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Settlement Risks Involving Public Blockchains

Entrepreneurs, investors and enthusiasts claim that public blockchains are an acceptable settlement mechanism and layer for financial instruments. But public blockchains by design cannot definitively guarantee settlement finality, and as a result, they are currently not a reliable option for the clearing and settling of financial instruments.

Over the past several months there has been a crescendo of pronouncements by several cryptocurrency enthusiasts, entrepreneurs and investors claiming that public blockchains, such as Bitcoin and Ethereum, are an acceptable settlement mechanism and layer for financial instruments. Their vision is often coupled with some type of sidechain or watermarked token such as a colored coin.

The problem with these claims and purported technical wizardry is that they ignore the commercial, legal and regulatory requirements and laws surrounding the need for definitive settlement finality.

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