Photographer: Luke MacGregor/Bloomberg In the last year, more and more blockchain entrepreneurs have sought to leverage public blockchains, such as Ethereum, to create registries allowing for the recording and transferring of assets, such as diamonds, real estate and securities, through a system that allows the assets to be represented by specific computer code, often referred to as tokens. Tokenizing securities, including shares of stock and bonds, can eliminate friction and create efficiencies in capital markets.

But contrary to many assertions, the Delaware Blockchain Amendments (which revised Delaware’s General Corporation Law to authorize the use of distributed ledger technology for the issuance and transfer of shares) do not provide blanket authority for shares of stock of a Delaware corporation to be tokenized. Tokenized shares do not eliminate many of the types of errors that are symptomatic of a system that relies on third-party intermediaries to manage and control shareholder databases.

This is problematic because purchasers who have been advised that their tokenized shares have been “authorized” by the Blockchain Amendments could be under the misimpression that they are insulated against all risks stemming from potential defects in the authorization, issuance or transfer of their shares. For example, one recent article describes ERC-884, a draft Ethereum token specification designed to represent equity in any Delaware corporation.

Each of these tokens represent a single unnumbered share. Issuers maintain a private database (off the blockchain) that records the name and physical address of the token’s owner as well as the Ethereum address corresponding to the token.

Token owners are whitelisted and have their identity verified. Shareholders who lose their private key, or otherwise lose access to their tokens, can cancel their tokens and have them reissued. Read more from forbes.com…

thumbnail courtesy of forbes.com