New ECB Paper Highlights Need For A Unique Token Identifier

Thursday, April 22, 2021 — A new paper published by the European Central Bank (ECB) on the use of DLT in post-trade processes published on April 12, 2021, calls for more interoperability in post-trade solutions, mentioning a lack of common practices and standards. A section on the identification of assets and tokens in a DLT based system specifically draws attention to the need for a unique token identifier and mentions the International Token Identification Number (ITIN) as an example of an identifier fulfilling some key requirements. The ITIN with the underlying UTL framework is fork-resilient and can be used across DLT networks.

Figure 1: The ECB published a new paper on the use of DLT in post-trade processes

A unique identifier for DLT-based assets and securities

A unique identifier is a vital prerequisite for the trading of any asset or right. Looking at the traditional system, there are a lot of examples of such identifiers in use, most prominently the ISIN, FIGI and LEI. All of these are necessary for the effective and safe transfer and trade of securities. Such an identifier will therefore also be necessary for future digital assets, more specifically for tokenized assets in the form of DLT-based security tokens. For example, the new german Electronic Securities Act states clearly that for crypto-securities (from German: Kryptowertpapier), the relevant registry office must ensure that the registry for crypto-securities includes a unique identifier for all securities [1] The new ECB paper reiterates this, and outlines some requirements that such an identifier must fulfill. Namely, these requirements are that the identifier must be able to clearly and “unambiguously locate the respective token address with respect to (i) the distributed ledger it is deployed on and (ii) the implementation mechanism and address used for deployment.” [2]

Both of these requirements are met by the ITIN and its underlying Uniform Token Locator (UTL), which conceptually builds upon the Uniform Resource Locator (URL) used to locate resources in the world wide web (WWW). A website in the WWW can be uniquely accessed by a URL, even if the content itself is moved from one server to another. In the same way, tokens can be uniquely accessed through the UTL, even if there is a fork. Thanks to the UTL’s components (illustrated in figure 2), it allows for the unambiguous and unique locating of a token address with respect to the previously mentioned requirements. [3] A more detailed description of the ITIN and UTL can be found in the following article: Unique Referencing and Identification in the Token Universe: Cross-Chain, Worldwide, and Fork-Resilient.

Figure 2: Building upon the URL — ITSA’s concept of a Uniform Token Locator (UTL) (Source: ITSA)

Token identifiers and traditional asset identifiers can complement each other

The new ECB paper then moves on to describe a conceptual case where ISIN and ITIN are used in tandem to identify all tokens relating to a specific asset, by illustrating the different layers of identification as seen in figure 3.

Figure 3: Different layers of identification are needed for the same asset (Source: ECB)

While the ISIN may be used to identify the underlying asset on the Asset Layer, an ITIN is used to identify the tokenized versions of these assets on the Token Layer. In this framework, multiple ITINs may be connected to the same ISIN, when one asset is either represented by different tokens across different ledgers or multiple tokens which differ in functionality running on the same ledger. A simple example of this may be the case of tokenized equity, as it is possible under the Liechtenstein Blockchain Act. Here, shares of a Liechtenstein company may be tokenized and sold, granting token holders the same rights as holders of regular shares in the same company. The company shares exist only in one version on the Asset Layer and are therefore identifiable by one ISIN. However, the company may decide to sell these shares as tokens on multiple ledgers, maybe to reach more investors and mitigate the risks associated with any one individual DLT network. This company could sell tokenized shares simultaneously on Ethereum, Stellar, and Tezos, all falling under the same ISIN. Here, it is vital to differentiate between the tokens on different ledgers, which can be done with the ITIN.

ITIN assignment now via API

By connecting to our API, it is now possible to receive a free and instant ITIN assignment and tokenbase entry for any tokens, right when the token is generated and minted. This service is especially useful for security token issuers and tokenization service providers, to create an additional layer of trust for investors. The API is available free of charge to all active ITSA members. If you are interested, please contact team@itsa.global or apply for membership on our website itsa.global/application.

References

[1] Entwurf eines Gesetzes zur Einführung von elektronischen Wertpapieren

[2] The use of DLT in post-trade processes

[3] Unique Referencing and Identification in the Token Universe: Cross-Chain, Worldwide, and Fork-Resilient

Remarks

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Maximilian Bruckner is Executive Director at the International Token Standardization Association (ITSA) e.V., working to create the world’s largest token database including a classification framework and unique token identifiers and locators. He has a strong international background with significant time spent in Spain, South Africa, and Canada. Currently pursuing studies at the Frankfurt School of Finance and Management, you can contact him via E-Mail or LinkedIn.

About ITSA

ITSA e.V. aims at promoting the development and implementation of comprehensive market standards for blockchain- and DLT-based cryptographic tokens. To increase transparency and safety on global token markets, ITSA e.V. assigns a unique and fork-resilient identifier (the ITIN) to each individual token and classifies the token according to our International Token Classification Framework (ITC). This data is then entered into the TOKENBASE. It is our vision to create the world’s largest DLT token database and see our market standards be implemented across the world. Our working groups are actively driving the development and progress of both the ITIN and the ITC.

• The International Token Identification Number (ITIN) is a 9-digit alphanumeric technical identifier for both fungible and non-fungible DLT-based tokens. Thanks to its underlying Uniform Token Locator (UTL), ITIN presents a unique and fork-resilient identification of tokens. The ITIN also allows for the connecting and matching of other media and data to the token, such as legal contracts or price data, and increases safety and operational transparency when handling these tokens.
• The International Token Classification (ITC) is a multi-dimensional, expandable framework for the classification of tokens. Current dimensions include technological, economic, legal, and regulatory dimensions with multiple sub-dimensions. By mid-2021, there will be at least two new dimensions added, including a tax dimension. So far, our classification framework has been applied to 99% of the token market according to market capitalization of classified tokens.
• ITSA’s Tokenbase currently holds data on over 4000 tokens. Tokenbase is a holistic database for the analysis of tokens and combines our identification and classification data with market and blockchain data from external providers.