Norway’s government will use public blockchain to track SME share ownership – Ledger Insights
BRØK, the Norwegian government project to track unlisted share ownership, entered the sandbox phase earlier this month. What is slightly different compared to other solutions is that it is planned to use a public blockchain. Specifically, it uses Arbitrum, a layer 2 scaling solution for Ethereum with lower transaction costs.
Many countries around the world have company registries where you can look up information about companies of all sizes, including unlisted ones. These often have some shareholder data, but they are usually up to a year old. For updated details, one must contact the company. Norway’s business register, which keeps records of over 380,000 businesses, is no different.
Hence the concept of creating a blockchain system to track ownership changes to any private stock and get an up-to-date overview of the “cap table” – who owns stock, how much they own and when they bought it.
Another benefit of using a blockchain is immutability. Because companies only share snapshots of stock ownership infrequently, there is room to manipulate the cap table, although it is not a particularly common scam. In fact, the most likely victim is the government if there are stock transfer taxes and there is a desire to change the timing. Not surprisingly, the tax authority is a participant in the ecosystem.
There are benefits for the company as well. The most obvious is that they only need to log stock transactions instead of managing the cap table. It makes it easier to sell shares with less due diligence on the cap table itself. That’s because the buyer and seller must agree to blockchain transactions, which provides a degree of third-party validity. In addition, shares can be used as collateral for a loan, and the cost of the share will also be logged on the blockchain.
The solution provides a solid foundation for the upcoming wave of tokenization as shares are stored using the ERC1400 Ethereum security token standard.
The project has been in the works for a while with developer Blockchangers who posted code for a solution three years ago, which has been progressing ever since. Now it makes the software development kit (SDK) available.
BRØK combines blockchain, an open database and customized software. The solution is GDPR compliant, so personal information is not stored directly on the blockchain. However, it uses the Ceramic protocol for the personal data, an open distributed database that enables the erasure and correction of data, as required by the GDPR.
This may be one of the first times a government has used blockchain for cap tables, but it is far from the first cap table solution. One of the first for private securities was the Swiss firm daura, a joint venture between BDO, BEKB, SIX, Swisscom and Sygnum. Another Swiss example is Aequitec. In the US, Figure Technologies has developed a cap table solution using its Provenance public blockchain.