some of you may remember me from the
early days of cerium I came in to manage
the project release Kara gasser jones
late 2014 trend about your foundation
and i have been pretty quiet for a
couple years and because i was working
on a big unsolved problem so when I was
still at the foundation I started
building outreach to the City of London
legal community because I knew that we
were going to need some way of enforcing
smart contracts as legal contracts and
the template that I was working from was
Ian Gregg's Ricardian contract model so
this entire talk is basically an update
of the Ingrid Ricardian contract model
from the perspective of trying to turn
that into a generic way available
technology which we can use all over the
ecosystem for basically everything where
we need to touch and what we call fear
assets so basically I spent a lot of
time rolling around with lawyers this is
what I've learned so the first concept
is the concept of a fiat asset right we
have a nice clean compartment for crypto
assets we all kind of know how that
works we know that you know possession
of the keys is possession of the asset
all the rest of us right fear assets are
the assets that are controlled by
governments and a nice way of thinking
about it is if the legal status of the
asset changes when you cross a border
with the asset it's a fear asset so if I
take my wallet out and I put it on the
street in London 20 minutes later my
wall is gone on the police don't want to
know if I take my wallet and I put it
out on the street in Saudi Arabia I come
back in two weeks and it's surrounded by
traffic cones so that is an example of a
fear are set the local governance regime
directly controls how the asset works
right the asset is in a sense produced
by the governance of the material world
that the nation-state provides and this
is the world of fear now fear is not
just fiat currency it's houses because
there are national properties registers
it's cars it's anything that house
regulation attached to it that's the
Fiat world so the question is how do we
control fear assets with code simple
enough so I want to put this in the
context of global trained right right
now something like 50 percent of global
trade goes over high-frequency trading
systems which are basically enormous sir
farms where they measure out the cables
to the trade in computers basically to
the millimetre so that nobody gets an
advantage in trade because they've got
shorter cable and they can make
decisions faster we're in an age where
nearly all of our really big global
systems are directly affected by the
speed of light delay right GPS works on
the speed of light delay each ft is
optimized for speed of light delay
Google spanner gives you a seven
millisecond window in which a
transaction could have happened so they
just put a little delay and that's where
things that Google Docs don't get
screwed up when you use them
internationally and we've got blockchain
which solves the light speed delay
problem which prevents us from
synchronizing the computers with batch a
block right ten minutes for Bitcoin
fifteen seconds for theorem that's there
to manage the speed of light delay so my
contention is the global trade is either
going to be completely centralized or
you're going to have to synchronize
computers internationally to conduct
global trade and for that it's either
going to be a blockchain or something
equivalent so I'm completely convinced
that the synchronization of the world's
computers for all purposes of global
trade is going to wind up on a
blockchain or close to equivalent
technology this is the big game right
this is what we're chasing and in that
process we can either wind up with a
better world because that same system
cups trucks carbon trucks slavery trucks
environmental pollution trucks political
oppression in the regimes in which these
things were produced or we can have a
global system that watches all hands
anonymizes all payments and gives you
with no record leaves use no
record-keeping so how we implement this
transition from paper-based trade to
computer-based trade is hugely going to
affect the everyday economic reality for
the entire planet this is a fight that
it's worth us participating in and it's
a fight that it's important that we win
the balance of power that shapes global
trade is a complex adaptive system it's
a set of multiple competing forces that
are struggling for control of the
society right we are essentially in the
people part of that group right we're
not on a single norm normos global
faceless corporation run by one massive
shareholder right we are actually at
assemblage of the people so our position
in this is that we the people would have
to represent a better future by
implementing ascetic
that gives access to a better world and
the economically out-compete the
competitors for that rule right I mean
one way that I talk about this is Star
Trek loyalists or cultural oil lists
we're kind of the science-fiction
faction that are trying to get to a
preferable future and to get there we
have to out-compete the state and the
corporations to arrive there right
this stuff is all extremely political we
are not less political than the Bitcoin
community we're just a little slower to
figure out what our values are but it's
the same game it's just we're going
after a much much wider spectrum of
activities than just competing with
states to issue currency it's a much
broader perspective so this is our issue
right we are having a horrible problem
breaking out into the real world so that
we can use smart contracts to control
fear assets until we solve this problem
we are not fully empowered right we
can't get hold of the future and shape
the future because as soon as we get
outside of the world the smart contracts
outside the world's crypto assets return
we powerless the magic stops working
we have threshold we can't get past it
so I'm going to tell you is I've reached
that threshold but the solution is kind
of ugly I know how to get to the real
world now I know how to control it smart
contracts some of you are going to hate
what I have to say some of you are gonna
love it please if you find a better way
of doing it let me know but let's go
so especially trillion of assets year
I've already talked about the size of
this it's worth noting BSE on credit
cards gave us three of the world's five
biggest companies right b2b is
conservatively twenty times the size of
the entire BS e-commerce market
it's a vast pool of transactions if we
could figure out how to get into that
market it's a very very big game right
the entire e-commerce game is about two
and a half billion dollar a trillion
dollars of transactions a year there's a
vast space next door which is completely
underserved because credit cards are no
good for v8v payments this is all of the
real world stuff right 200-acre robot
ports tied together by paper contracts
and bills of lading if we can figure out
how to get into this game we become a
global economic superpower and our
values become amplified if we can't get
into this game we remain relatively
marginal
this environment which is increasingly
going to be regulated by people that
don't like our values right we have to
move into the real world so the first
thing that we need to be able to do is
we need to be able to identify real
world assets in a way that's unique
enough to get control of them
we need the equivalent of IP addresses
we need the equivalent of DNS we need to
probe one-off cryptographic hashes and
the world is already filmed with our
sets that have these numbers and there
are also numbering schemes to give
assets numbers these numbering schemes
are under constant attack at the top one
is our bank no the middle one is a car
registration number the bottom one is a
laptop number all of those kind of
structures are constantly under pressure
from things like counterfeit goods but
even if you just start the game with
these numbers it puts you a parity with
the real world if you could then make
these numbers properly cryptographic and
bind them to a chain at point of
manufacture you get better than the real
world lots of projects working on that
for things like drug delivery so it's
not the real world is the unenumerated
an unidentifiable we can't actually get
hold of things the problem is that if we
get hold of things without an
appropriate binding to some kind of
legal entity you don't have any ability
to control the asset you can identify
become controlling so the first piece of
new stuff that we're building out is a
thing called an asset passport at an
asset passport is basically digital
identity documents on the self sovereign
model more or less for assets and it's
implemented to handle the kind of
squishiness of the real world using a
set of staked partners that do things
like value of the asset identify the
asset verify the asset it doesn't have
more than one owner and these kind of
processes so you have an asset you take
all the relevant legal facts about the
asset your attire to speak to each one
of the legal facts in case the fact is
wrong and then you bundle all about all
up into a nice machine readable bundle
and this house set passport in process
is the first step in getting an asset
onto the blockchain
and under smart contract control does
this make sense so far that's a pretty
easy thing to conceive of there's no
magic there we haven't hit the hard part
yet
second thing automated custodians this
is kind of where the fun begins
so a kazoo
ian is a corporation or a trust it could
be something like a bank and it has the
legal and requirement of owning an asset
as a proxy for some other actor in the
system now these things are all over the
commercial world and they handle
goodness knows billions or trillions of
transactions a year and there are you
know an unenumerated number of these
things at different jurisdictions handle
them in very different ways right so the
job of the custodian is to look to the
digital world as if it's a smart
contract and to the analog world as if
it's a paper contract so it's basically
the structural equivalent of the
Ricardian contract the Ricardian
contract has a digital component which
is a smart contract as an analog
component which is a paper contract and
it relies on an arbitrator to interpret
both sides of that in a successful way I
thought fits a lot of load on the
arbitrator's it's very hard to find
qualified arbitrators in this bubble
rather than having that element which
has a foot in both worlds be
instantiated in a contract pair its
instantiated as a legal institution one
side of the institution looks like a
smart contract you call the contract it
does things the other side looks like an
analogue institution which has a full
set regulation and regulatory licenses
so this thing is the adapter between the
smart contract world and the legal world
and what works to make that happen is a
concept that we take from the crypto
world which is staking these things have
extremely strong contracts insurance
indemnification regulation district
resolution arbitration every single
mechanism you can use to make sure that
the automated custodian does exactly
what the smart contract tells it to do
is deployed to give us a nice clean
interface between the fiat world on the
crypto world and in this direction this
is a unidirectional interface you write
to the material world by writing to this
foreign contracts that drive the
automated custodian now at this point
what we've introduced here is a point of
centralization so if you imagine a
single automated custodian for the
entire planet you can see that that
might have some issues I'll come back to
that a little further in
does this all make sense so far I want
to make sure that we only because you
know the legal ascent machinery around
building these things are seriously
non-trivial so that is a very complex
legal object multiple layers of
corporations complex legal
instrumentation different jurisdictions
implement in different ways it's a
really really serious piece of work to
build one of these things and never mind
to build upon its worth of them so what
comes out of that is the assets which
have passports which are embedded inside
of a custodian are now what we would
term smart property so smart property is
where you take an asset to take an
object you bind it to a set of metadata
which is the asset passport in process
so no the object is for example
searchable you could figure out where it
is and who owns it because you can
interrogate the metadata which is on
chain right if the asset chooses to
publish a set of essentially API hooks
right that's a contract endpoints that
you can hook you could then do things
like buy the asset directly on chain and
as long as the asset is correctly watch
through the custodian as soon as you put
the money into the smart contract you
know the legal owner of the asset right
and that works equally well right for a
single asset as it works for a house or
a portfolio of stocks or anything else
because the legal machinery pivotal
custodians is able to correctly address
any legal object all Fiat property has
necessary handles to be embedded in a
custodian and at that point as long as
you've got the correct smart contracts
and the correct legal contracts you can
use the existing machinery of state to
get hold of any physical asset and turn
it into a blockchain address in Milazzo
right it's a ton of legal work but the
engineering is sound and you can
actually do this so what this gives you
is a world in which the feet are sets or
is easy to access as URLs right you
could in theory in fact drive one of
these automated custodians using
standard web technologies you could just
publish a bunch of api's but the problem
that is by the time you've built the
necessary security and identity
machinery around those API is you might
as well use the blockchain
it builds a very very different model of
how we think about the world so we'll
run through that again right you start
with a bear piece of fear property that
you cannot address on chain because it
has no identity there's nothing to talk
to right we attach a set of metadata to
that one chain that gives us a way of
indexing the object we can talk about
the object we still don't have control
of it but it ways to know it exists we
take control of it by giving it to an
asset custodian right and that custodian
is automated to the point where what the
smart contracts tell it to do legally
performs or it pays a very ordinary
model inside of the crypto universe we
bind the offset to the smart contract
and using the legal authority of the
custodians at at that point we now have
real control of assets those assets then
form a category of things called smart
property and the smart property assets
can do whatever you tell them to do now
that is a way of totally unifying the
physical and the digital from the
perspective of both the blockchain where
you right now into the real world but
also from the perspective of the
government's that control so much
physical matter because these systems
look to the real world exactly like the
real world
right an automated custodian is just a
custodian and there are thousands and
thousands and thousands of custodians so
it's a seamless integration it's not
that there's a clunky bridge what we
have is a container which is a set of
legal engineering and smart contract
engineering a contract engineering which
takes all the messy mismatches between
the crypto world and the real world and
manages them in a completely controlled
environment so it's not that there's no
complexity there it's not though there's
no trickery it's not that the real world
and the fear world in the same place
it's that you build a set of machinery
which matches these expectations in a
way which makes the contracts completely
coherent across both the fear in the
crypto domain and in software
engineering you've all seen systems that
work that way right in any situation
where you've got two technologies which
are of completely different generations
you wind up having to build a bunch of
difficult complicated interface code
anytime you interface with legacy
systems you wind up with legacy system
adapters right so this
well the smart property registers and
the asset custodians and the passports
that is the equivalent of the legacy
adapters which give us direct access to
the namespace defined by the
nation-states actually we've taking all
the assets which are currently under
nation state governments making them
visible on chain and moving them right
and this is the key it's the magic to
enable us to get into the next step of
blockchain growth this is the adoption
mechanism until we can touch the real
world we can't go anywhere the security
token model which is currently getting
so much play it's a very simplified
model of doing this we take a single
legal right which is the ownership of an
asset we figure out how to get that
legal right correctly represented on
chain as a security token and then we
use the standard tokenization machinery
to bring these things to market that
takes just a single legal right and
automates it in a non chain way right
but all that allows us to do is own
things and build portfolios of property
it doesn't generate any kind of new
functions you can't use it to start new
businesses it's just the ownership
function what we really want to be able
to do is something much bigger and more
complex right what we want to be able to
do is take all the functions that thing
could have and build machinery around
those functions right so if you have
something like an apartment right you
can buy it you could sell it you could
rent it you could auction it you could
rent it on short terms like kind of an
Airbnb model you could contract out the
maintenance on it there must be 50
different wiegel rights associated with
an apartment so what you want is to be
able to bring that entire suite of legal
competences into a smart contract
environment where you could get the
entire set what that gives us is what we
think of as being smart property it's
the ability to fully drive the api's of
the real world from blockchain smart
contracts and you could sort of imagine
the kind of wallet or software where you
take something out if you're yeah you
know phone and it gives you an interface
that looks like the property screen from
an MMO you know here's all the stuff
that you own you take your bicycle you
drag it to your friends face and you see
land and it just goes off and does asset
transactions it transfers the necessary
so the bicycle is your friends until it
gives it back to you and I could serve
all the insurance liability for bicycle
breaks right you take your house you
drag it to securitize it hangs you back
a wallet full security tokens right you
can then sell some of those too you know
somebody use some money too right you
got five seven percent your house that
give you my car all of those kinds of
models become possible because we don't
just do a shallow transformation of the
physical into the digital where we just
do the ownership rights we want to take
all the youths rights as well and you
can see that this model completely wraps
around the utility token model because
utility tokens then bind directly into
the material world because those of the
tokens you give people you want to use
the asset and the security tokens are
the tokens that you give people when you
want to own the asset and ownership and
use are two different contractual rights
it took me a long time to learn how to
think about law this way it has been a
very hard learning process because I've
movie your background at all I came into
this as a nerd and I eventually realized
was that lawyers are simply the
programmers for the real world right and
the real world is a nasty squishy
imprecise place so the lawyers are
basically constantly writing error
handling code a paper contract it's
about 90% exception hard-looking about
10% logic right that's just because the
real world is really squishy so when you
actually get to know the lawyers and you
know it's a process and what you
discover is they're just programmers
that weren't given computers young
enough you accidentally become lawyer in
five years every weekend damaged you'd
become programmer
my chief legal officer Christopher Rea
who figured all this stuff out you know
is an extraordinarily nerdy man and only
very narrowly avoided becoming a
programmer and and that's part of why we
have this system working is because what
we built was a culture which was fully
tech and fully law and that was
basically two years of conversations
around my dining room table you know
really getting to the point where
everybody spoke everybody else's
language well enough to come up with
something which was a genuine fusion of
code and law rather than a kind of
afraid and in misma impedance mismatch
parent
once you understand that the processes
which generate law in the process which
generate code are the same kinds of
people solving the same kinds of
problems just for two different areas of
technology we could basically begin to
back into law in the same way that we're
backing into legacy systems like si P
right if you're doing integration with
the RP system so you've got the asset
control logic that currently runs
capitalism connected to the blockchain
you could do the same thing with law
it's just the case of getting fully
immersed enough to the point where it
begins to look like one thing rather
than two and this is basically the core
of what we spend our time doing it takes
a long time to make these kind of
problems sewing for and the next thing
that we have to do is a community after
this is government because if we can
figure out how to deal with lawyers
where it becomes a single system we
ought to be able to do the same thing
with the state or any other standing
institution it's just a question of
getting deep enough into the
understanding of the systems to
understand that we're all trying to
solve the real-world problems in a way
that works in the real world it's just
as the real world changes you get
different generations of solutions and
all these different generations the
solutions are kind of running on top of
each other and this is the complex
system of society if we want to interact
with that complex system we have to make
deals and form partnerships with these
entities and that involves understanding
their logic and understanding their a
historical period ok very briefly
because always time for one question
governance protocols if we take
something like a Stradivarius violin and
we very nearly had one with us today but
we had some logistical problems and you
need to protect for things value because
it's hundreds of years old which means
you need to be in a position where it's
properly maintained and cared for if it
needs a replacement of one of the parts
which wears out with play you need to
make sure that it's done by a proper
person who's going to decide it's a
proper person so making the assets such
that they're protected over time whether
it's rain forests or violins you need to
take a ton of time to design governance
structures so that the owners don't put
short-term interests ahead of long-term
interests and damage the assets that
they're custodians of because I don't
want us to build systems which basically
turn into kind of cutthroat capitalism
where we have like we've Ridge buyouts
followed by asset stripping we want this
to be a system where things have grew
under long term custodianship and
management so that they are cared for
for the future and we need that approach
with four historical artifacts we also
need it for cultural artifacts we need
it for environmental artifacts how are
we going to do things like you know
correctly tax carbon probably there'll
be a blockchain in there you want to be
able to take the rainforests of Google
under real government structures so the
final thing is centralization
decentralization building protocols
where the automated counterparties the
automated custodians are reliable enough
that you can use them on smart contracts
and not wind up with a ton of error
where error implies dispute which which
is back in the Ricardian model where we
got to go to arbitrators and all the
rest of that stuff vm to get this stuff
correct requires that all the custodians
and all of the other actors in the
system who doing things like providing
title insurance all of those actors have
to be an extremely high level of
professionalism in the analog world
right the analog world doctors have to
be the best possible analog world actors
and we need to make sure that as we grew
these systems out we've got the
appropriate certification training
technology packages to make sure that
the animal world actors are not stealing
things out of the custodians and then
screwing with the dispute processes by
bribery if you want to think about doing
business in developing world countries
where we really desperately need
effective trade infrastructure there are
enormous pools of assets in developing
world countries that could be used to
stake and secure smart contracts it
would enable trade if you're selling
goods for a factory if you stake the
factory itself on the performance of
those goods it's much easier to do
business with you than if you've got
nothing but a promise and that ability
to anchor deals against hard assets
allows us to work in low trust
environments those kind of competences
require the entire analog system to be
as good as it can possibly be
or it would constantly in dispute and
disputes are expensive so our big
challenges as we go forward finding the
correct set partners on the analog side
to build analog systems which are fully
integrated and compatible with the
blockchain reality we just published the
light paper explains a lot of logic
explains a lot of legal reasoning it
gives a really good idea of how these
systems work there will be a white paper
very likely associated
our fundraising if they're at some
future point that stuff is not happening
yet if you hear anybody say that it's
happening it's not happening but at some
point the intention is that there will
be tokenization of these things if we
could find legal structures that we like
for it
that is TVA I guess that is all I had to
say thank you do you have any measures
in mind to prevent the centralization of
custodians to the point that they look
they would look like the big tech
landscape we have right now so my
expectation is that the custodians will
turn into marketplaces with extremely
strong oversight from the community so
in any situation where you think that
the custodians are becoming centralized
that creates an opportunity for a second
custodian went to the market because
nobody wants a centralized to sodium so
I think what you guys can invite
community and forced antitrust
regulation the other possibility is that
we build market machines which punish
custodians who get too large by for
example taxation so we could build
anti-monopoly machinery directly into
the underlying contract frameworks
you