage of the project. If possible, assign an experienced employee to coordinate with them till they are on track with the processes involved in your projects. 5. Provide Adequate Feedback Both positive and negative feedback is required to ensure your remote team grows alongside your business. Be quick to heap on praise when expectations are exceeded or when high priority tasks are promptly tackled. If someone falls short, be sure to provide constructive criticism so they can work on their weaknesses and get better at what they do. It’s essential that your remote contractors also feel they’re a part of your team. Including them in team communication and praising their achievements will make them feel accepted and motivate them to do their best. Closing Thoughts Remote contracting is a great way to expand your team and get the work done without much effort from your end. Picking the right company to partner with is just the beginning. When the expectations are spelled out early in the project, it gives both parties time and space to get acquainted with the processes and work accordingly. As you work together, you’ll get more familiar with the remote contract workers and you’ll be able to establish an active work relationship with them despite the geographical distance. We’re certain the best practices outlined above will help you find success in remote contracting for your organization.

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