Market tokenization if you fix one issue: BlackRock CEO

Larry Fink’s Vision – CEO Black Rockthe world’s largest money manager has become a reality, and all assets from stocks to bonds and real estate can be traded online on the blockchain.

“All assets – can be tokenized,” Fink wrote in a recent letter to annual investors.

Unlike traditional paper certificates that show financial ownership, tokens live safely on the blockchain, allowing for immediate purchase, sale and transfer without documents or waiting – “like a digital deed,” he writes.

Fink says it is nothing more than a “revolution” for investment. Think of a 24-hour market and a trading settlement process that can still be squeezed from days to seconds.

But there is one major problem. One technology challenge is well underway. This is the lack of a coordinated digital ID verification system.

Technology experts say Fink’s idea is unlikely, but they agree that cybersecurity challenges will come first to make it work.

A verification of asset owners in the AI ​​deepfake world

According to Christina Hulka, executive director of the Secure Technology Alliance, an organization focusing on identity, access and payments, today it’s not easy to see online that the person you’re interacting with is that person because of AI deepfakes and sophisticated cybercriminal prevalence. As a result, having a unified verification system is useful because there is encryption verification that people are who they say.

“The (financial services) industry is focusing on how to build a zero trust framework for identification. We don’t trust anything until it’s verified,” says Hulka. “The challenge is to bring it together for everyone to make it as simple and seamless as possible about which technology to use,” she added.

It is difficult to say exactly how a wide range of digital verification systems work, but to support a fully tokenized financial structure, the system must at least meet strict security requirements.

At the same time, the system should be low friction and quick. Today there is no shortage of technical tools, especially from the field of encryption. This can effectively link digital identity to transactions, says Ramzan. “15 or 20 years ago, this conversation would have been a non-starter,” he added.

According to Ramzan, there have been some success with such programs. The Aadhaar system in India is an example of a national digital identity framework. This allows most populations to authenticate transactions through mobile devices, consolidating them into both public and private services. Estonia has an E-ID system that allows citizens to do everything from banks to voting online. Singapore and the United Arab Emirates also implement strong national identity programs related to mobile infrastructure and digital services. “These systems differ in how they handle issues like privacy, but they all share important characteristics: the leadership of the central government that promotes standardization and adoption,” Ramzan said.

Intensive personal data is a major target for cybercriminals

While centralized systems solve one challenge, storing personally identifiable information and biometric data is a security risk, said David Mattei, strategic advisor for fraud and AML at Datas Insights, working with financial services, insurance and retail technology companies.

In particular, there have been reports of data stolen from the Aadhaar system in India. And last year, the Salvador government had the personal data of 80% of citizens stolen from a centralized, government-controlled citizen identity system. “Because many security experts are like pots on the edge of the rainbow that all scammers are trying to get.

In the US, there has been a long-standing preference for a distributed system of identity. On mobile devices, Face ID and Fingerprint ID are done by storing data in a secure module on each mobile device, rather than focusing all of its data in one location on Apple or Google. “This makes it much more difficult for scammers to steal a huge amount of that data, if not impossible,” Mattey said.

Digital Driver Licenses Provide a Story of Attention

A critical, coordinated effort is required to come up with a national identity system used to validate identity.

Today’s US identity systems are fragmented, Ramzan said, showing examples of states in motor vehicles. “To move forward, we need a cohesive national strategy or a way to better coordinate identity across the state and federal levels,” he said.

That’s not easy. For example, consider the efforts many states are making to adopt digital driver licensing. About a quarter of states today, including Utah, Maryland, Virginia and New York, are licensed mobile drivers, according to MDLConnection, an online resource for Secure Technology Alliance. Other states actually have pilot programs and are studying the issue whether they have laws or laws. However, the business is extremely ambitious and has been underway for several years.

Implementing a national identity verification system is “a large-scale effort and requires almost every company doing business online to adopt government standards for identity verification and certification,” Mattei said.

Competitiveness is another issue that needs to be addressed. “We have an ecosystem of vendors that offer identity verification and authentication solutions that don’t want a centralized system because they’re afraid of going out of business,” Mattey said.

There are also important data privacy hurdles to overcome. State and federal governments need to coordinate to resolve governance issues, which could raise “Big Brother” concerns about the extent to which the federal government can monitor citizens’ activities.

Ramzan said many people have a “slight allergic reaction” with “allergic reaction.”

Fink is pushing the SEC to consider the issue

This idea is not brand new to Fink. Earlier this year in Davos, he told CNBC he hopes the SEC will “speechly expand its tokenization of stocks and bonds.”

There is BlackRock’s self-interest in the workplace, and potential cost savings for the companies Fink talks about and many other people. In recent years, BlackRock has been dragged into political battles and lawsuits by voting huge stocks in funds on ESG issues. “There’s no need to vote on proxy anymore,” Fink told CNBC in Davos, referring to “taxes on BlackRock.”

“All owners will be notified of the vote,” he said, adding that it will reduce the cost of ownership of stocks and bonds.

It is clear from Fink’s decision that this issue is placed prominently in his annual letter. He is not disappointed if he came third in the order of issues behind both protectionist politics and the growing role of the private market. And they argue that what is needed to make this a reality is a new digital ID verification system. The letter is short in detail, so BlackRock refuses to elaborate, but at least on the surface, Fink’s solution is clear. “Tokenization is not enough if you are serious about building an efficient and accessible financial system. Digital verification needs to be resolved too,” he writes.

Blockchain continues to evolve and people are learning to understand it better. So there is an initiative to consider how the US can achieve a broader identity verification system, Hulka said. There are technical ways to do that, but finding the right way that works for a country is even more challenging as it must be interoperable. “The goal is to reach a point where there is one way to validate identity across multiple services,” she said.

Ultimately, there is a turning point in the financial services industry when it becomes a business necessity, Hulka said. “The question is, of course, when.”