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Moody’s: Blockchain Technology to be Standardized in 2021

A research report published on September 5th by financial services company Moody’s stated that blockchain technology would most likely be standardized in 2021.

The drive towards the growth of blockchain and a deeper understanding of its potential and possibility will only start happening in 2021. Time and cost savings, automation, and faster data availability would be a result of the standardization. According to Moody’s, interoperability will also be improved, which would lead to better efficiencies in operations in business and related sectors.

Frank Cerveny, a senior research analyst at Moody’s, said:

“Standardization of blockchain technology would make its benefits more accessible for securitizations. Standardization would improve interoperability across systems and market participants, but also reduce counterparty concentration, operational and legal/regulatory risks for transactions that use blockchain technology.”

As suggested by Moody’s, interoperability will only start coming around in 2021; therefore, there is still a year and a half before blockchain will be widely adopted. The report also states that global blockchain standardization is primarily driven by the International Organization for Standardization (ISO).

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World Economic Forum Releases GSMI Global Blockchain Standards

The World Economic Forum (WEF) has released blockchain standards dubbed the Global Standards Mapping Initiative (GSMI) gathered from 185 jurisdictions, 30 technical standard-setting entities, and almost 400 industry groups. The comprehensive reports are aimed at being a resource to thrust the blockchain sector forward.

Mapping the blockchain arena

In collaboration with the Global Blockchain Business Council (GBBC), the WEF has publicized the reports based on the current digital asset and blockchain space across three fields: technical standards; legislation and guidance by sovereign and international bodies; and industry best practices and standards.

The blockchain standards highlight the way organizations have laid emphasis on certain sections but neglected others. As a result, an overlap has emerged in some blockchain industry areas, leading to a standardization void. One of the reasons for the emergence of this problem is the absence of dynamic guidance pertaining to the usage of this technology.

The reports offer action-oriented guidance like the interactive world map of blockchain legislation and guidance to private and public sector stakeholders. Nevertheless, organizations have been challenged to adopt proactive strategies to optimize the application of blockchain technology.

Underpinning blockchain technology

David Treat, GBBC board chair, believes that blockchain technology is advancing rapidly, but the progress is being slowed down by policy, framework, and standard complexities. He noted:

“The next wave of innovation will be driven by collaborative ecosystems, underpinned by blockchain and multiparty systems. The technology is advancing quickly, but the complexities of the standards, frameworks, and policies necessary to align to best practices have risked slowing progress to broad-based adoption.”

Strong synergies are required to enable blockchain to reach mass adoption. The GSMI acknowledges that global standards are needed in the digital asset sector to unlock the true value behind this space. Nevertheless, different administrations are heeding to this call following the US Department of Justice’s recently released a cryptocurrency enforcement framework, which offers a comprehensive overview of the enforcement challenges and emerging threats in the crypto space.

R3 Highlights the Transformative Potential of Tokenization in Finance

The Promise and Challenges of Tokenization

Tokenization, the process of converting real-world assets into digital tokens on a blockchain, is poised to revolutionize the financial industry, according to R3. It promises benefits such as access to new markets, product innovation, and better liquidity management. However, the technology faces hurdles like regulatory compliance and the lack of industry standards.

Regulatory Hurdles

The banking industry faces challenges in dealing with tokenized deposits and public chains. Basel rules impose exposure limits on crypto assets, requiring strict adherence to compliance guidelines. Regulatory sandboxes like the EU’s DLT Pilot Regime and the UK’s FMI Sandbox offer some relief by providing a controlled environment for experimentation.

The Need for Collaboration

For tokenization to succeed, there must be close collaboration among government agencies, financial institutions, and technology providers. R3 and Adhara have launched the Hyperledger Lab, Harmonia, to facilitate open conversations around enterprise blockchain interoperability and industry standards.

Implementing the Right Protocols

The financial world is on the brink of a digital transformation, with $5 trillion in assets potentially being tokenized in the next five years. Implementing the correct tokenization solutions and frameworks, such as control location services and custody frameworks, is crucial for this transition.

A Digital Future for Finance

Tokenization is not merely a trend but a transformative force that will continue to shape the future of finance. It has the potential to democratize investment opportunities, improve cost efficiency, and enhance collateral management. However, overcoming challenges like distribution complexity and regulatory compliance is essential for its widespread adoption.

The Importance of Standardization

While tokenization offers a plethora of opportunities, the absence of standardized protocols and frameworks remains a significant barrier. Industry players like R3 are actively working to shape these standards from the inside by openly collaborating. For example, the launch of Hyperledger Lab, Harmonia, aims to enable open conversations towards building industry standards around enterprise blockchain interoperability.

Regulatory Frameworks as Catalysts

Regulatory frameworks such as the EU’s DLT Pilot Regime or the UK’s FMI Sandbox can act as catalysts for innovation. These frameworks provide the much-needed regulatory certainty and encourage experimentation, enabling market participants to implement new technologies that support the tokenization of financial and digital assets.

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