Nov. 28, 2023
If the Digital asset resides on a public blockchain, the token is on the blockchain and all nodes that make up the distributed ecosystem. The customer wallet is a representation of ownership of the token. If the digital asset resides on a private blockchain, then the private blockchain along with all permissible nodes hold custody of those tokens while the customer wallet represents ownership of the token. The blockchain still uses file storage on the servers that operate as a blockchain virtual machine and this file storage represents physical hardware that is located somewhere. While the public blockchain is like the public internet of tor-like sharing servers that hold blockchain transactions, a private blockchain chain is controlled and maintained a fewer participants, custody of digital assets on a private blockchain becomes the issue and is present, even if the private blockchain is using a hosting provider like AWS. Forex Trading is regulated by the CFTC and NFA and so should the cryptocurrency trading exchanges while the SEC regulates the tokenization of securities. The cryptocurrencies like Ethereum, Polygon are consider unit of account explained by Chairman Gensler when he taught a blockchain course at MIT ([https://ocw.mit.edu/courses/15-s12-blockchain-and-money-fall-2018/13577dbec83f909613a141fa2cfe0c6d_uNqMBBbb6UI.pdf) The existing cryptocurrency exchanges provide exchange services as well as trading for their listed cryptocurrencies where they provide a user to exchange one cryptocurrency for another. This type of exchange requires a Money Exchange License, which is also referred to as a Money Transmitter License and a Money Service Business, depending on the jurisdiction. The only license cryptocurrency exchange between fiat to crypto and crypto to crypto is PAYPAL (VENMO) in the United States. While the public blockchain unit of account cryptocurrency has value, the private blockchain unit of account cryptocurrency does not have value. FINRA does not have the cryptocurrency and blockchain expertise and is cost prohibitive for the small operator and issuer. A new SRO is needed. Blockchain transactions eliminate the need for clearing agencies because of the T-0 transfer, however an exemption for a clearing agency using Form CF-1 may be necessary. Transfer Agents are still needed and useful in the blockchain ecosystem. Additionally, financial transactions on the public blockchain violate the Right to Financial Privacy Act of 1978. Broker-Dealers should use their own wallets for transactions on the public blockchain and not the customer wallet. Blockchain technology is still software and methods are improving daily to recover lost funds. Rule 15c3-3 compliance on the public blockchain is NOT possible unless the broker-dealer becomes a peer node to blockchain but exclusive custody is still not possible Exclusive custody is possible on a private blockchain when the broker-dealer operates the blockchain trading platform or the SRO registers as a Special Purpose Broker-Dealer for their private blockchain trading platform. The blockchain ledger uses file-based storage and requires physical servers. Using smart contracts and tokens that whitelist the holders is the only way to mitigate the risk of fraud and theft on both the public and private blockchains. Since the blockchain storage is file-based, procedures must be in place for regular backups, especially on a private blockchain. While the clearing agency role has changed in the blockchain ecosystem, the clearing agency role can be revitalized through the hosting of the private blockchain node, whereas the custody of the tokens are held with the clearing agency? Permissioned access is provided to the broker-dealer. Again this is not possible on the public blockchain. Unless the broker-dealer is operating a private blockchain node without peers, exclusive custody is not possible by the broker-dealer, but exclusive access is possible through the coding implementation of the smart contract on both a private and public blockchain. Never publish private keys in a blockchain transaction. PATRICK INGLE PRESSPAGE ENTERTAINMENT INC dba REDEECASH