Discussions on the development, investment and regulation of blockchain have only grown in the past few years. And as the scale of crypto projects continues to expand, how should we distinguish between phony proposals and serious initiatives? In the cryptocurrency world characterized by controversies and uncertainties, where lies the next opportunity?
On Sept.15, 2018, NEO Global Capital (NGC), one of the largest institutional owners of cryptocurrencies and major contributor to a variety of blockchain projects, hosted a private meetup in Boston. The meeting features prominent industry leaders from Republic, Arrington XRP Capital, GBIC, Algorand, etc. The educational and in-depth discussions focus on major topics such as distributed identity, security token, venture capital investment and blockchain industry trends. Representatives from NGC have also provided unique insights into crypto project funding and development.
NGC’s Perspective on Distributed Identity
—A key component that allows blockchain to shift away from its destructive forces to large-scale applications—
In a keynote speech on distributed identity, the NGC speaker said that in order to realize the large-scale application prospects of blockchain, a distributed identity system that can enhance security is absolutely necessary. This universal system is expected to act as an adhesive to not only connect investors with assets, but also link the real world with the virtual world.
As people try to own and control all elements of their digital identity, blockchain is often seen as a tangible tool to make it possible. In fact, a similar protection mechanism has already been included in “The General Data Protection Regulation” (GDPR), but it is very controversial. While the GDPR protects the privacy of EU residents’ digital identity, its jurisdiction has a conflict of interest with the blockchain technology in two critical areas.
- The GDPR authorizes the data controller to modify or erase the personal data of a data subject. While deleting data from traditional systems is easy, such operation is almost impossible in blockchain systems. Transactions on the blockchain are usually immutable, which means that no one, not even a system administrator, can change the data once it has been written to a blockchain. In other words, GDPR basically prohibits people from storing data at the blockchain level. A combination of elements determines our current and future privacy. These include technology, market force, human behavior, social hierarchy and legal structure. Technology alone is unable to decide on anything.
- Cryptography has time value. With sufficient time, we may be able to decrypt the current algorithm, but GDPR does not consider the time dimension of blockchain technologies.
Civic, uPort, Sovrin, and Ontology are four blockchain protocols that aim to deliver the internet’s missing identity authentication layer, using distributed ledger technology. Each of these projects has different background and diverse sets of available resources, but they all work toward the same goal. All four projects attempt to allow individuals to easily create self-sovereign identities and control their data based on a decentralized identity foundation. Sovrin and Ontology go a step further and use more advanced encryption techniques, such as CL signatures for attribute proofs and zero-knowledge proof algorithm. The difference is that Sovrin and Ontology are constructed differently. The Sovrin project pays more attention to the underlying protocols that use advanced cryptography. On the other hand, Ontology currently focuses more on products, and the creation of a digital identity ecosystem by applying distributed identity mechanism on top of the Ontology blockchain.
The blockchain technology and GDPR establish the consensus that using the blockchain as an identity management system to share data, through decentralized networks, creates distributed identities that benefit everyone and are trustworthy. The best authentication layer requires a well-designed ecosystem, and a solid user base to reduce data sharing costs while maintaining the owner’s data privacy and self-sovereign identity control. This secure distributed ledger technology will guarantee that a user’s distributed identity is decentralized and universal, empowering people by giving them ownership of their identity data.
—An important bridge to bring real assets into the blockchain—
The meetup in Boston includes industry experts from Republic, RenGen Labs, RenGenx, Leaseum Partners and Sheppard Mullin to discuss a hotly debated topic in the cryptocurrency industry: Security Token. These attendees are experts in areas such as law, compliance, investment, real estate, security tokens regulation, and decentralized transactions. Thus, the agenda for this comprehensive meetup is to address the needs of security tokens and the regulatory issues they have generated.
So, why do people need security tokens? For issuers, they can get a broader range of investor resources; for investors, they can get a wider range of investment targets (an individual does not have the right to purchase real estate such as the Empire State Building, but an individual with security tokens is eligible to share a part of the real estate); for entrepreneurs, security tokens are an important means to bring real assets into the blockchain.
- Some security tokens also have utility features. For the purpose of illustration, we divide the tokens here into two categories.
A major problem with security tokens is that there is no specific law for blockchain at this moment. That said, however, a wide range of security laws, tax laws, commodity laws and remittance laws can be used for guidance. From a regulatory point of view, since there is no strong connection between security tokens and utility tokens, the token issuer determines the token purchaser.
According to NGC, security token solutions will continue to grow in demand for infrastructure-level technologies, especially in relation to extension solutions outside the blockchain, security, privacy, side channels, cross-chain solutions and distributed identity support. NGC’s product portfolio will continue to depict the development of security tokens. In addition to infrastructure layer support, NGC aims to invest in well regulated security token exchanges, security tokens backed by real assets, and all other projects that can bring quality assets to the blockchain.
What is the next step?
How to design a system that is excellent in technology, law and business? How can we bring large-scale applications into the blockchain? These are questions that employees at NGC are asking themselves every day. For the NGC team, when choosing an investment project, they are more willing to cooperate and invest in project teams that are thinking about these questions and are curious about the promise of managing identity on the blockchain.
NEO Global Capital, referred to as “NGC,” was established in late 2017 as a blockchain technology venture capital fund. It consists of members from fields of technology entrepreneurship, traditional capital markets and management consulting. The company holds two funds, with NGC Fund I focuses on investment in blockchain technology and NEO Eco Fund centers on the ecological layout of the NEO blockchain. The total value of the two funds is about $500 million U.S. dollars.