Not all blockchains are fit for the purpose of digital money token and or tokenized asset applications. Quantoz defined the technical and governance requirements for selecting the applicable blockchain(s). This article lists the requirements a blockchain should fulfil for issuing digital money and tokenized assets.

The blockchain core software should be open source, have an active community and transparent governance model through a governing foundation. The blockchain should have a history of reliability and high availability.

The core code of the blockchain nodes is open source and follows a strict review process before being published for production. At the same time a bug in a blockchain can be attractive for hackers, and there will be continuous attempts to find weaknesses. As a result, blockchain applications are the best tested and best reviewed software, and all stakeholders have incentives and means to check, prevent, and fix vulnerabilities.

The blockchain has a monitored quorum of independent validator nodes that support the consensus protocol.

The consensus model determines how distributed validator nodes decide which transactions to add in the next block of the blockchain.

At any time, a “51%-attack” must be prevented where a single entity dominates the validation and can influence addition or rejection of new transactions. This risk is small for the reputational blockchains with a well-established governing foundation, active and diverse user community and substantial transaction volume because all participants and stakeholders are motivated to support the consensus model.

The blockchain should not use excessive energy, therefore proof-of-work consensus models are excluded

The blockchains used by Quantoz should have no or little impact on climate change. Therefore, blockchains with proof-of-work consensus models should not be used, or their carbon footprint must be compensated.

The blockchain should natively support tokenized assets

Almost all known blockchain exploits have not been on the core blockchain code, but in smart-contract applications running on the core. Quantoz uses no smart-contracts for electronic money token issuing and payment transactions but applies blockchains with native support for tokenized assets in the core code (L1).

The blockchain should natively support the ability to restrict the use of specific tokens to only accounts whitelisted by the token issuer

In many cases, electronic money and asset tokens may only be held by permissioned (onboarded) users. Sending these tokens to unknown blockchain addresses should not be possible. Quantoz uses blockchains that support such functionality on their core protocol level.

The blockchain should allow tokens on specific accounts to be frozen and “claw-backed” by the token issuer

Token transactions of blacklisted accounts should not be possible. Token issuers should be able to freeze the tokens on such accounts, and claw-back these tokens to the issuing account. Quantoz uses blockchains that support such functionality on their core protocol level.

The blockchain should have a high throughput (hundreds/thousands of transactions per second) with a short transaction confirmation (preferably less than 10 seconds) at very low costs.

When a blockchain is very popular, it could reach its technical limits, resulting in rising transaction fees. These higher transaction costs may potentially disqualify the blockchain for payments.

To be able to support micro transactions in an economic way and improve the convenience for the users, The blockchain should support the option to pay the native transaction fee by a third party.

Transactions should be firm at first confirmation (no “forking”)

Some consensus models store confirmed transactions on the blockchain that are not immediately 100% firm but theoretically could still be overruled (double spending) in the next few blocks. As a result, the receiver of such transaction must wait to be sure of owning the received tokens. This is not practical for payment systems. Therefore, Quantoz uses blockchains with a consensus model where transactions are firm at first confirmation where there is no risk of double-spending or orphan transactions.

Several public blockchains, including Stellar und Algorand fulfill these requirements. Our NEXUS technology enables blockchain interoperability between these two blockchains.

Published On: September 4th, 2023 / Categories: Publications /


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Event by: Quantoz Blockchain Technology
Where: Online
When: 27 June 13:30 CET