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Is It Time for Security Tokens to Outgrow Ethereum?
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Cryptocurrency analyst and commentator Jesus Rodriguez wrote a provocative piece recently arguing that it may be time for security tokens to move beyond Ethereum.
Currently, the most popular way to leverage security tokens is through the Ethereum platform. However, it remains to be seen whether the network can handle it. Not only does it not have compliance built-in, but it may be preferred to build alternative networks that suit solely security tokens.
Other firms have already tried doing so with their own token standards, as Securitize and Polymath both have.
As Rodriguez writes, using a public blockchain for regulated securities “introduces serious challenges in areas such as privacy, access control, and scalability.” Ethereum has seen a rapid increase in competitors since last year. For example, public blockchains like Cardano, Algorand, or Tezos all provide alternatives. Therefore, it must be said that cross-communication within these disparate networks will be necessary for the security token industry to grow.
One possible solution Rodriguez mentions is “security tokens networks that operate cohesively across public and permissioned blockchains.” In this schema, security tokens can leverage both the security of public blockchains and also the privacy of permissioned alternatives. Another alternative is an altogether new blockchain developed just for security tokens.
Overall, the problem must be solved to maximize capital investment in the sector. These early years will determine who the big players are in this growing space.
As Rodriguez writes:
“By now, it’s pretty clear that we are moving beyond the Ethereum phase in the security tokens market. The next iteration of the market will bring Ethereum competitors in the ecosystem as well as the implementation of the first set of security token networks and blockchains. However, with limited interest from the venture community, those efforts might remain constrained to a small number of well capitalized companies.”
In short, Ethereum is facing competition. It’s up to us to decide whether Ethereum will stand the test of time as the blockchain-of-choice for the security token industry.
Do you believe security tokens will someday outgrow Ethereum? Let us know your thoughts below.
Image courtesy of Bimchain.
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
