This week, the popular tokenization platform, Polymath announced the successful migration of the Polymesh blockchain from the Ethereum platform to the substrate blockchain. The move showcases a change in strategy from one of the biggest players in the game. It also highlights the desire of tokenization firms to find a security token-focused alternative to Ethereum.
The news isn't a huge surprise as Polymath first announced plans to seek out alternative blockchains back in May 2019. At the time, the platform considered the construction of an all-new security token-only blockchain. After months of research, Polymath decided that they had found a better option in the market.
The Substrate blockchain is the brainchild of Ethereum co-founder Gavin Wood. Wood created Parity Technologies specifically to address many of the concerns faced by security token issuers. For example, Substrate supports multiple consensus algorithms. Developers can even program new consensus mechanism into the platform.
Speaking on the move, Parity Technologies chief commercial officer Björn Wagner explained why the decision to go with Parity was simple. For one, the use of multiple consensus algorithms is critical. Polymath developers have long shown concern over the PoW consensus algorithm.
Ethereum's permissionless Proof-of-Work (PoW) algorithm presents a unique issue for regulated token issuers. Since anyone can mine Ethereum, it raises concerns that transactions could get approval from sanctioned countries. Polymath is keen to avoid a situation where an individual in a sanctioned country earns a profit from approving a Polymath transaction.
Speaking on the decision, Polymath's head of blockchain, Adam Dossa described how a different mechanism is needed for the large financial institutions Polymath aims to serve. He explained that Ethereum is a “robust blockchain” but that in some instances, it lacks the functionality to fit a regulated environment.
One of the huge advantages that Substrate brings to the table is flexibility. Already, Parity has agreed to build custom regulatory features on Polymesh’s base layer. These new features will make programming advanced smart contracts easier. Additionally, Parity agreed to build communication and runtime modules for the firm.
Substrate's modular design allows for easier programming and customization. Also, the simplicity of building smart contracts on the platform is a huge plus. Dossa explained that security token smart contracts need to be “flexible to accommodate the wide variety of compliance logic” found in today’s marketplace.
Another point of concern is Ethereum's history of block reorgs. A Block reorg occurs when developers roll back the transactions on a blockchain to invalidate actions. While extremely rare, Ethereum did roll back its blockchain during the DOA hack of 2016. Ironically, many in the crypto community warned developers that the move would jeopardize the validity of the coin moving forward.
In that case, Ethereum rolled back its blockchain to stop hackers from getting away with millions in tokens. Unfortunately, one rollback is too much when you are dealing with regulated assets and security tokens. These transactions must remain finalized to prevent legal ramifications.
Substrate – Polymath Moving Forward
Currently, both Polymath’s ST20 security token (ERC-1400) and native POLY token (ERC-20) are now live on the new Substrate-based chain. Now, Polymath will seek to improve it's token's functionality following the maneuver. You can expect to see more token developments from this firm as developers utilize Substrate's unique benefits.