Blockchain Fixes This (No, Really)

On Tuesday, March twenty eighth, French authorities raided the Paris places of work of 5 main banks—together with HSBC, BNP Paribas, and Société Générale—in relation to an ongoing fraud and cash laundering investigation the place authorities are reportedly seeking to accumulate at the very least €1 billion.

The investigation facilities on dividend funds; asset custody; centralized, opaque record-keeping techniques; and tax avoidance methods.

When a dividend is paid to a shareholder, the shareholder should pay the related taxes on the dividend. However… who’s the precise shareholder that receives the dividend? Within the legacy world of opaque, closed, centralized databases it will probably typically be tough to find out. The shareholder that’s owed the dividend is recorded earlier than the “ex-dividend” date. In case you are the shareholder earlier than the ex-dividend date, you’re entitled to the dividend and subsequently required to pay the taxes.

France’s Parquet Nationwide Financier (PNF) fraud workplace alleges that the French banks offered a service to their favourite and largest international shoppers the place they’d quickly switch shares owned in international consumer accounts to separate French (i.e. non-foreign) accounts to decrease their consumer’s tax burden.

Since a financial institution with a closed, opaque, centralized database is ready to keep inconsistent data, they’ll know that their international consumer actually owns a share of an organization, whereas quickly pretending that they personal that share of an organization for tax functions.

This is the way it works: The international consumer owns a share. The French financial institution pretends as a substitute that they personal the share for 1 day earlier than the ex-dividend date. The French financial institution receives the dividend cost as a substitute of the consumer. The French financial institution pays the diminished (non-foreign) taxes. The French financial institution sends the dividend to their international consumer. The international consumer now owns the share once more (till subsequent time). Everyone seems to be completely satisfied… besides, in fact, the tax collector.

Fraud of this kind may be very easy to conduct in legacy monetary markets. There isn’t any single golden supply of fact to find out who owns a share at a selected cut-off date—and far of those techniques depend on belief, as within the case of when Dole was sued by extra shareholders than it truly had.

However—to make use of a well-recognized phrase—blockchain fixes this.

With a single supply of fact within the type of a public, verifiable, write-only database, shareholders, capital markets intermediaries, and regulators can at all times have real-time entry into monetary markets together with possession knowledge, custody relationships, and tax obligations.

For instance, with a blockchain purpose-built for capital markets, consumer 0x123abc clearly and transparently owns a share on-chain, its custodian 0x456def receives a dividend on behalf of 0x123abc on-chain, and 0x456def robotically pays tax on behalf of 0x123abc on-chain. Blockchain eliminates the “double-own” drawback, streamlines back-office processes, eliminates inconsistencies in possession data, and will increase tax assortment whereas clamping down on fraud.

Individuals in crypto love to speak about “The Flippening”. This originated from a perception that Ethereum’s market cap will ultimately develop bigger than Bitcoin’s and “flip” it. However there are different flippenings as properly: Bitcoin’s market cap vs. gold, transactions on blockchains vs. banks and bank card networks, and layer 2 volumes vs. layer 1 volumes.

However one of many lesser mentioned but extra attention-grabbing flippenings is when regulators and governments cease fearing blockchain know-how for its disruptive, unknown nature, and start harnessing it to enhance markets, improve belief, and higher implement laws.

Sooner or later quickly, all monetary securities shall be required to function on blockchains. And that’s as a result of blockchain actually does repair this.