Author: Jean Niehues

Asset tokenization explained: opportunities & effects

Thursday February 1, 2024

Asset tokenization explained

Tokenization is a powerful use case for the blockchain. But what exactly is tokenization, what happens when we tokenize, and what are the benefits? Why tokenize and not leave well enough alone?

Tokenization is the process of representing an asset, physical or virtual, real or imagined, as a digital instrument, and housing it on a blockchain.

Examples of real physical assets include commercial real estate, paintings, sculptures, literature, printed music scores, gold master records of songs and movies, paper certificates of shares in a company, etc. Real virtual assets include audio and video files (of songs and movies), images (of art and sculpture), ebooks or pdf copies (of books and articles), and electronic shares in a company. Imaginary assets are those that do not have a real-world basis, such as cryptokitties and game characters.

 

What exactly happens when we tokenize an asset?

Representing an asset as an abstract digital representation is the most trivial form of tokenization, which begs the question, why bother? More sophisticated forms of tokenization would include other attributes that are not overtly or explicitly present in the original asset.

Here is a description of the increasing levels of sophistication in tokenization, offered merely to provoke some thought:

     0. No extra attributes or properties in the token besides being a simple representation of the asset.

 

  1. The token includes some basic information such as the name of the owner and timestamp of creation of the asset and the representing token(s).

 

  1. The token includes all or most of the information in Level 1, plus details about the owner, provenance of the asset, mechanism for verification of the owner’s ID as well as the authenticity of the asset, and mechanism to validate the authenticity of the representation of the asset by the token.

 

  1. The token includes all or most of the information in Level 2, plus valuation of the asset and price basis of the token. Valuation can be quite complicated, as in the case of company shares, bonds, real-estate assets. Pricing can point to the price history of trades (and possibly other data such as volume).

 

  1. The token includes all or most of the information in Level 3, plus the rights and restrictions on transfers and trading of the token. For example, tokens that represent company shares may include voting rights, dividends or revenue share, right of first refusal, tag along rights, drag along rights, and effect of corporate actions, etc.

 

  1. The token includes all or most of the information in Level 4, plus support for defending regulatory challenges about compliance with any applicable laws.

 

KoreTokens are designed to function at Level 5.

 

Final insights

When it comes to what is asset tokenization, a lot of issues come into discussion. One of them is that tokenizing assets transforms both tangible and intangible assets into secure digital tokens via blockchain, revolutionizing traditional asset management.

It not only enables fractional ownership and expands investment opportunities but also enhances market liquidity and transparency.

From simple digital representations to meeting regulatory standards, each tokenization stage reinforces the digital identity of assets, securing trust and authenticity.

KoreTokens stands at the vanguard of this progress, showcasing the comprehensive capabilities of asset tokenization.

Blockchain Security: 3 Steps to Protect Yourself

Tuesday January 30, 2024

Let’s talk about blockchain security, an essential discussion between technology users and enthusiasts.

Blockchain is no doubt a revolutionary technology for distributed and decentralized systems, especially when immutability of transactions and trust through consensus is critical in a wide ecosystem. Blockchain opens up new dimensions in business security and transparency in various industries, but especially so in the financial sector.

However, every innovation attracts bad actors who look for ways to find loopholes, security gaps, and innocent victims. What can you do to protect yourself? We will see how prevalent the problem is, how scammers operate, and how to protect yourself.

Introduction

Blockchain and cyber security are topics that demand attention, especially when technology can evolve so fast.

The numbers are startling. According to several reports, blockchain-related scams resulted in losses of about $2 billion globally in 2023, with losses on Ethereum alone accounting for about half of those losses.

These losses are not just numbers, but represent hard-earned money of individuals who got duped while exploring and investing in blockchain-related projects. This alarming statistic underlines the need for heightened awareness and education about blockchain security.

Innovations in Deception: issues with blockchain security

Every innovative technology brings with it corresponding innovation in deception. Blockchain transactions themselves are very secure, especially in the most widely distributed networks such as Bitcoin and Ethereum.

Hacking into and modifying transactions in such blockchains is economically infeasible. However, it is much easier to exploit the endpoints which are the ‘last mile’ of blockchain technology. The endpoints that are most susceptible to scams are people’s accounts and wallets. These scams target the account holder, not the technology directly.

Here are some of the common scenarios:

  • A scammer creates a fake website that mimics a well-known crypto exchange. Unwary users log into it (the authentication is faked) and conduct transactions, thereby losing their holdings.
  • Another method is the phishing scam. The user receives an email from what looks like a legitimate wallet provider or a crypto exchange. The email asks the user for their private key for security verification. Or, the email gives the user a fake story about the account being compromised and that the user’s private key is required to recover the stolen funds.
  • Exit scams were quite common in the early days of the wild west cryptocurrencies. The perpetrator creates a project that attracts investment from unsuspecting users. The scammer collects the funds and then disables the website and vanishes with the stolen funds.

Other exploits are more sophisticated and exploit security gaps in the blockchain technology itself, such as the batch overflow bug and improperly coded smart contracts . 

The irony of blockchain scams is that once the scam is pulled off successfully, it is virtually impossible to reverse it and recover the funds because blockchain transactions are immutable! In this sense, blockchain security is a double-edged sword.

Public Chains vs. Permissioned Chains: A Security Perspective

The situation with blockchain security can change dramatically between public and permissioned blockchains.

Permissioned chains are restricted to known participants. They require the participants to register and even go through detailed verification procedures that may include KYC. This makes them inherently more secure.

This controlled access in permissioned chains significantly reduces the risk of scams, particularly in financial transactions. The environment under which permissioned chains operate is usually regulated.

Some of the types of participants may require regulated licenses to operate. They may also have fiduciary responsibilities and run reputational risk.

As a user, you may participate in both public and private chains. What are some of the ways in which you can protect yourself from scams on public chains and ensure that the private chain is also secure?

3 steps to protect yourself now

  1. Educate Yourself: Knowledge is your first line of defense, not just for blockchain technology, but in general. You cannot remain ignorant and operate on the blockchain as if it is an ‘idiot box’. Invest some time to understand the basics of blockchain technology, how different chains operate, and the common scams in blockchain. Be alert to unsolicited requests for your private keys or pitches for investment opportunities that seem too good to be true.
  2. Use Only Trusted Platforms: Always use reputable and well-established platforms for your blockchain transactions. Investigate who is operating these platforms. A red flag is the absence of any names of the management team, their pictures, and their social media links (especially LinkedIn). Check for reviews, the platform’s history, and its security measures. If the platform is not familiar, stay away, no matter how attractive their offers might seem.
  3. Secure Your Private Keys: Your private keys are named ‘private’ for a reason. Your private keys are meant to keep your hard-earned money secure. Never give your private key to a third party. Never share them with anyone. These measures are easy to follow. However, it is much more difficult to store them securely. Don’t store them online without adequate protection or in places that could be easily accessed. Consider using hardware wallets, which are offline and provide an extra layer of security.

In many cases, especially with Bitcoin and other cryptocurrencies, the platforms ask you to write down your private key or passphrases on paper. Needless to say, keep this paper locked away very securely; for good measure, make a copy and store it in a safe-deposit box at the bank.

Blockchain security: Actionable Knowledge is Power

Blockchain is a revolutionary technology with its full potential yet to be realized. You will most likely use it increasingly as it matures and more use cases emerge. As in all innovation, knowledge is critical. However, just theoretical knowledge is not enough. You should know how to use it. The more you study how scammers operate, the better equipped you will be to spot them and avoid their tactics. 

Finally, remember that scams evolve; new ones emerge, the old ones become refined. This is especially true with the power of AI. So, you must continually educate yourself. With education, awareness, and self-defense techniques, you will be able to navigate the world of blockchain confidently and safely.

What are digital assets?

Thursday January 25, 2024

In the ever-evolving landscape of finance and technology, digital assets have emerged as a transformative force, reshaping how we perceive and manage ownership and value. Digital assets represent a broad category of assets that are digitized and stored on blockchain technology, providing unprecedented security, transparency, and accessibility.

Keep reading and learn more.

 

What Are Digital Assets?

Digital assets, in essence, are assets that exist in a digital form, represented and secured by cryptographic technology, often on a blockchain. These assets can represent various forms of value, including ownership, rights, or entitlements to physical or digital assets. Digital assets are versatile and can encompass a wide range of items, from financial instruments to intellectual property and more.

5 examples that you need to know

The table below categorizes and describes various types, such as Cryptocurrencies, Security Tokens, NFTs, and others, providing a clear and concise overview of this dynamic field.

Asset Description
Cryptocurrencies Cryptocurrencies like Bitcoin and Ethereum are perhaps the most well-known digital assets. They represent units of value and are used as a medium of exchange on their respective blockchains.
Security Tokens These represent ownership in traditional financial instruments, such as stocks, bonds, or real estate, and are often subject to regulatory oversight.
Non-Fungible Tokens (NFTs) NFTs are unique digital assets that represent ownership of one-of-a-kind items, such as digital art, collectibles, or even virtual real estate.
Utility Tokens Utility Tokens grant holders access to specific functions or services within a blockchain ecosystem, like accessing a platform’s features or participating in a network’s governance.
Digital Securities These are tokenized versions of traditional securities, such as stocks or bonds, that offer enhanced liquidity and automation of regulatory compliance.

 

Digital Assets and Blockchain: How Do They Work?

Blockchain technology is at the heart of this kind of asset. A blockchain is a decentralized, immutable ledger that records transactions across a network of computers. Digital assets are created and managed through smart contracts, which are self-executing agreements with predefined rules and conditions.

When a digital asset is created, it is assigned a unique identifier on the blockchain. Transactions involving the asset are recorded in blocks, which are added to the chain in chronological order. This ledger is distributed across the network, making it highly secure and resistant to tampering. All participants can verify transactions, ensuring transparency and trust in the system.

The Difference Between Crypto and Digital Assets

While the terms “crypto” and “digital assets” are sometimes used interchangeably, there is a distinction between them:

  • Cryptocurrency: Cryptocurrencies, like Bitcoin or Litecoin, are a subset of digital assets. They are primarily used as a medium of exchange or store of value, aiming to replace or complement traditional currencies. Cryptocurrencies focus on monetary use cases.
  • Digital Assets: Digital assets encompass a broader range of tokens that represent ownership, rights, or value. They include security tokens, NFTs, utility tokens, and digital securities, among others. It serves various purposes beyond being a medium of exchange.

Types of Digital Assets in the Blockchain Ecosystem

The blockchain ecosystem is teeming with diverse digital assets, each with its unique characteristics and use cases. Here are some key types:

Cryptocurrencies: As mentioned earlier, cryptocurrencies are digital assets designed for use as a digital currency. They facilitate peer-to-peer transactions, providing a decentralized and borderless means of transferring value.

Security Tokens: represent ownership in real-world assets such as stocks, bonds, or real estate. Security tokens are subject to regulatory compliance and are aimed at digitizing traditional financial instruments.

Utility Tokens: Utility tokens grant access to specific functions or services within a blockchain ecosystem. They are often used to pay for platform services, access features, or participate in governance.

Non-Fungible Tokens (NFTs): NFTs are unique and indivisible, representing ownership of a specific item or piece of content. They have gained popularity in the art, entertainment, and gaming industries.

Digital Securities: Digital securities are tokenized versions of traditional securities like stocks and bonds. They offer increased liquidity, automation of regulatory compliance, and the potential to streamline capital markets.

Impact on Private Capital Markets

Now that we have a better understanding of the area, we can delve deeper into their landscape. It is revolutionizing the private capital markets in significant ways.

Let’s check more details:

Enhanced Transparency: Blockchain technology ensures transparent and immutable records of ownership and transactions. This transparency builds trust among investors and stakeholders.

Liquidity and Accessibility: The tokenization of private assets through digital securities enables fractional ownership, reducing investment barriers and increasing liquidity.

Automated Compliance: Smart contracts embedded in digital securities can automate compliance with SEC regulations, reducing administrative burden and ensuring adherence to legal requirements.

Reduced Intermediaries: By eliminating intermediaries and streamlining processes, they lower transaction costs and reduce friction in private capital markets.

Global Reach: These kinds of assets are accessible to a global audience, expanding opportunities for fundraising and investment beyond traditional geographic boundaries.

Fractional Ownership: Investors can purchase fractions of high-value assets, enabling diversified portfolios and increased participation.

Final insights

Digital assets, powered by blockchain technology, are poised to disrupt and revitalize private capital markets. They offer transparency, accessibility, and compliance, making it easier for companies to engage in fundraising and investors to access previously illiquid assets.

Also, they represent a transformative force that will reshape how we perceive, trade, and invest in assets.

Although, to fully reap these benefits, is important to partner with trustworthy platforms. Ensuring that operations adhere to regulations, along with transparent policies on data management, usage, and privacy, is key to protecting your business and investments.

As the financial landscape continues to evolve, understanding the potential of digital assets is paramount for businesses and investors alike.

It’s definitely a new era in private capital markets, but trust remains a highly valuable asset.

What are securities in blockchain?

Tuesday January 23, 2024

What are securities in Blockchain?

Securities, in the traditional sense, represent various financial instruments such as stocks, bonds, and derivatives that signify ownership, equity, or rights in an underlying asset or entity. In the context of blockchain, securities are digital tokens or smart contracts that represent ownership, equity, or other financial interests in a real-world asset or company. These tokens are securely recorded on a blockchain, providing immutable records of ownership and enabling efficient and transparent trading.

Transparency: A Game-Changer

One of the primary benefits of using blockchain technology for securities lies in its transparency. Unlike traditional financial systems, where transactions are often opaque and intermediaries are numerous, blockchain offers a transparent ledger where every transaction is recorded and visible to authorized parties.

This transparency fosters trust among stakeholders, reduces the risk of fraud, and enhances the overall integrity of the private capital markets.

Democratizing Finance with Blockchain

In the world of finance, private capital markets play a pivotal role in shaping investment opportunities, fostering economic growth, and providing innovative financing solutions. However, the complex nature of private capital markets has often led to inefficiencies, lack of transparency, and limited access for investors.

Enter blockchain technology, which has the potential to revolutionize these markets by offering transparency, trust, and enhanced efficiency. In this blog, we will explore the concept of securities in the blockchain, the differences between private and public chains, and why private blockchains are particularly well-suited for the private capital markets, catering specifically to CEOs, CFOs, and board directors without delving into technical jargon.

Differences Between Private and Public Chains

When we talk about securities in blockhain is interesting to deep the knowledge about the technology, keep reading and learn about these important topics.

Blockchain networks can be categorized into two main types: public and private chains. Each has its own set of characteristics and use cases.

➨ Public Blockchains: Public blockchains, like Bitcoin and Ethereum, are open and permissionless networks. They are maintained by a decentralized community of participants, and anyone can join, validate transactions, and access the ledger. While they offer a high degree of security and decentralization, public blockchains may not be suitable for private capital markets due to their lack of privacy and scalability. Transactions on public chains are visible to anyone, making them unsuitable for sensitive financial information.

➨ Private Blockchains: On the other hand, private blockchains are closed and permissioned networks. They are typically used by organizations, consortia, or groups of trusted parties who have control over access and participation. Private blockchains offer higher privacy, scalability, and customization options, making them ideal for private capital markets. Transactions and data are kept confidential among participants, ensuring the security of sensitive financial information.

Why private blockchains are better for private capital markets

Now we know what are securities in blockchain, let’s take a closer look at other aspects.

Private capital markets are characterized by complex transactions, stringent regulatory requirements, and the need for confidentiality.  Here’s why private blockchains are particularly well-suited for these markets:

Enhanced Privacy: Private blockchains offer a controlled environment where sensitive financial data can be securely shared among authorized parties while remaining hidden from the public. This level of privacy is crucial for protecting the interests of both issuers and investors.

Customized Governance: Private blockchains allow organizations to tailor the governance structure according to their specific needs and regulatory requirements. This flexibility enables efficient compliance management and regulatory reporting.

Scalability: As private capital markets involve a relatively lower number of participants compared to public markets, private blockchains can offer greater scalability without compromising performance.

Reduced Costs: By streamlining processes and reducing the need for intermediaries, private blockchains can lower transaction costs, making private capital markets more accessible to a wider range of investors.

Faster Settlements: Blockchain technology enables real-time settlement and automated execution of smart contracts, reducing settlement times and the risk of errors.

Securities in blockchain: highlights about trust

The adoption of private blockchains in private capital markets brings a level of trust and transparency that has been sorely lacking in traditional systems. Here’s how private blockchains instill trust among investors and stakeholders:

Benefit Description
Immutable Records Transactions recorded on a private blockchain are tamper-proof, ensuring that once a transaction is confirmed, it cannot be altered. This immutability provides confidence in the accuracy of ownership records.
Transparency for Authorized Parties While private blockchains maintain confidentiality, they provide transparency to authorized participants, allowing them to verify ownership, track transactions, and ensure compliance with regulations.
Reduced Counterparty Risk Blockchain technology eliminates counterparty risk by enabling automated smart contracts that execute predefined terms when conditions are met. This reduces the risk of disputes and defaults.
Improved Due Diligence Investors can conduct more efficient due diligence processes by accessing real-time, transparent information on assets and transactions, reducing uncertainty and enhancing trust.

Trustworthiness in blockchain solutions

As we know, blockchain technology has the potential to revolutionize many industries, offering benefits such as security, transparency, and efficiency. However, it is important to choose a company that offers reliable and secure solutions.

Trust is a valuable asset in any relationship, especially when operations involve your business, investors, and private capital markets. When choosing a blockchain company, it is important to consider factors like:

  • Clarity and transparency: The company should be clear and transparent in its actions, from the first contact to the signing of the contract. It should provide complete information about its services, pricing, and terms of use.
  • Reputation: It is important to check the company’s reputation before doing business with it. Do some online research, read customer reviews, and consult with experts.
  • Compliance: The company should be in compliance with applicable laws and regulations. This is important to ensure the security and reliability of its solutions.

3 tips that can save your life when working with securities in blockchain

As you see in the past section, verifying the trustworthiness of a blockchain company is an essential topic for those who work with securities in blockchain and private capital markets. Now let’s check 3 practical tips that can help a lot when you’re looking for a blockchain company.

1. Read the contract carefully: The contract should be clear and concise, and should specify the rights and obligations of both parties.

2. Request references: Ask for references from the company’s previous customers.

3. Ask questions: Do not hesitate to ask the company questions about its services and processes.

Examples of questions you can ask:

📣 How does the company ensure the security of its solutions?

📣 How does the company handle security incidents?

📣 How does the company comply with applicable laws and regulations?

 

By asking these questions, you can gain a better understanding of the company’s resources and processes, and make a more informed decision about whether it is the right one for you.

 

Future of blockchain and its impact on investments

The adoption of blockchain technology in private capital markets has the potential to revolutionize the way securities are managed, traded, and accessed. Private blockchains, with their emphasis on privacy, scalability, and customized governance, provide a robust solution for enhancing transparency and trust in these markets.

As CEOs, CFOs, and board directors, embracing this technology can empower your organizations to operate more efficiently, comply with regulations, and attract a wider pool of investors, all while instilling trust in the private capital markets of the future.

By understanding the power of securities in blockchain and the advantages of private chains, you can position your organization for success in this evolving landscape.

Blockchain and private capital markets

Thursday January 18, 2024

The private capital markets have long been complex and challenging to navigate.

However, the emergence of blockchain technology offers a potential solution to these issues.

In this blog post, we will explore key aspects of blockchain and private capital markets. Including a closer look at aspects such as transparency, democratization, and liquidity.

Blockchain technology has a lot of particularities, including the creation of an immutable and transparent record of all transactions, which enhances security, and reduces the risk of fraud.

In this guide, you’ll get a practical overview of the area and learn about different particularities involved in the processes.

The private capital markets in many ways are very similar to the public markets when you see all the participants involved.

Below is the list of all the participants for the public and private capital markets.

Regulators RIA
Lawyers IRA
Auditors Bank/Escrow
Broker-Dealers Payment Rails
Issuers Media
Investors Marketing
Shareholders Intermediaries

The private capital markets have typically been unclear, ineffective, and challenging for both investors and issuers to navigate. However, the emergence of blockchain technology offers a potential solution to these challenges.

 

 

Keep reading and learn more.

Building Trust and Security

Firstly, blockchain can provide increased transparency and security in the private capital markets.

By leveraging distributed ledger technology, blockchain can create an immutable and transparent record of all transactions in the market.

This means that investors and issuers can track ownership and transaction history, reducing the risk of fraud and enhancing the overall security of the market.

Improved transactions with Blockchain

Secondly, blockchain can improve the efficiency of transactions. Currently, private market transactions are often cumbersome and time-consuming, with significant delays between operations.

By using blockchain, investors and issuers can streamline the process by automating settlement and clearing processes.

This can significantly reduce the time and cost associated with this type of operation.

Empowering investors

Thirdly, blockchain can democratize access to private capital markets. Traditionally, only accredited investors were able to participate in private market investments due to regulatory requirements.

However, blockchain-based platforms can facilitate fractional ownership of private assets, allowing smaller investors to participate in these markets.

This can create a more inclusive and diverse investor base, potentially driving innovation and growth.

From Stuck to Sold: Blockchain Unlocks Liquidity in Private Markets

Lastly, blockchain can enhance the liquidity of private capital markets. Currently, private market investments are often illiquid and difficult to sell.

However, blockchain-based platforms can provide secondary trading markets for these assets, allowing investors to buy and sell private market investments more easily.

This can create a more liquid market and potentially attract more investors.

Blockchain’s Future in Private Capital

In conclusion, blockchain technology has the potential to revolutionize the private capital markets by providing increased transparency, efficiency, democratization, and liquidity. As the technology continues to evolve, we can expect to see more blockchain-based solutions emerge in this space, creating a more accessible and efficient ecosystem.

We cannot overlook the obvious which is that blockchain technology can transform the private markets. However, compliance acts as the key that unlocks the door to blockchain’s potential. For this to happen it must be 100% compliant otherwise there can be no use for it in the private capital markets.

How technology is transforming online capital formation?

Friday January 12, 2024

Technology in capital formation and its synonyms are topics that are receiving a lot of attention in these days. Not only because the technical advances and features transformed (and still transforming) the ways companies get capital to fund their business. Let’s talk more about it.

TABLE OF CONTENTS

What is the role of technology in capital formation?

It is no trade secret that technology has played a pivotal role in transforming everything – from business operations to consumer behavior. And capital formation is no exception to this rule. Capital formation is the net capital accumulation for an entity over an accounting period.

When you think of how technology supports the discovery or improvement of products and services or the process of creating the same, it becomes evident that it has close linkages with capital formation too. The correlation is that technology offers capital formation a boost.

On the other hand, economic progress also creates favorable conditions for the growth and consolidation of technology. As such, they form a win-win relationship that promotes overall development.

Technology’s impact on capital formation

Taking this into consideration, let’s delve into how technology is revolutionizing the process of raising capital online.

In the next topics, we will explore a practical framework regarding the different details that involve this subject.

On that note, here is a look at how technology is transforming online capital formation.

Artificial Intelligence

Artificial Intelligence, or AI, is a major catalyst in transforming online capital formation.  For starters, AI-powered engines can crunch high volumes of data to perform a 360-degree analysis of potential investment opportunities and personalize the results based on the investor’s goals.  Such AI-based data analysts can work with structured and unstructured data or identify patterns that human analysts could miss out on!

Similarly, AI frameworks can predict the estimated cost of capital and the corresponding revenue with nearly 100% accuracy. These predictions remain reliable as every variable is accounted for.

Automation

Just like AI, automation is disrupting online capital formation in more ways than one. In manufacturing, automation is the secret ingredient that injects efficiency into processes and increases production value.

For investors, it is the medium for seamless onboarding and document management. Pair it with deductive technology like AI/ML, and you will have a self-sustaining, automated platform to track and manage capital in real-time.

There’s just so much potential here.  By adopting automation the entire sector can operate with the assurance it is compliant with securities regulators and transparent with the entire ecosystem supporting online capital formation.

Digital securities

Digital securities or security tokens are blockchain-based financial instruments. They are the digitized form of traditional securities like stocks or bonds and are issued and traded on blockchain networks.

Despite such similarities, digital securities possess greater advantages than their traditional counterparts. They are far more transparent, efficient, and secure. At the same time, they also offer greater liquidity as they can be traded 24/7/365 on the global markets with great ease.

Digital Securities is important to have vibrant private capital markets.  Digital Securities allow the opportunity to instantly settle and validate where this process would take weeks and months.  

Digital Securities do need to be 100% compliant with the securities regulators if not then there is no value in placing any of the securities on a blockchain technology with the expectation that the investor will be able to transact.

Online Capital Formation Platforms

Online capital formation platforms are offering entrepreneurs the opportunity to connect with the global investor base. As such, it comes as no surprise that crowdfunding platforms have become insanely popular of late, especially since the entrepreneurial drive is currently at its peak.

 

In addition to granting entrepreneurs access to a larger pool of potential investors, crowdfunding platforms are also emerging as the medium for entrepreneurs to connect with experts. Thus, it is gradually eliminating any barriers for an excellent idea to gain wings.

Digital identity verification

Online capital formation hinges on digital identity verification to ensure that only credible investors gain access to the capital market. At the same time, it also helps establish the accreditation of investment opportunities.

As such, it can make use of specific identity markers to securely and reliably verify details.  There are millions of potential investors and if they do not have a passport that is fully compliant and verified by a regulated stakeholder, the friction these investors face will be the major barrier for online investing.

In conclusion

Within the sphere of online capital formation, technology stands as the essential backbone, seamlessly integrating transparency, security, efficiency, and accessibility.

Looking ahead, technology is poised to revolutionize online capital markets, democratizing access and reshaping the financial landscape. The synergy between innovation and online capital formation promises an interesting future. Where technology continues to empower investors, foster growth, and redefine financial possibilities.

 

What are the private capital markets in business

Wednesday January 10, 2024

Beyond the familiar world of financial headlines, a vast network of private companies fuels global growth. In this context, many people are researching the subject to understand What are the private capital markets in business.

Firstly, the private capital markets, operates under different rules and holds potential for investors and businesses alike. In today’s post, we’ll explore practical aspects regarding the inner workings of this hidden ecosystem, its challenges, and its future.

What are private capital markets in business

If you’re looking about What are private capital markets in business, there’s a simple way to explain it. Basically,  the private capital markets are a field of the financial system where investors provide funding to privately held companies, i.e. those not listed on public stock exchanges.

These companies can vary from start-ups to more established companies seeking to expand or restructure.

With its particularities and own regulations, the private capital markets are and dynamic ecosystem that plays an important role in the world economy. In the next section, we’ll talk more about this, contextualizing with public markets.

Public vs private markets

The financial world is broadly divided into two segments. Both segments contribute approximately 50% of the world’s GDP. That’s where the similarities end. These two segments are the public and private financial markets, and they are vastly different.

The public markets generate 95% of the noise and the news. They are generally very efficient, fluid, and well-served by technology. These are the financial institutions and companies that we read about and see daily on TV.  As of May, 2022, there are approximately 58,500 publicly listed companies on the planet. In all, these companies have a market capitalization of about $90 trillion. 

Public companies have been increasingly going private for over a decade, fueled by the costs of keeping a public profile and the requirements of Dodd-Frank and Basel III. A larger proportion of public capital is in the form of debt, with many companies implementing aggressive share buyback programs. This has also decreased the secondary market liquidity, while the illusion of liquidity is maintained by the approximately 70% of trades generated by algorithmic trading. The retail investor is increasingly underserverd in the public markets.

Compare all this with the approximately 285 million private companies, of which private equity invests barely $9 trillion. However, the trend is rapidly changing. Since 2009, more capital raising has been done by private companies than by public companies, sometimes by a factor of 2.

Insights on private capital markets

What is especially interesting about the rise of private markets is that the trend is changing despite the private markets not having any unifying central authority or even a regulatory consortium. Private markets are significantly underserved by technology. For many participants in the private markets, technology means moving from a physical Rolodex to an electronic one (mostly, a spreadsheet).

Traditional banks have evolved into institutions that make it easy to collect retail savings and funnel them into institutional investment firms or lending back to retail or SME customers. There has been no infrastructure for retail private investments or private capital raising over the last couple of hundred years. For this reason, the private markets remain fractured and fragmented. The participants include broker-dealers, CPAs, law firms, funding platforms, auditors, transfer agents, and various auxiliary service providers (such as for KYC screening, custody, escrow, payment processing, etc.). All of these participants exist to connect private companies seeking to raise capital with private retail investors.

Attitudinally, private market participants want to remain private. They want to retain their individual branding and serve their communities and niche markets. However, they see the potential for tapping into the wider retail market, even internationally. The challenge remains how to do it efficiently.

On the public side of the market, it is easy to conduct trades after the accounts have been set up with brokerages. Anyone with a smartphone can place a trade for a publicly listed company and get a trade confirmation within seconds (assuming high liquidity and that the markets are open). A similar trade with private shares takes several weeks.

Final thoughts

From all this, we can see that the private markets are on the rise and, with supportive forward-thinking legislation such as the JOBS Act, opening up participation by the retail investors in a much more direct way. Private markets are not only here to stay but increasingly becoming more democratized.

 

What is missing is an efficient infrastructure of trust. That is a topic for another blog.

AI and Blockchain: Divergence at the Entropic Boundary

Wednesday August 2, 2023

If you look up into the night sky (at night, of course) in the direction of the constellation Ophiuchus, you won’t see the nearest (as of this date) black hole called Gaia BH1 (aka Gaia DR3 4373465352415301632), which is a mere 1560 light years away (i.e., practically in our backyard). If you get to within 17 kms from it (please don’t try this at home), no power in the universe can save you from its clutches. This point of no return is called the Scwharzschild radius. From our human perspective, that’s  nothing to worry about.

Now, look up 38.8987° N latitude, 77.0056° West longitude on the third rock from the sun in the Milky Way galaxy. There, you will find another black hole called the SEC (Securities Exchange Commission). Its physical Schwarzschild radius is not really a “radius”, but its physical event horizon (another name for the S radius) is the U.S.A, while its virtual event horizon is the planet Earth (i.e., there’s no escape!). From our private capital markets perspective, this is definitely something to worry about.

Public blockchains in the financial markets today have one leg within the SEC’s event horizon while, with the other leg, they are trying very hard to escape its clutches. Any guesses who is going to win this tug of war? The SEC has far more resources and staying power than the advocates of the public blockchains. The SEC’s event horizon is the JOBS Act and securities regulation in general.

Now, imagine a bright blue luminous star. Stars don’t have the equivalent of a “clutching” boundary like a black hole does (you can thank Newton for that). But, there is a boundary beyond which there isn’t enough energy or influence to sustain life. Think of it as an “entropic boundary”. Beyond that boundary, there are no laws, no order, no life, just a frigid waste. Inside the entropic boundary and way closer to the star is the hot crucible of innovative hype that can destroy wealth, demolish dreams, and diminish hope.

It is only at or close to the entropic boundary that responsible and game-changing innovation is to be found. The public blockchains were spawned far outside the entropic boundary of investor-centric responsible innovation, out in the dark, frigid, lawless, and wild space, wandering dangerously close to the SEC’s event horizon. 

At KoreChain, we believe in the power of a distributed ledger and subscribe to the benefits of decentralized data and processing. But, we stop far short of decentralizing intelligence and common sense. Unconditional freedom is the hunting ground of crooks and free-loaders.

Surprisingly, artificial intelligence (AI) has had a much more responsible evolutionary path. For decades, AI could only be found in the halls of academia. With increasing computational power and availability of massive amounts of transactional data, AI found another home in the corporate world. Because the corporate world values monetization over privacy and ownership of data, it was inevitable that AI stepped over the entropic boundary. With the dramatic Cambrian explosion of large language models (LLMs) such as ChatGPT and hundreds of other AI tools (numbering at the present time to over 100 and rapidly growing), AI clearly broke free of the protective fence of the entropic boundary.

On the other side of the entropic boundary there are dangerous black holes lying in wait for the unwary users of AI (let’s call these the ‘dark’ holes to distinguish them from the blameless astronomical black holes). Some of these dark holes are independent criminal organizations and terrorists, others are state-sponsored hackers, yet others are the misanthropes and misfits whose motives are death, desolation, and destruction. Like black holes, you can’t spot them easily.

The difference between these dark holes and the SEC is that the dark holes are out to catch the good guys while the SEC tries to catch the bad guys. Unfortunately for us, there is no equivalent of the SEC in the AI world. I doubt there will ever be one. Putting any guardrails around AI at this point in time is like smoking a cigar outside in a hurricane and trying to stuff the cigar smoke back into the cigar. Any bets on how this will play out?

At KoreChain, we focus exclusively on using AI for good within the strictly defined universe of the global private markets. We use AI to help, to protect, and to guide. The KoreChain empowers the convergence of AI and blockchain around the right side of the entropic boundary.

Tokenization: Navigating the Friction between Reg A+, Web 3.0, and Today’s Transacting Landscape

Wednesday July 5, 2023

Web3 technology, which is based on blockchain and decentralized systems, introduces unique challenges when it comes to complying with regulatory frameworks like Regulation A+ (Reg A+). 

Reg A+ is a regulation that allows companies to raise up to $75 million from the public through a streamlined process, similar to an initial public offering (IPO), but with certain exemptions.

One of the key requirements of Reg A+ is the need for an SEC-Registered Transfer Agent—a designated entity responsible for maintaining a book of records that tracks ownership and transfers of securities. The Transfer Agent ensures compliance with regulations, such as recording share ownership changes, processing transactions, and maintaining accurate official records.

However, Web3 was not designed with this requirement in mind.  The concept of a centralized Transfer Agent is difficult to reconcile with the decentralized nature of blockchain technology. Here are a few reasons why Web3 poses challenges for Reg A+ compliance:

  1. Custody and Ownership: In Web3, users typically control their assets and interact directly with decentralized applications using their digital wallets, and transactions need not go through a central intermediary to be validly recorded in the blockchain. This introduces complexities in determining ownership and custody of securities. The traditional role of a Transfer Agent, which maintains custody and records ownership in a centralized manner, is not easily replicated in a decentralized environment.
  2. Decentralized:  The main thesis of Web3 is that it operates 100% decentralized, in its operations and data management.  This is in complete conflict with how the regulations like RegA+ have been written by the securities regulators.
  3. Anonymity and Compliance: Web3 technologies often emphasize user privacy and pseudonymity, which can make it challenging to meet the regulatory requirements for identifying and verifying investors participating in a Reg A+ offering. Ensuring compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations becomes more complex in a decentralized and anonymous environment.
  4. Regulatory Oversight: Reg A+ requires regulatory oversight and reporting to ensure compliance. In a Web3 environment, where transactions occur directly between users without intermediaries, it becomes more difficult for regulatory bodies to monitor and enforce compliance effectively.

While Web3 technology faces challenges in directly implementing a Transfer Agent-like function for Reg A+ compliance, it’s worth noting that the technology is still evolving. It is just not here today, and bringing together governmental regulatory oversight and web3.0 looks to be a ways off.

Efforts are underway to address some of these challenges through the development of decentralized identity solutions, regulatory frameworks for digital assets, and the exploration of hybrid approaches that realize the benefits of Web3 while meeting compliance requirements.

Ultimately, striking a balance between the decentralized nature of Web3 and regulatory compliance will require further innovation, collaboration, and regulatory adaptations to accommodate the unique characteristics of blockchain-based systems. 

So for today if you wish to transact and tokenize your digital assets, and most importantly transact utilizing RegA+ you can; just not yet with web 3.0,  and digital wallets in a decentralized blockchain.  

KoreChain is the solution for today and ever-evolving for tomorrow.

The Relationship Between Cryptocurrency and Blockchain

Thursday June 8, 2023

The relationship between blockchain and cryptocurrency has been an area of increasing interest over the past few years. For those looking to use cryptocurrency or blockchain technology to transfer, store, and track data, understanding the differences between the two technologies is essential. Though they are related in many ways, blockchain and cryptocurrency should not be confused with one another as they are different. Knowing how to leverage each technology can help individuals make better use of these assets while avoiding pitfalls associated with a lack of knowledge. Those looking to invest in cryptocurrency or leverage blockchain should take the time to learn and understand the nuances of both technologies so that they can make informed decisions when it comes to utilizing these digital assets.

Cryptocurrency: Definition and Use Cases

Cryptocurrency refers to a type of digital asset designed to be used as a medium of exchange, a store of value, and a unit of measure. It is usually underpinned by blockchain technology, the use of advanced cryptography techniques for securing online transactions, and can exist either as a centralized token (one with a centralized issuer such as Bitcoin or Ether) or decentralized tokens (without a single issuer such as Libra or Ripple).

Cryptocurrency is gaining traction around the world, with its use cases ranging from being used to buy goods and services to savings and investments, to trading and speculation. Cryptocurrency is also being utilized in areas of financial inclusion, such as providing access to banking services and other financial products to those who lack traditional banking accounts.

Blockchain Technology: Definition and Use Cases

Blockchain is the underlying technology powering cryptocurrency transactions. It is a secure, tamper-proof, decentralized ledger system that allows for peer-to-peer transactions without the need for a middleman. It is also highly secure, as blockchain technology doesn’t rely on a single central authority or server to control and monitor its operations. Instead, it relies on a distributed network of computers to verify and validate the transactions that take place.

This technology is finding its use cases in many industries outside of cryptocurrency, such as healthcare, supply chain management, and real estate. For example, blockchain can help increase transparency and trust in these sectors by providing immutable records of all transactions securely stored across multiple nodes in a network. Such records can then be used to trace the source of a product, helping to ensure that it is authentic and untampered with.

Still, the relationship between blockchain and cryptocurrency does not end there. Cryptocurrency is actually one of the earliest use cases for blockchain, with Bitcoin being the first digital asset to take advantage of this technology in 2009. To this day, blockchain remains a key technology underlying most cryptocurrency transactions, allowing them to be securely transferred while avoiding double-spending and other fraudulent activities.

Similarities and Differences

While the two are not the same, blockchain and cryptocurrency do share some similarities. Both are digital assets, designed to be used as mediums of exchange and units of measure. They also both use cryptography for secure online transactions. However, there are notable differences such as blockchain being a distributed ledger system that is used to securely store and transfer data, while cryptocurrency is a digital asset designed to be used as a medium of exchange.

The relationship between blockchain and cryptocurrency is not always easy to understand. Though they share some similarities, they are two distinct technologies with different use cases. Blockchain is the underlying technology that supports cryptocurrency transactions, while cryptocurrency itself is a digital asset designed to be used as a medium of exchange and unit of measure. By understanding their differences, businesses and individuals can make more informed decisions when it comes to utilizing these digital assets.

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