Securities are the most integral part of a system. However, when it comes to Tokenized securities, certain regulatory hoops have to be followed to get approved.
Although, right now numerous methodologies are only concentrated towards verifying a specific transaction. However, blockchain consensus mechanisms is a basic mechanism based on proof of work system that is utilized to proves when a transaction is valid, is done through mining.
But to change the configuration here comes the part of security tokens, which can add up a second-layer on top of our current blockchain consensus system. And is also needed to confirm identity and compliance ideally on-chain to make sure they are up to regulatory standards.
Although several firms have adopted the process of KYC-like procedure in cryptocurrency. However, still, there is a proper on-chain model which is yet to be created. Instead, these procedural concerns that are being outsourced without resolving by the technology itself.
Later a limited version of the proof-of-authority model grabbed the spotlight for tokenized securities, the term was coined by Gavin Wood but turned out to be in the form of argument in contrast to the proof-of-authority system would function as an effective ‘second layer’ for tokenized securities against Jesus Rodriguez from whom the use-case for tokenized securities emerged as a concept. And eventually, the article accumulated enough buzz around the crypto arena for being a novel solution to a longstanding problem.
As of now the requirement of validators to work in consensus as accounts/nodes to validate the transaction. But a proof-of-authority would work on the second-layer of consensus required for securities, rather than solving computational puzzles to validate blocks. And along with that, they would also validate different aspects of a transaction relating to capital-related concerns, KYC/AML or whatever other requirements for the security.
As combined with a proof-of-stake model for transaction validation, the two different blockchain consensus mechanisms can be combined powerfully with the help of duality of consensus for tokenized securities.
There would also be validators who are considered to be large groups of nodes responsible for monitoring and maintaining the basic concerns of identity and compliance and would also be the reason to make up the 2nd layer of consensus for a tokenized security.
And to overcome this barrier of regulatory oversight which is counted, token security solutions at the top of existing blockchains will be created with the longevity of the crypto space and will be the given the highest priority in the room.
There are options like KYC, asset-ownership, which can be questioned as a part of the centralized solution, however, at long-term, these are not sustainable.
So, the exact requirement is to have on-chain compliance and a consensus mechanism that would incorporate the existing modes of consensus on the blockchain.
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