What is the Chain of Trust in Private Markets?

In the context of private markets, the concept of  “Chain of Trust” refers to a network of trusted relationships among participants involved in private market transactions. It encompasses the various parties and intermediaries, such as investors, companies, brokers, and regulators, who rely on each other to ensure the integrity and security of transactions.

The Chain of Trust is crucial in private markets because these transactions often involve substantial amounts of capital, sensitive information, and complex agreements. Establishing a reliable Chain of Trust helps to foster transparency, mitigate risks, and build confidence among participants.

Here are a few key aspects of the Chain of Trust in private markets:

 

  1. Investor Trust: Private market investors, such as institutional investors, venture capitalists, and private equity firms, place significant reliance on the information and representations provided by the companies seeking capital. They need to trust that the financial data, business projections, and other relevant information are accurate and reliable.
  2. Due Diligence: Investors and other participants in private markets perform extensive due diligence to evaluate investment opportunities. This involves conducting thorough research, verifying information, and assessing the credibility and track record of the parties involved. A reliable Chain of Trust ensures that accurate and up-to-date information is available for evaluation.
  3. Intermediaries and Service Providers: Various intermediaries play a role in private market transactions, such as investment banks, law firms, accounting firms, and regulatory bodies. These entities help facilitate the transaction process, provide expertise, and ensure compliance with legal and regulatory requirements. Establishing trust in these intermediaries is crucial for maintaining the integrity of the Chain of Trust.
  4. Regulatory Compliance: Private markets operate within a regulatory framework that aims to protect investors and maintain market integrity. Regulators play a vital role in enforcing rules and regulations, ensuring fair practices, and overseeing compliance. Trust in regulatory bodies is necessary to maintain confidence in the overall Chain of Trust.
  5. Data Security and Privacy: Private market transactions involve sensitive and confidential information. Participants must have trust in the security measures implemented to protect their data from unauthorized access, breaches, or misuse. Robust cybersecurity protocols and data privacy practices are essential for maintaining trust in the Chain of Trust.

 

In all business transactions, trust requires not only the provable trustworthiness of individual participants and entities but also the provable trustworthiness of transactions between them.

A Chain of Trust allows the dissemination of information for verified Issuers (Companies) and their live offerings and removes all risks associated with the fraud.

 

Chain of Trust  

The Chain of Trust in the Infrastructure of Trust collects trusted and regulated information about the participants and their transactions with investors and partners in offerings. This information is cryptographically secured on the KoreChain to bring Trust to the Private Markets.

Each participant can view the information and see the source that is now hosted on an immutable infrastructure.  

As the information is collected from regulated sources and verified it now becomes part of the chainlink as it creates TRUST in the private capital markets.

 

  • Verification of information
  • Verifies each of the participants
    • The Issuer with CIK#
    • FINRA Broker-Dealer CRD#, CIK#, SEC#
    • FINRA Registered Funding Portal CRD#, CIK#, SEC#
    • SEC-Registered Transfer Agent CIK#
    • Escrow Bank
    • Law Firm
    • Auditors
    • SEC Offering Link

 

KoreID

KoreID revolutionizes trust in private markets by providing a digital identity to essential entities, ensuring all participants are verified and transactions are secure.

By enabling a seamless verification process, KoreID ensures that each participant and transaction adheres to the highest standards of trustworthiness and compliance

All of the following entities are provided a KoreID after verification:

  • Issuer
  • FINRA-registered Broker-Dealer
  • FINRA-registered funding portal
  • Law Firm
  • Audit Firm
  • SEC-Transfer Agent
  • Escrow Bank
  • The Offering by an Issuer

 

KoreID Verified

KoreID Verified offers an extra layer of security, specifically verifying transactions and participants in private market offerings, enhancing the ecosystem’s integrity.

The issuer is provided KoreID Verified for this specific offering and regulated participants

The KoreID and KoreID Verified play an important role when the Issuer wants to use Newswire Dissemination to reach the general public.

Resources in Focus

Newswire

By accessing the KoreID of the Issuer (Company), the Newswire team will be able to see if the company is real and review the principals, management, and board members. This reduces the risk of disseminating news to fake Issuers.

If the Issuer announces financing, the Newswire can view the KoreID Verified and review all the necessary information

 

Media Outlets

The KoreID and KoreID information is provided to the media outlets who can include that in their content. This enables the general public to view the information about the company and its offering, verify it, and have confidence in the information posted on their media outlets. The Chain of Trust is navigable so that the investor can trace the origin of the information and review the trustworthiness of the information handlers and disseminators.

 

General Public

The general public will see the KoreID and KoreID Verified which will provide information for them to view, similar to an SSL Certificate. This transparency gives the general public confidence in the company and its offering.

 

Overall, the Chain of Trust in private markets is built on transparency, credibility, due diligence, and regulatory compliance. Establishing and maintaining a strong Chain of Trust fosters a healthy and vibrant private market ecosystem where participants can confidently engage in transactions and allocate capital effectively.

 

Blockchain Security: 3 Steps to Protect Yourself

Let’s talk about blockchain security, an essential discussion between technology users and enthusiasts.

Blockchain is no doubt a revolutionary technology for distributed and decentralized systems, especially when immutability of transactions and trust through consensus is critical in a wide ecosystem. Blockchain opens up new dimensions in business security and transparency in various industries, but especially so in the financial sector.

However, every innovation attracts bad actors who look for ways to find loopholes, security gaps, and innocent victims. What can you do to protect yourself? We will see how prevalent the problem is, how scammers operate, and how to protect yourself.

Introduction

Blockchain and cyber security are topics that demand attention, especially when technology can evolve so fast.

The numbers are startling. According to several reports, blockchain-related scams resulted in losses of about $2 billion globally in 2023, with losses on Ethereum alone accounting for about half of those losses.

These losses are not just numbers, but represent hard-earned money of individuals who got duped while exploring and investing in blockchain-related projects. This alarming statistic underlines the need for heightened awareness and education about blockchain security.

Innovations in Deception: issues with blockchain security

Every innovative technology brings with it corresponding innovation in deception. Blockchain transactions themselves are very secure, especially in the most widely distributed networks such as Bitcoin and Ethereum.

Hacking into and modifying transactions in such blockchains is economically infeasible. However, it is much easier to exploit the endpoints which are the ‘last mile’ of blockchain technology. The endpoints that are most susceptible to scams are people’s accounts and wallets. These scams target the account holder, not the technology directly.

Here are some of the common scenarios:

  • A scammer creates a fake website that mimics a well-known crypto exchange. Unwary users log into it (the authentication is faked) and conduct transactions, thereby losing their holdings.
  • Another method is the phishing scam. The user receives an email from what looks like a legitimate wallet provider or a crypto exchange. The email asks the user for their private key for security verification. Or, the email gives the user a fake story about the account being compromised and that the user’s private key is required to recover the stolen funds.
  • Exit scams were quite common in the early days of the wild west cryptocurrencies. The perpetrator creates a project that attracts investment from unsuspecting users. The scammer collects the funds and then disables the website and vanishes with the stolen funds.

Other exploits are more sophisticated and exploit security gaps in the blockchain technology itself, such as the batch overflow bug and improperly coded smart contracts

The irony of blockchain scams is that once the scam is pulled off successfully, it is virtually impossible to reverse it and recover the funds because blockchain transactions are immutable! In this sense, blockchain security is a double-edged sword.

Public Chains vs. Permissioned Chains: A Security Perspective

The situation with blockchain security can change dramatically between public and permissioned blockchains.

Permissioned chains are restricted to known participants. They require the participants to register and even go through detailed verification procedures that may include KYC. This makes them inherently more secure.

This controlled access in permissioned chains significantly reduces the risk of scams, particularly in financial transactions. The environment under which permissioned chains operate is usually regulated.

Some of the types of participants may require regulated licenses to operate. They may also have fiduciary responsibilities and run reputational risk.

As a user, you may participate in both public and private chains. What are some of the ways in which you can protect yourself from scams on public chains and ensure that the private chain is also secure?

3 steps to protect yourself now

  1. Educate Yourself: Knowledge is your first line of defense, not just for blockchain technology, but in general. You cannot remain ignorant and operate on the blockchain as if it is an ‘idiot box’. Invest some time to understand the basics of blockchain technology, how different chains operate, and the common scams in blockchain. Be alert to unsolicited requests for your private keys or pitches for investment opportunities that seem too good to be true.
  2. Use Only Trusted Platforms: Always use reputable and well-established platforms for your blockchain transactions. Investigate who is operating these platforms. A red flag is the absence of any names of the management team, their pictures, and their social media links (especially LinkedIn). Check for reviews, the platform’s history, and its security measures. If the platform is not familiar, stay away, no matter how attractive their offers might seem.
  3. Secure Your Private Keys: Your private keys are named ‘private’ for a reason. Your private keys are meant to keep your hard-earned money secure. Never give your private key to a third party. Never share them with anyone. These measures are easy to follow. However, it is much more difficult to store them securely. Don’t store them online without adequate protection or in places that could be easily accessed. Consider using hardware wallets, which are offline and provide an extra layer of security.

In many cases, especially with Bitcoin and other cryptocurrencies, the platforms ask you to write down your private key or passphrases on paper. Needless to say, keep this paper locked away very securely; for good measure, make a copy and store it in a safe-deposit box at the bank.

Blockchain security: Actionable Knowledge is Power

Blockchain is a revolutionary technology with its full potential yet to be realized. You will most likely use it increasingly as it matures and more use cases emerge. As in all innovation, knowledge is critical. However, just theoretical knowledge is not enough. You should know how to use it. The more you study how scammers operate, the better equipped you will be to spot them and avoid their tactics. 

Finally, remember that scams evolve; new ones emerge, the old ones become refined. This is especially true with the power of AI. So, you must continually educate yourself. With education, awareness, and self-defense techniques, you will be able to navigate the world of blockchain confidently and safely.

What are digital assets?

In the ever-evolving landscape of finance and technology, digital assets have emerged as a transformative force, reshaping how we perceive and manage ownership and value. Digital assets represent a broad category of assets that are digitized and stored on blockchain technology, providing unprecedented security, transparency, and accessibility.

Keep reading and learn more.

 

What Are Digital Assets?

Digital assets, in essence, are assets that exist in a digital form, represented and secured by cryptographic technology, often on a blockchain. These assets can represent various forms of value, including ownership, rights, or entitlements to physical or digital assets. Digital assets are versatile and can encompass a wide range of items, from financial instruments to intellectual property and more.

5 examples that you need to know

The table below categorizes and describes various types, such as Cryptocurrencies, Security Tokens, NFTs, and others, providing a clear and concise overview of this dynamic field.

Asset Description
Cryptocurrencies Cryptocurrencies like Bitcoin and Ethereum are perhaps the most well-known digital assets. They represent units of value and are used as a medium of exchange on their respective blockchains.
Security Tokens These represent ownership in traditional financial instruments, such as stocks, bonds, or real estate, and are often subject to regulatory oversight.
Non-Fungible Tokens (NFTs) NFTs are unique digital assets that represent ownership of one-of-a-kind items, such as digital art, collectibles, or even virtual real estate.
Utility Tokens Utility Tokens grant holders access to specific functions or services within a blockchain ecosystem, like accessing a platform’s features or participating in a network’s governance.
Digital Securities These are tokenized versions of traditional securities, such as stocks or bonds, that offer enhanced liquidity and automation of regulatory compliance.

 

Digital Assets and Blockchain: How Do They Work?

Blockchain technology is at the heart of this kind of asset. A blockchain is a decentralized, immutable ledger that records transactions across a network of computers. Digital assets are created and managed through smart contracts, which are self-executing agreements with predefined rules and conditions.

When a digital asset is created, it is assigned a unique identifier on the blockchain. Transactions involving the asset are recorded in blocks, which are added to the chain in chronological order. This ledger is distributed across the network, making it highly secure and resistant to tampering. All participants can verify transactions, ensuring transparency and trust in the system.

The Difference Between Crypto and Digital Assets

While the terms “crypto” and “digital assets” are sometimes used interchangeably, there is a distinction between them:

  • Cryptocurrency: Cryptocurrencies, like Bitcoin or Litecoin, are a subset of digital assets. They are primarily used as a medium of exchange or store of value, aiming to replace or complement traditional currencies. Cryptocurrencies focus on monetary use cases.
  • Digital Assets: Digital assets encompass a broader range of tokens that represent ownership, rights, or value. They include security tokens, NFTs, utility tokens, and digital securities, among others. It serves various purposes beyond being a medium of exchange.

Types of Digital Assets in the Blockchain Ecosystem

The blockchain ecosystem is teeming with diverse digital assets, each with its unique characteristics and use cases. Here are some key types:

Cryptocurrencies: As mentioned earlier, cryptocurrencies are digital assets designed for use as a digital currency. They facilitate peer-to-peer transactions, providing a decentralized and borderless means of transferring value.

Security Tokens: represent ownership in real-world assets such as stocks, bonds, or real estate. Security tokens are subject to regulatory compliance and are aimed at digitizing traditional financial instruments.

Utility Tokens: Utility tokens grant access to specific functions or services within a blockchain ecosystem. They are often used to pay for platform services, access features, or participate in governance.

Non-Fungible Tokens (NFTs): NFTs are unique and indivisible, representing ownership of a specific item or piece of content. They have gained popularity in the art, entertainment, and gaming industries.

Digital Securities: Digital securities are tokenized versions of traditional securities like stocks and bonds. They offer increased liquidity, automation of regulatory compliance, and the potential to streamline capital markets.

Impact on Private Capital Markets

Now that we have a better understanding of the area, we can delve deeper into their landscape. It is revolutionizing the private capital markets in significant ways.

Let’s check more details:

Enhanced Transparency: Blockchain technology ensures transparent and immutable records of ownership and transactions. This transparency builds trust among investors and stakeholders.

Liquidity and Accessibility: The tokenization of private assets through digital securities enables fractional ownership, reducing investment barriers and increasing liquidity.

Automated Compliance: Smart contracts embedded in digital securities can automate compliance with SEC regulations, reducing administrative burden and ensuring adherence to legal requirements.

Reduced Intermediaries: By eliminating intermediaries and streamlining processes, they lower transaction costs and reduce friction in private capital markets.

Global Reach: These kinds of assets are accessible to a global audience, expanding opportunities for fundraising and investment beyond traditional geographic boundaries.

Fractional Ownership: Investors can purchase fractions of high-value assets, enabling diversified portfolios and increased participation.

Final insights

Digital assets, powered by blockchain technology, are poised to disrupt and revitalize private capital markets. They offer transparency, accessibility, and compliance, making it easier for companies to engage in fundraising and investors to access previously illiquid assets.

Also, they represent a transformative force that will reshape how we perceive, trade, and invest in assets.

Although, to fully reap these benefits, is important to partner with trustworthy platforms. Ensuring that operations adhere to regulations, along with transparent policies on data management, usage, and privacy, is key to protecting your business and investments.

As the financial landscape continues to evolve, understanding the potential of digital assets is paramount for businesses and investors alike.

It’s definitely a new era in private capital markets, but trust remains a highly valuable asset.

What are securities in blockchain?

What are securities in Blockchain?

Securities, in the traditional sense, represent various financial instruments such as stocks, bonds, and derivatives that signify ownership, equity, or rights in an underlying asset or entity. In the context of blockchain, securities are digital tokens or smart contracts that represent ownership, equity, or other financial interests in a real-world asset or company. These tokens are securely recorded on a blockchain, providing immutable records of ownership and enabling efficient and transparent trading.

Transparency: A Game-Changer

One of the primary benefits of using blockchain technology for securities lies in its transparency. Unlike traditional financial systems, where transactions are often opaque and intermediaries are numerous, blockchain offers a transparent ledger where every transaction is recorded and visible to authorized parties.

This transparency fosters trust among stakeholders, reduces the risk of fraud, and enhances the overall integrity of the private capital markets.

Democratizing Finance with Blockchain

In the world of finance, private capital markets play a pivotal role in shaping investment opportunities, fostering economic growth, and providing innovative financing solutions. However, the complex nature of private capital markets has often led to inefficiencies, lack of transparency, and limited access for investors.

Enter blockchain technology, which has the potential to revolutionize these markets by offering transparency, trust, and enhanced efficiency. In this blog, we will explore the concept of securities in the blockchain, the differences between private and public chains, and why private blockchains are particularly well-suited for the private capital markets, catering specifically to CEOs, CFOs, and board directors without delving into technical jargon.

Differences Between Private and Public Chains

When we talk about securities in blockhain is interesting to deep the knowledge about the technology, keep reading and learn about these important topics.

Blockchain networks can be categorized into two main types: public and private chains. Each has its own set of characteristics and use cases.

➨ Public Blockchains: Public blockchains, like Bitcoin and Ethereum, are open and permissionless networks. They are maintained by a decentralized community of participants, and anyone can join, validate transactions, and access the ledger. While they offer a high degree of security and decentralization, public blockchains may not be suitable for private capital markets due to their lack of privacy and scalability. Transactions on public chains are visible to anyone, making them unsuitable for sensitive financial information.

➨ Private Blockchains: On the other hand, private blockchains are closed and permissioned networks. They are typically used by organizations, consortia, or groups of trusted parties who have control over access and participation. Private blockchains offer higher privacy, scalability, and customization options, making them ideal for private capital markets. Transactions and data are kept confidential among participants, ensuring the security of sensitive financial information.

Why private blockchains are better for private capital markets

Now we know what are securities in blockchain, let’s take a closer look at other aspects.

Private capital markets are characterized by complex transactions, stringent regulatory requirements, and the need for confidentiality.  Here’s why private blockchains are particularly well-suited for these markets:

Enhanced Privacy: Private blockchains offer a controlled environment where sensitive financial data can be securely shared among authorized parties while remaining hidden from the public. This level of privacy is crucial for protecting the interests of both issuers and investors.

Customized Governance: Private blockchains allow organizations to tailor the governance structure according to their specific needs and regulatory requirements. This flexibility enables efficient compliance management and regulatory reporting.

Scalability: As private capital markets involve a relatively lower number of participants compared to public markets, private blockchains can offer greater scalability without compromising performance.

Reduced Costs: By streamlining processes and reducing the need for intermediaries, private blockchains can lower transaction costs, making private capital markets more accessible to a wider range of investors.

Faster Settlements: Blockchain technology enables real-time settlement and automated execution of smart contracts, reducing settlement times and the risk of errors.

Securities in blockchain: highlights about trust

The adoption of private blockchains in private capital markets brings a level of trust and transparency that has been sorely lacking in traditional systems. Here’s how private blockchains instill trust among investors and stakeholders:

Benefit Description
Immutable Records Transactions recorded on a private blockchain are tamper-proof, ensuring that once a transaction is confirmed, it cannot be altered. This immutability provides confidence in the accuracy of ownership records.
Transparency for Authorized Parties While private blockchains maintain confidentiality, they provide transparency to authorized participants, allowing them to verify ownership, track transactions, and ensure compliance with regulations.
Reduced Counterparty Risk Blockchain technology eliminates counterparty risk by enabling automated smart contracts that execute predefined terms when conditions are met. This reduces the risk of disputes and defaults.
Improved Due Diligence Investors can conduct more efficient due diligence processes by accessing real-time, transparent information on assets and transactions, reducing uncertainty and enhancing trust.

Trustworthiness in blockchain solutions

As we know, blockchain technology has the potential to revolutionize many industries, offering benefits such as security, transparency, and efficiency. However, it is important to choose a company that offers reliable and secure solutions.

Trust is a valuable asset in any relationship, especially when operations involve your business, investors, and private capital markets. When choosing a blockchain company, it is important to consider factors like:

  • Clarity and transparency: The company should be clear and transparent in its actions, from the first contact to the signing of the contract. It should provide complete information about its services, pricing, and terms of use.
  • Reputation: It is important to check the company’s reputation before doing business with it. Do some online research, read customer reviews, and consult with experts.
  • Compliance: The company should be in compliance with applicable laws and regulations. This is important to ensure the security and reliability of its solutions.

3 tips that can save your life when working with securities in blockchain

As you see in the past section, verifying the trustworthiness of a blockchain company is an essential topic for those who work with securities in blockchain and private capital markets. Now let’s check 3 practical tips that can help a lot when you’re looking for a blockchain company.

1. Read the contract carefully: The contract should be clear and concise, and should specify the rights and obligations of both parties.

2. Request references: Ask for references from the company’s previous customers.

3. Ask questions: Do not hesitate to ask the company questions about its services and processes.

Examples of questions you can ask:

📣 How does the company ensure the security of its solutions?

📣 How does the company handle security incidents?

📣 How does the company comply with applicable laws and regulations?

 

By asking these questions, you can gain a better understanding of the company’s resources and processes, and make a more informed decision about whether it is the right one for you.

 

Future of blockchain and its impact on investments

The adoption of blockchain technology in private capital markets has the potential to revolutionize the way securities are managed, traded, and accessed. Private blockchains, with their emphasis on privacy, scalability, and customized governance, provide a robust solution for enhancing transparency and trust in these markets.

As CEOs, CFOs, and board directors, embracing this technology can empower your organizations to operate more efficiently, comply with regulations, and attract a wider pool of investors, all while instilling trust in the private capital markets of the future.

By understanding the power of securities in blockchain and the advantages of private chains, you can position your organization for success in this evolving landscape.

Blockchain and private capital markets

The private capital markets have long been complex and challenging to navigate.

However, the emergence of blockchain technology offers a potential solution to these issues.

In this blog post, we will explore key aspects of blockchain and private capital markets. Including a closer look at aspects such as transparency, democratization, and liquidity.

Blockchain technology has a lot of particularities, including the creation of an immutable and transparent record of all transactions, which enhances security, and reduces the risk of fraud.

In this guide, you’ll get a practical overview of the area and learn about different particularities involved in the processes.

The private capital markets in many ways are very similar to the public markets when you see all the participants involved.

Below is the list of all the participants for the public and private capital markets.

Regulators RIA
Lawyers IRA
Auditors Bank/Escrow
Broker-Dealers Payment Rails
Issuers Media
Investors Marketing
Shareholders Intermediaries

The private capital markets have typically been unclear, ineffective, and challenging for both investors and issuers to navigate. However, the emergence of blockchain technology offers a potential solution to these challenges.

 

 

Keep reading and learn more.

Building Trust and Security

Firstly, blockchain can provide increased transparency and security in the private capital markets.

By leveraging distributed ledger technology, blockchain can create an immutable and transparent record of all transactions in the market.

This means that investors and issuers can track ownership and transaction history, reducing the risk of fraud and enhancing the overall security of the market.

Improved transactions with Blockchain

Secondly, blockchain can improve the efficiency of transactions. Currently, private market transactions are often cumbersome and time-consuming, with significant delays between operations.

By using blockchain, investors and issuers can streamline the process by automating settlement and clearing processes.

This can significantly reduce the time and cost associated with this type of operation.

Empowering investors

Thirdly, blockchain can democratize access to private capital markets. Traditionally, only accredited investors were able to participate in private market investments due to regulatory requirements.

However, blockchain-based platforms can facilitate fractional ownership of private assets, allowing smaller investors to participate in these markets.

This can create a more inclusive and diverse investor base, potentially driving innovation and growth.

From Stuck to Sold: Blockchain Unlocks Liquidity in Private Markets

Lastly, blockchain can enhance the liquidity of private capital markets. Currently, private market investments are often illiquid and difficult to sell.

However, blockchain-based platforms can provide secondary trading markets for these assets, allowing investors to buy and sell private market investments more easily.

This can create a more liquid market and potentially attract more investors.

Blockchain’s Future in Private Capital

In conclusion, blockchain technology has the potential to revolutionize the private capital markets by providing increased transparency, efficiency, democratization, and liquidity. As the technology continues to evolve, we can expect to see more blockchain-based solutions emerge in this space, creating a more accessible and efficient ecosystem.

We cannot overlook the obvious which is that blockchain technology can transform the private markets. However, compliance acts as the key that unlocks the door to blockchain’s potential. For this to happen it must be 100% compliant otherwise there can be no use for it in the private capital markets.

AI and Blockchain: Divergence at the Entropic Boundary

To begin our journey on AI and Blockchain, let’s look up into the night sky.

If in this nocturne period, you look in the direction of the constellation Ophiuchus, you won’t see the nearest (as of this date) black hole called Gaia BH1 (aka Gaia DR3 4373465352415301632), which is a mere 1560 light years away (i.e., practically in our backyard). If you get to within 17 kms from it (please don’t try this at home), no power in the universe can save you from its clutches. This point of no return is called the Scwharzschild radius. From our human perspective, that’s  nothing to worry about.

Now, look up 38.8987° N latitude, 77.0056° West longitude on the third rock from the sun in the Milky Way galaxy. There, you will find another black hole called the SEC (Securities Exchange Commission). Its physical Schwarzschild radius is not really a “radius”, but its physical event horizon (another name for the S radius) is the U.S.A, while its virtual event horizon is the planet Earth (i.e., there’s no escape!). From our private capital markets perspective, this is definitely something to worry about.

Blockchain and SEC

Public blockchains in the financial markets today have one leg within the SEC’s event horizon while, with the other leg, they are trying very hard to escape its clutches. Any guesses who is going to win this tug of war? The SEC has far more resources and staying power than the advocates of the public blockchains. The SEC’s event horizon is the JOBS Act and securities regulation in general.

Now, imagine a bright blue luminous star. Stars don’t have the equivalent of a “clutching” boundary like a black hole does (you can thank Newton for that). But, there is a boundary beyond which there isn’t enough energy or influence to sustain life. Think of it as an “entropic boundary”. Beyond that boundary, there are no laws, no order, no life, just a frigid waste. Inside the entropic boundary and way closer to the star is the hot crucible of innovative hype that can destroy wealth, demolish dreams, and diminish hope.

It is only at or close to the entropic boundary that responsible and game-changing innovation is to be found. The public blockchains were spawned far outside the entropic boundary of investor-centric responsible innovation, out in the dark, frigid, lawless, and wild space, wandering dangerously close to the SEC’s event horizon. 

Beyond Decentralization: AI and responsability

At KoreChain, we believe in the power of a distributed ledger and subscribe to the benefits of decentralized data and processing. But, we stop far short of decentralizing intelligence and common sense. Unconditional freedom is the hunting ground of crooks and free-loaders.

Surprisingly, artificial intelligence (AI) has had a much more responsible evolutionary path. For decades, AI could only be found in the halls of academia. With increasing computational power and availability of massive amounts of transactional data, AI found another home in the corporate world. Because the corporate world values monetization over privacy and ownership of data, it was inevitable that AI stepped over the entropic boundary. With the dramatic Cambrian explosion of large language models (LLMs) such as ChatGPT and hundreds of other AI tools (numbering at the present time to over 100 and rapidly growing), AI clearly broke free of the protective fence of the entropic boundary.

Watch in the evolution of AI and Blockchain: Insights and Considerations

On the other side of the entropic boundary there are dangerous black holes lying in wait for the unwary users of AI (let’s call these the ‘dark’ holes to distinguish them from the blameless astronomical black holes). Some of these dark holes are independent criminal organizations and terrorists, others are state-sponsored hackers, yet others are the misanthropes and misfits whose motives are death, desolation, and destruction. Like black holes, you can’t spot them easily.

The difference between these dark holes and the SEC is that the dark holes are out to catch the good guys while the SEC tries to catch the bad guys. Unfortunately for us, there is no equivalent of the SEC in the AI world. I doubt there will ever be one. Putting any guardrails around AI at this point in time is like smoking a cigar outside in a hurricane and trying to stuff the cigar smoke back into the cigar. Any bets on how this will play out?

At KoreChain, we focus exclusively on using AI for good within the strictly defined universe of the global private markets. We use AI to help, to protect, and to guide. The KoreChain empowers the convergence of AI and blockchain around the right side of the entropic boundary.

Tokenization: Navigating the Friction between Reg A+, Web 3.0, and Today’s Transacting Landscape

Web3 technology, which is based on blockchain and decentralized systems, introduces unique challenges when it comes to complying with regulatory frameworks like Regulation A+ (Reg A+). 

Reg A+ is a regulation that allows companies to raise up to $75 million* from the public through a streamlined process, similar to an initial public offering (IPO), but with certain exemptions.

One of the key requirements of Reg A+ is the need for an SEC-Registered Transfer Agent—a designated entity responsible for maintaining a book of records that tracks ownership and transfers of securities. The Transfer Agent ensures compliance with regulations, such as recording share ownership changes, processing transactions, and maintaining accurate official records.

However, Web3 was not designed with this requirement in mind.  The concept of a centralized Transfer Agent is difficult to reconcile with the decentralized nature of blockchain technology. Here are a few reasons why Web3 poses challenges for Reg A+ compliance:

  1. Custody and Ownership: In Web3, users typically control their assets and interact directly with decentralized applications using their digital wallets, and transactions need not go through a central intermediary to be validly recorded in the blockchain. This introduces complexities in determining ownership and custody of securities. The traditional role of a Transfer Agent, which maintains custody and records ownership in a centralized manner, is not easily replicated in a decentralized environment.
  2. Decentralized:  The main thesis of Web3 is that it operates 100% decentralized, in its operations and data management.  This is in complete conflict with how the regulations like RegA+ have been written by the securities regulators.
  3. Anonymity and Compliance: Web3 technologies often emphasize user privacy and pseudonymity, which can make it challenging to meet the regulatory requirements for identifying and verifying investors participating in a Reg A+ offering. Ensuring compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations becomes more complex in a decentralized and anonymous environment.
  4. Regulatory Oversight: Reg A+ requires regulatory oversight and reporting to ensure compliance. In a Web3 environment, where transactions occur directly between users without intermediaries, it becomes more difficult for regulatory bodies to monitor and enforce compliance effectively.

While Web3 technology faces challenges in directly implementing a Transfer Agent-like function for Reg A+ compliance, it’s worth noting that the technology is still evolving. It is just not here today, and bringing together governmental regulatory oversight and web3.0 looks to be a ways off.

Efforts are underway to address some of these challenges through the development of decentralized identity solutions, regulatory frameworks for digital assets, and the exploration of hybrid approaches that realize the benefits of Web3 while meeting compliance requirements.

Ultimately, striking a balance between the decentralized nature of Web3 and regulatory compliance will require further innovation, collaboration, and regulatory adaptations to accommodate the unique characteristics of blockchain-based systems. 

So for today if you wish to transact and tokenize your digital assets, and most importantly transact utilizing RegA+ you can; just not yet with web 3.0,  and digital wallets in a decentralized blockchain.  

KoreChain is the solution for today and ever-evolving for tomorrow.

 

The Relationship Between Cryptocurrency and Blockchain

The relationship between blockchain and cryptocurrency has been an area of increasing interest over the past few years. For those looking to use cryptocurrency or blockchain technology to transfer, store, and track data, understanding the differences between the two technologies is essential. Though they are related in many ways, blockchain and cryptocurrency should not be confused with one another as they are different. Knowing how to leverage each technology can help individuals make better use of these assets while avoiding pitfalls associated with a lack of knowledge. Those looking to invest in cryptocurrency or leverage blockchain should take the time to learn and understand the nuances of both technologies so that they can make informed decisions when it comes to utilizing these digital assets.

Cryptocurrency: Definition and Use Cases

Cryptocurrency refers to a type of digital asset designed to be used as a medium of exchange, a store of value, and a unit of measure. It is usually underpinned by blockchain technology, the use of advanced cryptography techniques for securing online transactions, and can exist either as a centralized token (one with a centralized issuer such as Bitcoin or Ether) or decentralized tokens (without a single issuer such as Libra or Ripple).

Cryptocurrency is gaining traction around the world, with its use cases ranging from being used to buy goods and services to savings and investments, to trading and speculation. Cryptocurrency is also being utilized in areas of financial inclusion, such as providing access to banking services and other financial products to those who lack traditional banking accounts.

Blockchain Technology: Definition and Use Cases

Blockchain is the underlying technology powering cryptocurrency transactions. It is a secure, tamper-proof, decentralized ledger system that allows for peer-to-peer transactions without the need for a middleman. It is also highly secure, as blockchain technology doesn’t rely on a single central authority or server to control and monitor its operations. Instead, it relies on a distributed network of computers to verify and validate the transactions that take place.

This technology is finding its use cases in many industries outside of cryptocurrency, such as healthcare, supply chain management, and real estate. For example, blockchain can help increase transparency and trust in these sectors by providing immutable records of all transactions securely stored across multiple nodes in a network. Such records can then be used to trace the source of a product, helping to ensure that it is authentic and untampered with.

Still, the relationship between blockchain and cryptocurrency does not end there. Cryptocurrency is actually one of the earliest use cases for blockchain, with Bitcoin being the first digital asset to take advantage of this technology in 2009. To this day, blockchain remains a key technology underlying most cryptocurrency transactions, allowing them to be securely transferred while avoiding double-spending and other fraudulent activities.

The Relationship Between Cryptocurrency and Blockchain: Similarities and Differences

While the two are not the same, blockchain and cryptocurrency do share some similarities. Both are digital assets, designed to be used as mediums of exchange and units of measure. They also both use cryptography for secure online transactions. However, there are notable differences such as blockchain being a distributed ledger system that is used to securely store and transfer data, while cryptocurrency is a digital asset designed to be used as a medium of exchange.

The relationship between blockchain and cryptocurrency is not always easy to understand. Though they share some similarities, they are two distinct technologies with different use cases. Blockchain is the underlying technology that supports cryptocurrency transactions, while cryptocurrency itself is a digital asset designed to be used as a medium of exchange and unit of measure. By understanding their differences, businesses and individuals can make more informed decisions when it comes to utilizing these digital assets.

The Origins of Blockchain

It’s been a little over a decade since Blockchain technology was first introduced, but it’s already revolutionizing the way we do business. By eliminating the need for a central authority in transactions, Blockchain enables secure and tamper-proof data exchanges between parties. This has allowed companies to improve productivity, reduce costs, and ensure accuracy in payments or copyright verification. Let’s explore how the Blockchain came to be.

A Brief History

  • 1979: Ralph Merkle, a computer scientist and Stanford University Ph.D. student, described a public key distribution and digital signatures in his doctoral thesis, an idea he eventually patented. This came to be known as the Merkle tree.
  • 1982: David Chaum, a Ph.D. student at the Univerity of California, Berkeley, described a system for maintaining and trusting computer systems.
  • 1991: Stuart Haber and W. Scott Stornetta proposed a cryptographically secured chain of blocks that would enable timestamping of documents, then proceeded to upgrade their system the following year to incorporate Merkle trees for more efficient document collection.
  • 2008: Someone under the pseudonym Satoshi Nakamoto conceptualized the first Blockchain, from which the technology has evolved and found its way into many applications, from cryptocurrencies to others.
  • 2009: Satoshi Nakamoto released the first whitepaper about Blockchain technology and Bitcoin, detailing how it was well equipped to enhance digital trust due to its decentralization aspect.
  • 2009: The first Bitcoin block was mined by Nakamoto, validating the blockchain concept.
  • 2011: Litecoin is released, becoming the second-ever cryptocurrency to be based on Blockchain technology.
  • 2013: Ethereum launches, introducing a whole new concept of smart contracts and dApps, ushering in the era of Blockchain 2.0.
  • 2015: The world’s first Blockchain-based stock exchange is launched in Estonia.
  • 2016: Hyperledger project begins to take shape with IBM leading the charge for private enterprises to adopt Blockchain technology for internal use.
  • 2017: Bitcoin experiences a monumental rise in price as the cryptocurrency market cap surpasses $100 billion.
  • 2022: KoreChain first to be qualified by the SEC for the issuance of a private offering under RegA+ (JOBS Act) Regulation

The Benefits of Blockchain

Blockchain technology has a lot to offer from scalability and cost savings. Here’s how it’s been adopted in various sectors over the last decade:

Decentralization: A significant benefit of Blockchain technology is its ability to remove the need for a third-party authority. This means that transactions can be carried out securely with much faster processing times and lower costs. Utilizing Blockchain technology for payments and data storage ensures that the exchange of information is accurate, secure, and immutable.

Energy: Blockchain is being used to create decentralized energy systems that enable users to buy and sell electricity directly with each other without relying on any central authority. This helps reduce costs while providing more transparent financial transactions.

Finance: Banks, payment companies, and other financial institutions are embracing Blockchain technology to reduce costs while increasing the speed of transactions. Blockchain is also being used to enhance security in stock exchanges by providing an immutable ledger to track ownership of stocks and bonds.

Media & Entertainment: Companies like Spotify and Facebook are leveraging blockchain technology to explore emerging trends like NFTs.

Supply Chain Management: By eliminating intermediaries, Blockchain technology makes it easier to track shipments and trace products in the supply chain. This not only enhances transparency but also reduces costs while improving customer service.

Healthcare: Blockchain technology can play a significant role in streamlining the healthcare industry by providing an immutable ledger to store and share patient records. This will help reduce costs and improve security as sensitive health data is securely stored on the Blockchain.

Blockchain technology has come a long way since its introduction over 10 years ago. What started as a revolutionary concept for cryptocurrency has now been widely adopted across various industries. The possibilities are endless and the future looks bright for Blockchain technology.  With its scalability, cost savings, transparency, and security advancements, Blockchain is set to revolutionize many aspects of our lives in the years ahead.

What Does “Clarity” in the Financial Markets Mean

First we had Chaos

The collapse of FTX has revealed the inherent chaos in the financial and capital markets. In the weeks and months to come, we will have better clarity on what really happened at FTX.  However, regardless of the actual details, one thing remains clear: the financial markets are subject to various types of uncertainties: economic, demand shifts, competitive pressures, global events, and acts of nature. The one type of uncertainty that is in our control is the integrity and credibility of its participants. Emerging details of the shenanigans of FTX reinforce the idea that incompetence and unethical behavior is frequently hidden in the complex organizational structures and revenue-share arrangements between the underlying entities.

Innovations in the cryptocurrencies and various digital assets emphasize the need for clarity. These innovations have introduced radical new business models. They have promised frictionless transactions without intermediaries. However, such promises require clear-headed analysis, since it is generally very difficult to disintermediate risk. Since the crypto space has been plagued by scandals involving hacking and fraud, it is difficult to differentiate between genuine mistakes and deliberate criminal activity.

The foundational philosophy of the cryptocurrency markets is privacy and anonymity. While this is laudable from one perspective, it also creates lack of transparency. Much of the regulation in the financial markets exists to promote separation of concerns, mitigate risk, and provide safeguards. By seeking to eliminate such regulation by claiming that it is onerous and intrusive, the crypto world eliminates all of the advantages of regulation. This lack of clarity and lack of regulatory oversight has encouraged bad actors to engage in fraudulent activities, from theft, front-running trades, collusion, Ponzi schemes, insider trading, and market manipulation. FTX is only one, though the largest, of highly questionable models that includes a Byzantine mess of relationships, organizational structures, and rapid and complex transactions, apparently with a view to dazzling any cautious investor from unraveling the truth.

Since the private capital markets are private, it is all the more important to be more transparent than ever. Without this clarity, investors find it hard to understand what they are investing in,  to monitor the continuing prospects of the company, and the nature of the risks they are taking. This is especially true of private markets since the very nature of private markets results in complex financial structures that are not subject to the same level of due diligence, analysis, and public disclosure as the public markets.

What can be done to improve clarity in the private markets? It is a combination of regulatory reform and self-governance. While the SEC and FINRA are moving in the right direction, private market participants can do much more on a voluntary basis. For example, partners in the private market ecosystem should disclose revenue-share arrangements, since these may result in conflicts of interest. The participants who are directly regulated by FINRA and SEC, such as the broker-dealers and securities attorneys should adopt a more fiduciary attitude and desist from revenue-share or commission arrangements between themselves. Their fee structures should reflect their agnosticity and keep the interests of their clients foremost in their mind. The issuers, auditors, KYP providers, and other parties entrusted with the examination and communication of various risks in the investments should go the extra mile in their due dilegence. Since the private markets offer more opportunities for innovation in business models, the participants should desist from “testing the waters”, which is a euphemism for trying to sneak questionable business practices past the regulators, hoping for nothing worse than a token slap on the wrist when detected.

The participants should also subscribe to a code of ethics. This should include not only desisting from harmful practices but also self-policing each other in a constructive and proactive way. Participants should create safety nets in case of errors. They should act much more conservatively, perform greater due diligence, and adopt a stronger sense of fiduciary duty than the minimum necessary for regulatory compliance.

One way to increase clarity in the private capital markets is to implement better disclosure requirements for private equity and venture capital firms. This can include requiring firms to provide regular financial reports and disclosures, such as regular updates on the performance of the investment and any potential risks. Additionally, regulators could require private equity and venture capital firms to make certain disclosures, such as information about their investment strategies, conflicts of interest, and any related-party transactions.

Another important step in increasing clarity in the private capital markets is to improve the quality and accessibility of data. This can involve collecting and publishing data on the performance of private equity and venture capital investments, as well as data on the financial health and stability of the firms that manage these investments. This data can be used to help investors better understand the risks and opportunities involved in private capital investments.

Finally, it’s important to create a regulatory framework that promotes clarity and transparency in the private capital markets. This can include setting standards for financial reporting and disclosures, as well as implementing rules to prevent fraudulent activities. Regulators could also implement measures to ensure that private equity and venture capital firms are operating in a manner that is consistent with investor protection and market stability.

In conclusion, clarity in the private capital markets is essential to ensuring that investors are able to make informed investment decisions and to build trust in the market. The prevalence of scandals in the cryptocurrency space highlights the need for clear and transparent practices in the private markets, including improved disclosure requirements, better data, and a strong regulatory framework. By taking these steps, we can help to promote a more stable and trustworthy private capital market for all investors.