Blockchain Technology Is Still Not Ready for Security Tokens

Blockchain Technology Is Still Not Ready for Security Tokens

According to cryptocurrency commentator Il Kadyrov, the obstacles are too great to ignore right now for the security token space. We should be realistic about these problems instead of being overly-optimistic.

We’ve heard conflicting stories about security tokens for 2019. On the one hand, the sector is expected to be worth over $200B this year according to some analysts; on the other hand, most of these security token companies will go bust due to lackluster business models. However, the even more fundamental question remains: are blockchains even ready to adopt security tokens in any meaningful way?

In an article titled “Security Tokens Are Not Ready for the Blockchain,” Il Kadyrov lays out a few reasons why we need to be hesitant about adoption going forward, at least for 2019.

The Unsolved Problems

If security tokens want to be adopted on a mass scale, they need to first address a few key issues.

  1. Firstly is the issue of multiple jurisdictions in one smart contract. Investors in security tokens will inevitably come from all over the world, but with an overlapping set of transfer restrictions for security token investors, this could be terribly confusing. Regulation, first and foremost, must be properly accounted for before we can even think of global investments.
  2. Secondly, most exchanges are frankly not ready to work with security tokens. The mounting legal problems means that it’s just risk they don’t want to take.
  3. Thirdly, what happens if private keys are lost? Issuers have more rights in a security token framework, and there must be a clear system worked out to attest to this problem.
  4. Issuers have a scary amount of rights as a now. For example, as Kadyrov points out, Atomic Capitals’ DDS token standard has a function which is called forceTransfer. This allows the issuer to transfer tokens without any regard for restrictions and without your permission. This is a recipe for disaster.
  5. KYC problems: this should go without saying, but right now there are no easy solutions. There must be an KYC process on-chain which streamlines this requirement, but that has yet to be formalized.

As of now, these pressing questions lay as major obstacles to the development of the security token space. Although they will definitely not be resolved this year, the first step is acknowledging the enormity of the issue at hand. Then, proper solutions can be worked out.

For more information, please check out Security Tokens Are Not Ready for Blockchains by Il Kadyrov.

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