Asset tokenization needs a global public blockchain as a universal system of record
This post originally appeared on ZeMing M. Gao’s website, and we republished with permission from the author. Read the full piece here.
According to the Boston Consulting Group (BCG), the tokenization of global illiquid assets is estimated to be a $16 trillion business opportunity by 2030, with tokenized financial assets, such as patents, representing $3 trillion of this business opportunity by 2030. View the IPwe post on LinkedIn.
Great opportunities lie ahead with the tokenization of assets, and IPwe is leading the way in intellectual property.
I offer my own, perhaps even different, perspective:
The most basic essence of tokenization is to add physicality to digital things (see: Bit & Coin – The merging of physicality and digitality).
Because every blockchain that has an element of immutability and decentralization creates a certain level of physicality.
But not all blockchains are created equal. Not everyone will create the kind of physicality that is necessary. Digital physicality will be measured not only in a computational sense, but also in a networked, social, legal and economic sense. And the level of physicality required is going to rise along with the rate of adoption until most blockchains are either rendered useless or pushed to upper layers to overlay networks.
For an asset to be represented by “a set of bytes” that gains effective physicality, the underlying blockchain must at least:
(1) be UTXO-based (versus account-based);
(2) uses corruption-resistant Proof-of-Work consensus;
(3) has unlimited scalability (it doesn’t matter if a particular application has no demand for high TPS because everything will converge, and scalability must be measured collectively both globally and across all industries);
(4) is compatible with IPv6 at the base layer of the new Internet;
(5) finally achieves universality (by becoming the globally recognized Single Source of Truth to ensure the trustworthiness and reliability of asset records).
The above #5 may not be obvious, but is inevitable. When it comes to asset tokenization, we don’t play computer games. The tokenization solution must offer a reality for people everywhere to trust without ambiguity.
Just think of the conventional assets like houses and cars that are registered with a local government. Will the registration system work if there are multiple registrations representing different and conflicting sources and authorities? Of course not.
Furthermore, even in the case where there is only one official registration, if real estate transactions can take place without registration and still be accepted and respected by the private parties with confidence, the whole system will not work either. In today’s systems, private transactions of houses and cars take place without registration, but very rarely, and even in the rare cases such transactions do take place, it is mostly by mistake, not on purpose. Even with such a low incidence, an entire body of legislation governing regulation, title and ownership must be in place to govern the property transfers.
Clearly, the single source of truth is the most important feature of a public property registration system.
A local property registration system works because it represents a single source of truth. And the reason it can be local, not global, is just because those assets are physically located.
But once you tokenize assets, and move assets onto a public blockchain, suddenly your ‘local’ is ‘global’ by definition. Just as multiple registrations for local assets will not work, multiple registrations on different blockchains for global assets will not work.
This is the fundamental issue of “ledger universality”, which is the biggest weakness of today’s digital accounting system. (See Triple Entry Accounting). The collapse of the digital currency exchange FTX and, later, the almost useless attempt at “Proof of Reserves” by other virtual asset exchanges highlight this problem. That is because, without a universal book, it may be easy to prove “what is” but not possible to prove “what is not.”
Ultimately, choosing the right blockchain will matter. It doesn’t seem to matter much now, just because everything is still in the experimental stage, individually.
See more: Bit & Coin – The merging of physicality and digitality.
See: BSV Global Blockchain Convention panel, Tokenizing Assets & Securities on Blockchain
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