Nothing proves the wisdom of choosing the right technology for the right job than the case of Mercury Cash, a hosted-wallet solution for real-time liquidation and transfer of cryptocurrency and fiat assets. Recognizing the importance of being prepared for a new cryptoworld, Mercury Cash set out to explore various blockchain protocols to find the one that can stand the test of the real world.
The real world is full of messy complexities. We may think the mess is unnecessary and we should sweep it all away and usher in a new world order, but we do have to recognize that regulation and corporate law make it possible to protect investors and shareholders.
As someone pointed out regarding the tragic debacle of QuadrigaCX, Canada’s own Mt. Gox, “When was the last time your banker died and you lost access to your money?”
I’d add, “When was the last time you forgot your bank account password and your money became irretrievable?”
Can regulation and corporate legal processes be more efficient? Yes.
Are some of the regulatory requirements onerous or unnecessary? Yes.
But pretending that all regulation is unnecessary is like pretending that protections are unnecessary. Disruption with technology is good, as long as it doesn’t lead to destruction!
Many issuers are finding out the hard way two fundamental truths about how the real world works:
One, transactions don’t exist in atomic silos, least of all in securities; every transaction is connected with others and impacts multiple entities at various points in time in an ever-expanding ripple effect. One buy/sell securities trade requires validation of participants, ensuring protection for all parties, recording changes to captables, distribution of dividends, exercise of rights, filing reports, getting notifications of corporate events, voting, etc., all of it over a long time cycle.
Two, choosing a technology based on hype, popularity, and promise is not the way to go; instead, understand the characteristics of the problem and then identify the technology to solve it effectively.
In the case study, Mercury Cash describes the capabilities that will keep their business processes humming in a fully compliant manner. Most importantly, they found that ERC20-based protocols are inadequate for full lifecycle management of securities. This is not a knock against Ethereum, which is a fine platform for many types of DApps; much of the technology work is praiseworthy. But a Ferrari, no matter how shiny or powerful, cannot sail the high seas.
Many of our clients are coming to the same realization. Interestingly enough, a company could conduct its main business using public blockchain, while managing its security tokens on KoreChain. There is nothing wrong with that – it’s just like transporting a car on a ship. In many conversations with some of these technologists, I point out that the issue is not that ERC is inadequate for securities, just that it’s not the right tool. The same can be said if someone tries to use KoreChain for building cryptokitties.
When many companies are coming to us abandoning ERC20 protocols for various reasons, it validates our own approach to technology: first understand the problem you are trying to solve, then carefully pick the technology stack to solve it. In doing so, some of us have to leave our technology egos behind to move forward.