By Sascha Ragtschaa, CEO of Chainium
Known for being a public and transparent place, blockchain technology has aided the financial industry for almost ten years when it was first introduced as the mastermind behind the Bitcoin cryptocurrency. Since then, this digital ledger has grown significantly in popularity and adoption across various sectors and industries, not just in the financial industry where it originated.
Blockchain is transforming several industries by offering low costs, heightened security and streamlined processes. It brings multiple benefits for both businesses and investors in the financial services market, with public and transparency at its heart. However, as the data produced from financial services is mostly private and confidential, it can be hard for businesses to move past the trust issues, and retain the benefits of a distributed ledger.
Public and private
There are many elements to buying and selling shares that are made publically available including ownership, share holdings, public share offers and new shareholders that are provided with a digital share certificate. All of this suits the current nature of blockchain technology, however there are important, private elements that need to be taken into account, including personal details such as names, email addresses and bank account details. This should not be publically available and should therefore be secured and encrypted.
As there is a mixture of both public and private data involved in the buying and selling of shares, dual blockchain has been developed to conquer this unique problem. Built with one public blockchain for public data, and one private blockchain for private data, dual blockchain is connected with oracles and built with the requirement that there must always be a record of business or investor on both blockchains in order to validate a share transaction.
The dual approach
Each section of the dual blockchain is built specifically for the public or private part of the digital share certificate that is presented to the new shares owner and the business. This dual approach means there are two distributed ledgers that work specifically for either public data or private data.
Public blockchain is built to support public data with limited information only, but on a real-time high frequency basis. In addition to all data being public on these blockchains, anyone can have access and see the ongoing flow, value and parties involved in the transactions. It has a low data storage, high frequency trading updates and is completely transparent and public.
The biggest advantage is that no individual or company has control over the information and it cannot be manipulated. It is not possible for the owner of the blockchain to unilaterally change the information contained on the ledger. Users of a public blockchain do not have to place their trust in a third party in order to use the blockchain.
The public blockchain is built as a public network of servers. This means that anyone can register and become a node in the public blockchain network. With every new node, the network becomes more robust, safer and stronger. Public blockchains are notoriously known for being slower with transactions due to the large amount of data and information that is being transferred and processed.
In comparison, private blockchain stores a lot more private, encrypted information on businesses and investors. It is only accessible to the individuals and organisations that have permission and has a high data storage, low frequency user updates and is the master blockchain. For many users, the private nature of a private blockchain is the key advantage, as it maintains the confidentiality of transactions made on the blockchain. However many individuals believe that the confidential nature of a private blockchain actually diminishes security, as blockchains are at risk of being manipulated without any users knowing.
The private blockchain uses private nodes that will be controlled by the blockchain and equity providers that build on the network. An emerging benefit for businesses and investors using private blockchains are the faster transactions speeds they offer. To ensure connectivity, the private blockchain will always be the master.
Both of these blockchains implement a consensus mechanism which avoids resource-intensive computation-based validation and enables high scalability. This mechanism reduces any transaction validation difficulties and ensures that transactions can be settled within seconds. This type of blockchain solution will cut out the middlemen, speed up the trading process and is available for all businesses and investors to access.
Utilising dual blockchain benefits
There is no doubt that blockchain has the potential to revolutionise processes between businesses and investors in the equity market, but by using a dual blockchain mechanism, both parties can benefit from a more streamlined transaction process, reduced costs and offer a better trading solution for the equity market.
Depending on which side of the share sale you are on, business or investor, it is clear that a dual blockchain will deliver a new era for this digital ledger and offer an end to end solution for businesses and investors to effectively manage each stage of buying and selling shares, without having to worry about which data is stored where. This dual digital ledger will not only transform the equity market, but significantly impact the way shares have been traded from the start.