We are moving into a truly digital world.
In this new world, we need digitally native assets, digitally native contracts, and digitally native accounting. All three concepts are evolutions of traditional assets, contracts, and accounting, but incorporate new technology to be better prepared for the future.
We lived in an analog world with physical assets for thousands of years. In the 1970s we began a shift to the electronic world, which allowed us to transact assets by near-instantaneously moving ones and zeros on a computer screen (representations of the physical assets), but still required multiple days for the physical assets to move and settle the transaction. This shift from the analog to electronic world created enormous value and was the foundation for the world we live in today.
Half a century later, there is another shift underway — the move from the electronic world to the digital world. This transition is driven by (1) the acceleration of technology and (2) the inevitability of algorithms and machines running major aspects of the economy and our lives. In the digital world, legacy assets (and their electronic representations) are outdated technology that are too inefficient and inferior to their digital versions.
Digitally native assets are stocks, bonds, currencies, or commodities that have been created in the digital world and have an aspect of “programmability” to them. These assets have unique features that allow for near-instantaneous settlement times, micro-transactions, low fees, and are compatible with the algorithms and machines that will govern the automated world. (I always joke that “the machines don’t want our paper money!”)
Digitally native contracts (more popularly known as “smart contracts”) are software-based agreements that automatically execute based on previously agreed upon criteria. These are important for two reasons: (1) legacy contracts are incompatible and too slow for the algorithms & machines and (2) the automated world moves counterparty risk from human-led organizations to software code, which requires digitally native contracts to effectively interface with these new counterparties.
Lastly, but potentially most importantly, is digitally native accounting. When you have digital assets, you have to remember that these are simply computer files. An individual can take a computer file (ex: music file), duplicate it, and send the two separate files to two separate individuals. Neither recipient would know whether they received the original file or the duplicate — this is not a problem when sharing music files, but becomes a big problem (known as “double spend problem”) when transacting money or valuable assets.
Digitally native accounting is a triple entry accounting system that allows for both participants in a transaction, along with a shared public ledger, to keep track of all transactions within a system. Without digitally native accounting (this is what a blockchain does), we would be unable to use digitally native assets.
These three core concepts of crypto (digitally native assets, contracts, and accounting) are accelerating the transition from the electronic world to the digital world. The creation of economic value will dwarf the value created by the shift from the analog world to the electronic world, while also allowing a more global audience to participate in the upside.
The blockchain and crypto industry revolves around a single idea — the digital world needs state-of-the-art assets, contracts, and accounting. Updating these features of the global system on the fly is like switching out airplane parts in a faulty airplane while in mid-air.
No one said it would be easy, but it is necessary. The algorithms and machines don’t want our outdated technology. We have to upgrade our assets, contracts, and accounting, or humans will continue to be the rate limiting factor of innovation and progress.
The “Off The Chain” podcast has been downloaded 700,000+ times in 160 countries. You can listen to the latest episode with Ric Burton, Co-Founder of Balance here: Click here for Off The Chain podcast
Bumble Bee Foods Aims to Put All Its Fish on a Blockchain: Bumble Bee Foods is using blockchain technology to trace yellowfin tuna from the time it’s caught to the moment it hits store shelves. The San Diego-based seafood giant has been running the program for about a month on its “fair trade”-certified frozen tuna brand, Natural Blue by Anova. The tuna is sourced from small-scale fishing operations based on east Indonesian islands and it is set to go on sale in the U.S. in the coming weeks. Read more.
Winklevoss Twins Preach Trust, More Regulation for Crypto Market: Building trust is key to regaining confidence among cryptocurrency traders after the death of a prominent exchange executive prevented thousands of people from accessing their accounts, according to Tyler and Cameron Winklevoss.“There are a lot of carcasses on the road of crypto that we’ve seen and learned from,” Cameron Winklevoss said Friday at the South by Southwest conference in Austin, Texas. “At the end of the day it’s really a trust problem. You need some kind of regulation to promote positive outcomes.” Read more.
A Multibillion-Dollar Cryptocurrency Based on ‘Lies’: US Arrests Alleged OneCoin Leader: U.S. prosecutors in New York have arrested a “top leader” of the OneCoin project, saying it stole “billions” from investors through an alleged pyramid scheme. The U.S. Attorney for the Southern District of New York has indicted Ruja Ignatova and Konstantin Ignatov on charges of wire fraud, securities fraud and money laundering, claiming the two defrauded investors out of “billions of dollars” using a fraudulent cryptocurrency. Konstantin Ignatov was arrested on wire fraud charges at Los Angeles International Airport earlier this week as part of the investigation. Read more.
Fidelity’s Digital Asset Platform Goes Live With Select Clients: Fidelity Digital Assets, the digital currency wing of United States financial services giant Fidelity, is now live with a select group of clients. In a tweet, the firm wrote: “We are live with a select group of eligible clients and will continue rolling out slowly. Our solutions are focused on the needs of hedge funds, family offices, pensions, endowments, other institutional investors.” Read more.
Ethereum Creator Vitalik Buterin Proposes Wallet Fee to Fund Developers: Vitalik Buterin, the creator of the ethereum blockchain project, has proposed increasing user fees on the network for the purposes of supporting developers with sustainable funding. “I propose we consider supporting a community norm that client [and] wallet [developers] can [and] should charge a 1 gwei/gas fee for [transactions] sent through their wallet,” Buterin tweeted. Gas fees denominated in gwei are payments made by the user to compensate for the computational energy required to process and validate transactions on the ethereum blockchain. Read more.
If you enjoy reading “Off The Chain,” click here to tweet to tell others about it.
Nothing in this email is intended to serve as financial advice. Do your own research.