Standardization is crucial for the adoption of Crypto Assets.

Source: Cointelegraph Original text: "Standardization is crucial for the adoption of cryptocurrencies"

The opinion comes from: Axel Schorn and Dr. Duc Au

Traditional stock, bond, and commodity markets have long benefited from well-established standards for the flow of information and data. These standards support the seamless operation of trading, settlement, and compliance regulation, ensuring that all participants can rely on a unified and consistent framework.

As the financial industry moves towards decentralized finance (DeFi) by introducing digital assets (such as crypto assets and tokenized securities), the lack of such standards has become an increasingly severe challenge.

Despite the transformative potential promised by digital assets, their fragmented information environment may undermine their adoption and integration within the broader financial ecosystem.

Independent platforms like CoinMarketCap or CoinGecko provide information on various tokens, but there are significant discrepancies in market capitalization, total supply, and other relevant reference data. Several global initiatives launched by private foundations and associations are working to promote standardization.

Guided by traditional frameworks

Just as standardized financial data plays a key role in building trust and promoting growth, digital assets also require globally unified standards. Research shows that in Germany alone, the overall economic benefits brought by standardization are estimated at 17 billion euros each year.

For traditional assets, the International Organization for Standardization (ISO) has established a clear hierarchical system to classify and identify each type of asset. The International Securities Identification Number (ISIN) is a global standard used to uniquely identify all types of financial instruments, including stocks, debts, derivatives, and indices. The Classification of Financial Instruments (CFI) is an internationally recognized system for classifying financial instruments, defined and maintained unchanged when financial or reference instruments are issued. The Financial Instrument Short Name (FISN) outlines a standardized approach for the short names and descriptions of financial instruments. Unlike ISIN and CFI, FISN is not intended for machine reading but provides a brief key information format for human use.

The National Numbering Agency (NNA) is responsible for collecting registration data, such as issuer information, instrument type, terms, and trading conditions, and assigning ISINs, CFIs, and FISNs. The Association of National Numbering Agencies (ANNA) maintains these identifiers and data in a global database. For countries without an NNA, identification codes are assigned by four global alternative numbering agencies.

ISINs will be assigned to various financial instruments, regardless of whether the technology used to create these instruments is in paper or electronic form, thus including crypto securities issued under the German Electronic Securities Act. For tokens with a clear geographical reference (e.g., security tokens issued in Germany), ISINs are assigned by the corresponding national numbering agency. For reference instruments without a clear geographical reference (e.g., Bitcoin, where the issuing country cannot be determined), ISINs prefixed with "XT" are assigned by Etrading Software.

This helps to identify the financial instrument at the token level. Other exemplary data fields at the token level include token type, hash function, and generation mechanism. At the financial instrument level, additional data elements such as the blockchain to which the token belongs also need to be supplemented.

To this end, the Digital Token Identifier Foundation, responsible for allocating this new identifier, provides what is known as digital token identifiers (e.g., DTI, ISO24165).

Key working assumptions for the standardization of digital assets

Cryptocurrency asset identifiers may become mandatory. Similar to traditional assets using systems like ISIN, digital assets will adopt unique identifiers for cryptocurrencies and tokenized securities. These identifiers will facilitate tracking, trading, and reporting between exchanges and custodial providers, achieving seamless integration with traditional financial systems.

Data standards will enhance transparency and compliance: With the increasing intensity of regulatory scrutiny, a unified data format will emerge for compliance management and risk control.

Global coordination will promote interoperability: The standardization of digital assets will rely on global collaboration between regulatory agencies and financial institutions. International organizations will play a key role in creating frameworks that ensure interoperability across jurisdictions, reduce market fragmentation, and address inconsistencies in information processing.

Preliminary steps have been taken to clearly identify digital assets using widely accepted ISO identifiers. Coupled with regulations such as the EU's Markets in Crypto-Assets Regulation (MiCA), the industry is laying the groundwork for broader adoption.

It remains to be seen how investors and digital asset participants will further advance the standardization process, as well as what obstacles may arise that need to be addressed in the process.

The opinion comes from: Axel Schorn and Dr. Duc Au

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This article is for general informational purposes only and is not intended to be, nor should it be construed as, legal or investment advice. The views, thoughts, and opinions expressed in this article are solely those of the author and do not necessarily reflect or represent the views and positions of Cointelegraph.