COVID-19 Impacts Digital Securities

At this point, there are nearly no industries and individuals remaining that have not been affected by COVID-19 in some shape or form.  Between self-isolation measures, lost income due to business closures, and overall fear, many have a sense of unease due to these radical changes to everyday ways of life.

Today, we will take a brief look at a few ways digital securities, currency, and blockchain as a whole have been affected by the ongoing global pandemic.

DTC Suspends Paper Certificates

This first disruption relates directly to the trading of securities.  The Depository Trust Company (DTC), has instructed all transfer agents, within the Unites States, that they are ceasing their efforts to process paper based securities.

The following is a list provided by the DTC in their notice, breaking down their suspension of services.

• All physical deposits
• Withdrawal & certificates on demand (COD)
• New York window (NYW)
• Envelop Settlement Services (ESS)
• Custody Reorg
• SBA Pooling

While moves such as this are necessary for keeping COVID at bay, they also shed light on a burgeoning technology being used to supplant traditional paper based securities – Security Tokens.

In order to gain a better understanding of the situation, we reach out to Dave Hendricks, CEO of Vertalo.  He elaborated on the situation, by commenting,

“The suspension of paper-based certificate handling by the DTCC has left the status of many trades in limbo.  With rule exceptions for Transfer Agents now in place under SEC guidance, some paper-based transactions may not be processed for weeks if not months.  Where does this leave the affected broker-dealers or investors? We do not know.  However, we do know that digital or tokenized shares would not be affected, as they are not subject to a single point of failure mechanism like centralized office-based paper processing.  This systemic failure at a time of great need for liquidity surely calls for new methods of ownership and trading for all sorts of assets.”

Hendricks continued, highlighting the need for implementing digital change, by stating,

“It’s time for issuers and investors, especially with respect to private assets, to effect digital transformation and improve the resiliency and response time of securities transactions.  Only fully digital transfer agents like Vertalo are capable of this sort of step-function improvement.”

As a company serving the digital securities sector in a variety of ways, including that of a transfer agent, Vertalo has a unique, and direct, insight into the effects of COVID on related operations.

Homeland Security Denotes Blockchain Managers as a ‘Critical Service’

We’ll begin this section with an excerpt from a recently released statement by the U.S. Department of Homeland Security.

“If you work in a critical infrastructure industry, as defined by the Department of Homeland Security, such as healthcare services and pharmaceutical and food supply, you have a special responsibility to maintain your normal work schedule.”

One of the most promising applications of blockchain technology is within supply chains.  Whether tracking the origin of diamonds, authenticity of designer goods, or agricultural products, these processes seem tailor built to benefit from blockchain.

This point is underscored by the recent inclusion of Blockchain Managers as a ‘Critical Service’, by Homeland Security.  While use of blockchain may still be in its early stages, it is clear that it has already established itself as a pivotal tool for those involved, specifically in Food and Agricultural sectors.  Beyond the efficiencies made possible through its use, blockchain based supply chains have the ability to accurately relay information on products, ranging from place of origin, manufacturing dates, travel routes, and more.

Recording, and gaining quick access to, this information can go a long way when screening products, and ensuring trade channels continue operating as intended.

Folding@Home

Through use computational power garnered via a global distributed network, Folding@Home is doing their part to help expedite our understanding of COVID-19.  While not explicitly using blockchain, the idea of utilizing a distributed network to achieve a goa, with new levels of speed and efficiency is a common theme.  The distributed network utilized by Folding@Home is comprised of anyone that has a surplus in computational power.

• Idle laptops
• High-end desktops
• Crypto-currency ASIC devices
• Cellphones

The list goes on.  Cumulatively, it is believed that the Folding@Home network, built on these devices, has grown to control more computational power than most of the world’s supercomputers.

With regards to COVID-19, in particular, Folding@Home is directing much of their cumulative processing power to understand the structuring of the proteins found within the virus.  By gaining this understanding, it is hoped that new treatments will be discovered.

Recently, what the company has seen is a massive influx of contributors – specifically, from those already well-versed with blockchain and mining.  This has resulted in the network attaining over 450 Petaflops of computational power.  An example of this comes from crypto-mining specialists, CoreWeave.  The company has taken a serious, and proactive, stance against COVID-19 by reallocating 6,000 high-end GPUs, typically utilized for mining, towards the Folding@Home network.

Needless to say, it is uplifting to see individuals and companies from around the world come together in an attempt to halt the spread of COVID-19.

Central Bank Digital Currency

While various nations around the world have announced their intent to develop, and issue, a central bank digital currency (CBDC), the United States have taken a more trepid approach.  This, however, may change, as the advent of COVID-19 has forced many to rethink the merits of such an endeavour.

Beyond the oft-touted benefits behind a CBDC, a new benefit to recently come into view is the ability to limit the transmission of contagions.  Physical money passes through countless hands, and environments, on a frequent basis.  This very nature makes money a prime candidate for spreading illnesses.

China was the first to recognize this, and act on the fact by removing cash from circulation and either disinfecting or destroying it.  Close on their heels was the United States, having implemented similar precautions.  These precautions surround money specifically entering the country from high risk areas, such as Asia.  Money that ‘fits the bill’, will undergo an extended holding period, allowing for the disinfecting of potentially contaminated bills.

In a world gripped by the effects of COVID-19, this is one time where the laundering of money is actually a good thing (in a literal sense of the word).

On a smaller scale, many have seen a sharp disruption in an ability to even use the cash that they do have.  With money being one of the items most commonly transferred between people, countless businesses have ceased accepting it as a form of payment.  Instead, many are relying soley on debit and credit networks – further underscoring a potential need for CBDCs.

Attention towards a U.S. CBDC has grown to the point that it is now being discussed in potential stimulus packages.  While nothing concrete has managed to make it into any final drafts, there is clearly an intrigue surrounding the topic, with significant legwork being put into the potential structuring of such an asset.

A Path Forward

These are only a few ways in which COVID-19 has managed to disrupt the way we view blockchain, digital securities, and currencies.  With the pandemic still on the upswing, we will surely come across new implementations as the weeks go on.

Necessity is the mother of invention, and we might just see blockchain based endeavours provide a path forward, in search of inventive solutions.