The importance of dual blockchain in the equity market
by Sascha Ragtschaa, CEO, Chainium
Blockchain technology has aided the financial industry for almost 10 years since being introduced as the driving force behind bitcoin.
In that time, this digital ledger has grown significantly in popularity and adoption across various sectors and industries, not just in the financial sector where it originated.
Today the technology is transforming numerous industries by offering lower costs, heightened security and streamlined processes. With public access and transparency at its heart, it is bringing numerous benefits to both businesses and investors in the financial services market.
However, because financial services data is mostly private and confidential, it can be hard for businesses to move past the trust issues, and retain the benefits of a distributed ledger.
Public vs. private
There are many elements to buying and selling shares that are made publicly available. These elements include ownership, share holdings, public share offers and new shareholders who are provided with a digital share certificate.
All of these fit with the current nature of blockchain technology, but there are important, private elements that need to be taken into account, including personal details such as names, email addresses and bank account details.
This information should not be made publically available and should therefore be secured and encrypted.
Public + Private
As both public and private data are involved in the buying and selling of shares, dual blockchain has been developed to conquer this unique problem.
Built with one public blockchain for public data, and one private blockchain for private data, dual blockchain is connected with oracles and built with the requirement that there must always be a record of business or investor on both blockchains in order to validate a share transaction.
Each section of the dual blockchain is built specifically for the public or private part of the digital share certificate that is presented to the new shares owner and the business. This dual approach means there are two distributed ledgers that work specifically for either public data or private data.
A public blockchain is built to support public data with limited information only, but on a real-time high frequency basis.
Anyone can gain access to information on these blockchains and see the ongoing flow, value and parties involved in transactions. They provide for limited data storage, high frequency of trading updates and complete public transparency.
The greatest advantage is that no individual or company has control over the information, so it cannot be manipulated. The owner of the blockchain cannot unilaterally change the information contained on the ledger. Users do not have to place their trust in a third party in order to use the blockchain.
The public blockchain is built as a public network of servers. This means that anyone can register and become a node in the public blockchain network. With every new node, the network becomes more robust, safer and stronger.
Public blockchains are notorious for being slower to complete transactions due to the large amount of data and information that must be transferred and processed.
By comparison, a private "master" blockchain stores confidential, encrypted information about businesses and investors. It is only accessible to permissioned individuals and organizations, and provides for high data storage and low frequency of user updates.
For many users, the private nature of this blockchain is the key advantage, as it maintains the confidentiality of transactions. However many individuals believe that this confidential nature actually diminishes security, as blockchains are at risk of being manipulated without users' knowledge.
The private blockchain uses nodes controlled by the blockchain and the equity providers that build on the network. An emerging benefit for businesses and investors using a private blockchain is the faster transactions speeds it offers. To ensure connectivity, the private blockchain will always be the master.
Both of these blockchains implement a consensus mechanism that avoids resource-intensive computation-based validation and enables high scalability.
This mechanism reduces transaction validation difficulties and ensures that transactions can be settled within seconds. This type of blockchain solution cuts out middlemen, speeds up the trading process and enables access by all businesses and investors.
Dual blockchain benefits
There is no doubt that blockchain has the potential to revolutionize processes between businesses and investors in the equity market.
By using a dual blockchain mechanism, both parties benefit from a more streamlined transaction process with reduced costs — all in all, a better trading solution for the equity market.
Depending on which side of the share sale you are on, business or investor, a dual blockchain will deliver a new era for the digital ledger and offer an end-to-end solution for businesses and investors to effectively manage each stage of buying and selling shares, without having to worry about which data is stored where.
The dual digital ledger will not only transform the equity market, but also will significantly impact the way shares have been traded from the start.
Sascha Ragtschaa is co-founder CEO of Chainium (https://chainium.io), a blockchain solution for equity markets that seeks to connect businesses directly to investors.