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The shift has already started; finance is moving onto the blockchain, leveraging the decentralization and disintermediation benefits of the technology’s architecture.

Assets of all kinds are being moved to the blockchain, creating a more efficient and economical system for the transfer of value, and management of fractional ownership. This migration isn’t just disrupting the existing financial system, it’s democratizing access to growth capital across the world.

Today, security for much of the blockchain community relies on an outdated hash algorithm standard (SHA-2), one not best suited to the needs of the demanding financial markets. Existing chains will eventually need to upgrade to what our team has determined to be the best-in-class cryptographic hash function, SHA-3, but new blockchains should implement it now.

These are the very early days of putting securities on the blockchain. As leaders in crypto-securities and blockchain technologies for the capital markets, we must be thoughtful about how we facilitate this transfer of assets; we must ensure that we operate in such a way that lays the groundwork for long-term security and sets a standard for industry best practices. Implementing the best-in-class cryptographic hash function, Secure Hash Algorithm-3 (SHA-3), serves this mission.

The Hash Function

Blockchain technology is disrupting the data management industry. Peer-to-peer networks have promoted the use of cryptography, creating a growing demand in data security and transparency solutions.

A cryptographic hash function is an algorithm that employs mathematics to create a unique digital fingerprint of alphanumeric characters of a fixed size, given an input document of unknown size. This makes the task of comparing the authenticity of a document with an original very simple: Instead of having to read both documents in detail, we can simply compare the much smaller digital fingerprint produced by the hash function.

In peer-to-peer networks, hash functions help secure transaction data by generating a unique digital fingerprint for each transaction. Transaction hashes are organized into a Merkle tree (a.k.a. a hash tree) to help validate the authenticity and relationship of each transaction stored on the blockchain.

The SHA-3 hash function is also used at the block level to generate a proof-of-work challenge that becomes the target for miners seeking to create the next block on the blockchain. This challenge is an important part of how the network maintains its integrity and reaches a decentralized consensus. Cryptocurrency is awarded to the miner that successfully calculates a SHA-3 hash that matches the requirements specified in the proof-of-work challenge.

While blockchain technology is the clear way forward for industry early adopters, within traditional finance there remain concerns about corporate and enterprise application. Serving these needs, and thus bringing the blockchain solution to the mainstream, will depend on how blockchains are architected to protect client data from network interference or manipulation. As a significant component of the architecture, the right hash function can determine enterprise-level operability.

Securing the Capital Markets With SHA-3

As a hash standard providing certified security over users’ private keys as well as high speed, hardware-based encryption, SHA-3 best suits the needs of tomorrow’s capital markets. SHA-3 has the right characteristics to instill confidence in a peer-to-peer network that does not rely on centralized intermediaries for authority or governance.

Unlike the hash function of Bitcoin and other blockchains based on SHA 256, SHA-3 was developed by community collaboration via the National Institute of Standards and Technology (NIST), forcing different perspectives and issues to be addressed. This meant that the hash function had to endure public scrutiny and exhaustive testing in order to be considered the hashing standard, which it hs now become. In 2015, NIST released SHA-3 as its standard for “securing the integrity of electronic information.”

A subset of Keccak, SHA-3 cryptography is built on sponge construction, a particular method of “absorbing” data in and then “squeezing” it out. Unlike other cryptographic hash functions, sponge construction allows for the input and output of any amount of data, extending the output function and making for greater flexibility of use.

One outdated concern weighed against SHA-3 is a slower hashing speed than its predecessors. This is fair, but only with regards to software. When it comes to hardware, SHA-3 easily outpaces SHA-1 and SHA-2, and hashing is increasingly occurring within hardware components. The third in a series, SHA-3 is remarkably different from its first and second iterations which share some of the same math and cryptographic structure (MD5).

Building a Better Blockchain

We have the opportunity to take what we’ve learned from today’s most prominent blockchains and create an iteration of the technology that leverages what works and meets our business needs for capital markets.

Building a new, dedicated cryptosecurity blockchain allows for customization and transparency that can better serve the needs of the future. Following the Federal Information Processing Standard (FIPS), SHA-3 is best suited to industry use with a hashrate “an order of magnitude higher than SHA-2,” as pointed out by the Keccak team.

After our own recent survey of hash algorithm candidates, including Equihash, Cuckoo Cycle and Ethash, we concluded that SHA-3 genuinely best serves the needs of capital markets. The survey looked at method of operation, work independency, ASIC optimization or resistance, difficulty control, algorithms, security and speed. Of the candidates, SHA-3 proved to be best-in-class, providing certified security and establishing trust in a network supporting global securities issuance, trading, and clearing and settlement.

BUIDL > HODL

Still nascent in its expansion, the blockchain industry as a whole is showing signs of maturity.

Continued volatility in the valuation of cryptocurrencies has proven to be too much for people looking for quick crypto profits. Token price does not faze those who “hodl” with a vision to build better tools and networks for a better future. And while volatility has helped to reduce some of the hysteria around cryptocurrency, there is a growing community looking for greater sophistication from industry participants. “Buidl,” a direct homage to “hodl,” is a movement focusing on development over cryptocurrencies. “Buidl” encourages teams to examine how blockchain technology can best support needed societal change versus quick, frivolous application. Thoughtful infrastructure is the way forward.

When it comes to capital markets, it should not be a race to move assets onto the blockchain, but a strategic process that makes it easy for new market participants to access growth capital and for existing participants to leverage the full benefits of distributed ledger technology. Employing the best-in-class cryptographic hash function serves this mission and empowers trust in a trustless system.

This is an opinion piece by Kiarash Narimani, Ph.D., Development Director at Equibit Group. View expressed are his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

]In a fresh new twist, the Reserve Bank of India (RBI) has admitted to issuing its ban on cryptocurrency-related accounts spontaneously, without taking time to study and understand how cryptocurrencies work.

In reply to a Right to Information query filed by a local lawyer with the Twitter handle Blockchainlaw91, the bank revealed that its decision to ban cryptocurrency-related accounts in the country was made without due consultation or study.

How It Started

India's central bank, the Reserve Bank of India, started warning its citizens against the dangers of investing in cryptocurrencies in 2013, which was followed by two other warnings in 2017, before coming down hard on the industry earlier this year.

On April 5, 2018, RBI published an announcement, stating that it was banning the country's banks from dealing with any business or "entities dealing with or settling [virtual currencies]."

RBI Deputy Governor B.P. Kanungo who spoke to reporters said there was a three-month grace period for businesses providing such services to wind down operations.

The bank said the move was motivated by the need to protect Indian customers and prevent money laundering.

In 2017, prior to the ban, the Indian government had formed a committee, which included the RBI, with the aim of studying virtual currencies and how they work.

The committee had suggested banning cryptocurrency exchanges in the country, but the surging price of bitcoin toward the end of the year led to a quick reversal of that position and the creation of a new panel to study cryptocurrencies.

Surprisingly, in its reply to Blockchainlaw91’s query, the Reserve Bank of India revealed that its decision to ban the bank’s activities with crypto-based businesses was not backed up by any independent study or research.

Petitions and Migration

The Internet and Mobile Association of India (IAMAI) — which includes Indian crypto exchange Zebpay — have filed a writ petition to overturn RBI’s ban which prohibits banks from dealing with crypto-based businesses. The case is currently at the Supreme Court with a hearing date fixed for July 20.

Since the ban on crypto, there have been claims that blockchain businesses could be forced overseas.

Joel John, a research analyst at a U.K.-based blockchain company who spoke with the local media, believes crypto companies can easily migrate to friendlier countries to set up new entities. He said: "Companies moving abroad is not a new trend, but the regulatory complexities faced by blockchain companies have accelerated it."

It is gradually becoming a pattern for governments to make spontaneous decisions on cryptocurrency without first seeking to understand how it works. Russia and Japan have each tried to ban crypto businesses before ultimately softening their stances.

As the effects of climate change make their mark across the globe, people are more wary of their carbon footprints and are gradually switching to renewable energy.

Swytch, a blockchain-based energy platform will work with Energy2market GmbH (e2m), a leader in aggregated energy trading, on a pilot program which will allow it to power homes in Germany with renewable energy while rewarding users with tokens.

The large-scale pilot program aims to distribute roughly 3.5Gw of solar, wind, hydro and bio-gas energy capacity, which is enough to power over 500,000 homes.

Based in Austin, Texas, Swytch combines smart meter and blockchain technology to reward those who generate low carbon emissions. It does this through an open-source Oracle platform which acts as a distributed authority in determining how much carbon is being displaced and how many tokens should be awarded.

Co-founder and Managing Director of Swytch Evan Caron told Bitcoin Magazine his company has already started leveraging the first version of the Oracle to evaluate the assets being managed by e2m.

“We intend to move toward full-scale adoption of the Swytch protocols for full transparency and traceability of energy and environmental attributes and to reward the assets with swytch tokens,” he states.

e2m is a European leader in aggregate energy trading and provider of market access services. It specializes in managing and optimizing diverse portfolios of generators, consumers, suppliers and grid operators. With a Virtual Power Plant and its 24/7 trading team, e2m has the ability to aggregate power from decentralized generation and consumption systems and market them in real time.

e2m believes the partnership will be beneficial to both parties as it sees Swytch's approach to tokenized incentives to be quite attractive to the energy producers and traders it serves.

Andreas Keil, CEO of Energy2market GmbH said, “Government-based incentive programs can only do so much, and a more dynamic option is needed. Additionally, some countries, like Germany, will begin phasing out their incentive programs in the next few years. We need to prepare for the future and identify new subsidy instruments and trading mechanism.”

The partnership will allow e2m to gain more insight and leverage blockchain technology while empowering businesses and individuals to be more active in their adoption of renewable energy.

Energy companies have been testing blockchain technology and how it can benefit them. Ethereum-based platform ImpactPPA is seeking to disrupt renewable energy to finance and accelerate global clean energy production. Scanergy was also launched as an energy blockchain for European prosumers. Scanergy makes smart energy trade between prosumers possible while coping with the dynamism in the demand and supply of electricity.

The European Union (EU) has announced that it will host an online Ask Me Anything (AMA) session on June 18, 2018, at 6 p.m. CEST. The event, organized and hosted by the European Blockchain Observatory and Forum of the EU, will last for 90 minutes and cover blockchain technologies with in-depth explanations, interactive discussions with panelists and public questions answered live.

The European Blockchain Observatory and Forum was created as a European Parliament pilot project with a mission to accelerate blockchain innovation and the development of the blockchain ecosystem within the EU and establish Europe as a global leader in the field. The Blockchain Observatory and Forum is currently operating under the European Commission (EC)’s Directorate General for Communications Networks, Content and Technology (DG CONNECT). Their partners include ConsenSys AG (general contractor), the University of Southampton, the Knowledge Media Institute at the Open University, University College London and the Lucerne University of Applied Sciences and Arts.

The event will be streamed live on YouTube. Viewers are invited to comment and ask questions via Twitter. To participate, viewers should include both #AMAblockchain and @EUBlockchain in a tweet. For example, “What is the official position of the EU on cryptocurrencies #AMAblockchain @EUBlockchain?” Selected tweets will be addressed and answered live.

“Technologies like blockchain can help reduce costs while increasing trust, traceability and security,” said Andrus Ansip, vice president for the Digital Single Market, in a February 2018 EU press release announcing the launch of the EU Blockchain Observatory and Forum.

“They have huge potential for making social and economic transactions more secure online by guarding against an attack and removing the need for any middleman. We want to build on Europe's substantial talent base and excellent startups to become a leading world region that will develop and invest in the rollout of blockchain.”

The announcement emphasizes that the EU Blockchain Observatory and Forum will play an active role in helping Europe to seize new opportunities offered by blockchain technology, build expertise and show leadership in the field, and promote an open forum for blockchain technologists, innovators, citizens, industry stakeholders, public authorities and regulators.

“I see blockchain as a game changer and I want Europe to be at the forefront of its development,” said Mariya Gabriel, commissioner for the Digital Economy and Society. “We need to establish the right enabling environment — a Digital Single Market for blockchain so that all citizens can benefit, instead of a patchwork of initiatives. The EU Blockchain Observatory and Forum is an important step in that direction.”

The announcement states that the Blockchain Observatory and Forum is intended to support the EC's work on FinTech, which is considered a priority of the EC and is expected to play a major role in achieving the objectives related to the development of the single market, Banking Union, the Capital Markets Union and retail financial services.

“Among the many technologies that are driving digital innovation, blockchain has the potential to be truly transformative for financial services and markets,” said Valdis Dombrovskis, vice president responsible for Financial Stability, Financial Services and Capital Markets Union. “The Blockchain Observatory and Forum will monitor developments and also inform our policy making.”

TNW notes that the Blockchain Observatory and Forum has been hosting a series of workshops and panel discussions to figure out the best ways to approach this fledgling technology in the age of the GDPR. The recordings are online on YouTube.

Canada’s government has released draft regulations for “virtual currencies” with a consultation period of 90 days, saying that proposed regulatory changes could mean a loss of $60 million over 10 years for businesses that deal in cryptocurrencies but will improve Canada’s international reputation and make it easier for crypto businesses to deal overseas.

The Canadian crypto business community is still assessing the new proposed regulations but a number of experts have told Bitcoin Magazine that the impact on the community will be “massive” and “significant” and may result in a shake-up and consolidation of companies, including blockchain companies currently in the space.

Amber D. Scott, CEO of Outlier Solutions, a company that focuses on helping bitcoin and blockchain crypto startups to understand and comply with government regulations, said:

“If the definitions are broadly interpreted, there could be significant dislocation in both the cryptocurrencies and blockchain communities that were not expecting to be regulated in this way. This includes any blockchain company that has issued, sold or traded a token that fits within the definition of ‘virtual currency.’”

Among other proposals, the new regulations will require firms (including exchanges) to keep detailed records of users and inform the government about suspicious activities, provide written policies and procedures, undergo a risk assessment and be ready for audits.

Jason Beitchman, a commercial litigation lawyer in Toronto with experience in anti-money laundering and cryptocurrency litigation, told Bitcoin Magazine:

“The impact on the cryptocurrency business is going to be massive. I can see it playing a significant role in allowing some market participants to rise to the top and separate themselves from others who don’t get out ahead of compliance issues.”

Beitchman notes that some of the language in the draft regulations seems strangely vague and unclear:

“I found the language in the second part of the definition of ‘virtual currency’ to be curious: ‘information that enables a person or entity to have access to a digital currency.’ What kind of information? This seems unusually vague and broad. Isn’t a webpage explaining how to trade in bitcoin ‘information’ that would enable a person to have access to a digital currency?”

Beitchman credits crypto companies for their generally imaginative marketing and innovative technology but says:

“... in time, cryptocurrency businesses will be forced to focus on the more brown-bag aspects of long-term and self-sustaining financial services businesses. These include a focus on operations, administration, compliance and legal. I expect we will see some portions of the sector embrace this development and other parts either ignore it or avoid it, at their peril.”

Evan Thomas, who practices compliance law in Toronto, told Bitcoin Magazine:

“Speaking for myself only, the regulations will undoubtedly have significant implications for many cryptocurrency and blockchain businesses.”

Thomas also reiterated that the regulations were not very clear on things like defining virtual currencies. The language used could mean a whole raft of businesses that deal in value transfer services.

“The commentary with the draft regulations suggests that ‘dealing in’ activities ‘include virtual currency exchange services and value transfer services,’ but there are many other businesses, such as miners, mining pools and developers of tokenized applications, that could be considered ‘dealing in virtual currencies,’ depending on how that phrase is interpreted,” he said.

Scott agrees that the language could be considerably clearer:

“The biggest issue that I see is that some of the definitions can be interpreted very broadly. Unfortunately, regulators sometimes get focused on the ‘letter’ rather than the ‘intent’ of the regulations. In practice, this means that if the Department of Finance doesn't tighten up some of the wording or provide additional exclusions, business models that don't really present much money laundering or terrorist financing risk (like in-game tokens) or things that are already regulated (like securities tokens) may be swept in.”

What Happens Now?

There's a 90-day comment period, then the Department of Finance redrafts the final version. Once this is published, there will be a 12-month transition period for compliance, meaning that it will likely take at least 15 months or longer for everything to be fully in force.

Even though this is a draft, Scott noted, the final versions of regulations like these are usually very similar to the draft version.

“I don't think that we're likely to see substantial shifts, but there are real opportunities to refine the content (better definitions, exclusions for things that shouldn't be captured, etc.) for interested companies and organizations.”

Beitchman’s view is that there is not likely to be a significant challenge from the crypto community and that other types of financial services may be better able to afford to make presentations to the Department of Finance. He further suggested that some of the significant issues that could arise will be resolved in the courts over the next 5–10 years through regulatory or litigation proceedings.

“Advocacy and lobbying activity is a highly sophisticated business strategy that requires a clear vision, funding and either large market share or wide-spread consensus,” he said. “While I am hopeful that there will be a positive dialogue with Finance, there are certainly challenges in advancing cryptocurrency interests here.”

“You also have to look at the sectors that traditionally have a large advocacy and lobbying presence in financial services and consider whether and how those sectors may be participating in the comments process,” he added.

Scott’s company, Outlier Solutions, will be active in the comment process: