Of all the developments in blockchain technology in recent years, business adoption is perhaps the most resilient to climate change. When the first coin supply bubble began to inflate in 2017, both entrepreneurs and commentators used technology as a solution to virtually all industry and business problems.
Fast forward to 2020, and the progress of the blockchain business has slowed at best. Almost without exception, well-known blockchain implementations, such as IBM Food Trust or Maersk-led exchanges, used licensed distributed ledgers.
Supporters of blockchain technology point to various reasons for the slow pace of adoption of companies by the decentralized public blockchain. Another fault is attributed to lack of scalability, cryptocurrency volatility or maintenance of an older business.
Compliance: an often overlooked assessment
Banks alone spend $ 270 billion annually on compliance. To put this in context, according to CoinMarketCap, the total market value of all cryptocurrencies at the time of writing is $ 320 billion.
When Bitcoin (BTC) was launched for the first time in 2009, we saw developments that meant that blockchain could be expanded to thousands of transactions per second. Developers continue to pay special attention to creating privacy-focused tokens, despite the fact that cryptocurrency users are clearly indifferent to them. A new consensus model emerges about every two weeks.
But developing compliance-based solutions for businesses has not received much attention from the blockchain developer community. As a result, no organization using the public blockchain has the ability to know who is on the other side of the transaction.
As a result, institutions have no choice or choice at all. By avoiding blockchain altogether, they can avoid the sanction risk associated with non-compliance.
Compliance with the crypto industry is not suitable for this purpose
With the development of the cryptocurrency sector, the demand for cryptocurrencies to interact with traditional economies has naturally increased. This has led to a situation where many exchanges and wallet providers require Know Your Customer verification, where users must verify their identity and place of residence, especially if they want to cope with significant value.
However, the most important problem for regulators with respect to digital asset compliance is that these preliminary compliance controls are only used at a superficial level and not across the entire network. There are no objectively enforceable means to ensure that attackers cannot miss these checks and initiate online transactions.
Of course, this does not mean that all users of all digital assets must pass compliance checks. However, it is becoming increasingly clear that for the adoption of companies is crucial for blockchain technology to reach its true potential. Therefore, there must be a solution that unites the requirements for compliance with the technology itself.
Since there is still no size that fits all approaches to compliance across countries, it is possible to tailor the solution to the legal requirements of any jurisdiction. Consequently, a company can provide the authorities in its jurisdiction with unreliable and irrefutable evidence that it has carried out the necessary KYC checks on its counterparties.
The benefits of such a generic solution go beyond simple compliance. A project that issues tokens that match before can also define business rules for transaction fees, which are also charged through the consensus level and can be customized as needed.
Local blockchains and consortia are not the answer
If the idea of a pre-compatible asset in a public blockchain still seems trivial, it’s worth looking at China as an example. The country is making impressive progress in implementing its blockchain service network. However, as Vitalik Buterin recently pointed out, and as evidenced by Western governments’ distrust of Chinese technology companies such as Huawei, it is unlikely that any government-funded blockchain project will receive international accreditation.
Without broad adoption, platforms will lose many of the benefits of a truly secure and decentralized public blockchain. This is the main reason why companies implementing blockchain projects led by a consortium cannot fully realize the potential of the technology they originally promised.
The strength of the public blockchain lies in security and decentralization. However, the only way to achieve this is to use a proven compliance mechanism that gives organizations full freedom to explore the potential.