Securities can be defined as investment instruments bought and sold in financial markets, such as bonds, debentures, notes, options, shares (stocks), and warrants. This means that they can fall victim to fraud through forgery as well as physical theft. With blockchain technology, such securities can be notarized – as was seen with the government of Austria issuing bonds on the Ethereum network – or they can be tokenized.
A token on the ETH network is created through smart contracts and can be assigned a name and value on the network. This ability of the Ethereum network has made it a favorite for the crowdfunding process through ICOs and will be key to tokenizing the tradition securities market. Tokenization will make securities more secure and easily accessible to regular guys like you and I.
Progress in the European Union
Tokenization of securities has already started in the EU thanks to DESICO which is the first EU regulated blockchain venture that offers an end-to-end solution to issue and trade Tokenized Securities. This then brings the possibility of bringing in the much needed attention into the crypto and blockchain space and further allowing retail investors to secure their purchases on the blockchain.
Desico Co-Founder and CEO Laimonas Noreika, had this to say about the future of tokenized securities:
Yes tokenization, together with blockchain technology, will bring partial ownership. Yes, it will bring more transparency. However, it will not change existing securities laws. Actually, I believe that tokens need securitization much more than securities need tokens, at least at the current stage of the market.
No Immediate Impact and a Co-Existence of Old and New Financial Systems
He however was quick to predict that the impact will not be immediate as many hoped.
I’m not sure that tokenization of securities will improve stock/equities markets dramatically – at least not in the next 5 years.
I do not believe that there is a chance to entirely replace the traditional financial system with only tokenized securities. In the best case scenario, both new and old financial systems should co-exist together.
Ethereum Well Placed to Tokenize Securities
With regards to the best platform to kick-off the process of tokenizing securities, Desico Co-Founder and CEO Laimonas Noreika, added the following:
Ethereum is the only network that is live and working without major disadvantages. Moreover, the network is being developed so we hope to have less and less limitations in the near future.
Summing it up, tokenizing securities will bring the much needed security and transparency needed in the traditional markets as can be seen with the issuance of bonds in Austria. The Ethereum platform has been time tested and is fit to spearhead this process. This then means there is an urgent need to increase the throughput of the network to handle more transactions per second.