There are many reasons why financial institutions have been averse to adopting blockchain technology. They are interested in it but have many concerns, including regulatory uncertainty. They are not sure the existing infrastructure is equipped to deal with the challenges of such a setup.
The Difficulty in Adopting the Blockchain
Financial institutions face many obstacles in using digital assets. Identity is one of the major challenges. These institutions are unable to come to terms with the decentralized system and the anonymity offered with ethereum. They face compliance challenges. Governance is another obstacle in this adoption. There are several hard forks during an ethereum upgrade. The technology architecture is not equipped to handle the transaction limitations, so it is unable to comply with the financial laws.
Possibilities with Security Tokens
New possibilities are emerging with security tokens that have features to meet existing regulations. They are regulated assets in the blockchain sector and are easily identifiable as investment contracts. They show ownership of assets like real estate, equity, debt, and others. The difference here compared to the traditional assets is that the tokens are created digitally. The security tokens with improved features can open up the locked possibilities of blockchain. These features can include global liquidity funds, automated operations, and newly created financial assets.
The security tokens can open up new investment opportunities and reduce the costs involved in capital market transactions. For example, cash flows can be tokenized using the product of a particular company. It will allow its investors to get access to the cash flow. They do not get control of the company itself. More innovative solutions are needed to solve the challenges faced by financial institutions in adopting blockchain technology.