The Times They Are A Changin’ — Towards the Token Economy

Last night, Liam Bell and I presented on our work at a Scottish Blockchain Meetup. I think it is one of the most vibrant and stimulating…

The Times They Are A Changin’ — Towards the Token Economy

Recently, Liam Bell and I presented on our work at a Scottish Blockchain Meetup. I think it is one of the most vibrant and stimulating Meetup groups that I have come across, and, at the end, the room was full of people with great ideas on innovation. Edinburgh, as a host last night, is a truly wonderful city, and a place which is just brimming with smart people who really want to make a difference in our existing thinking.

Liam outlined our collaboration with Blockpass, and with the creation of our new Blockpass ID Lab. In just a few weeks, we already have on-going collaborations in the construction industry, food provenance, and in agriculture.

Our basic pitch for the main talk last night is that the Internet has scaled from a 20th Century viewpoint of the world. It, in no way, can really be fully trusted for anything that happens on it. Why, if a person in your household views shoes on Amazon, does someone else who connects to the same network receive recommendations related to shoes? That is a broken Internet, which is continually tracking our connections, and mining our data. The emails we receive have as much trustworthiness as the telegram systems we used in the 19th Century.

And so, at the start of the presentation, I proposed some basic things:

I pitched the concept of both identity and ownership, and what they really mean in the 21st Century. For me, the core of a future identity system is the ownership (or knowledge) of a private key. We then have the associated public key to prove my identity to someone. Our systems of the future — both technical and legal — much respect the ownership of these keys, in the same way that my signature is respected.

Within this new world, though, we are faced with many new questions that must be answered:

But the focus of the talk was on the proposed Blockchain Act in Liechtenstein. Liechtenstein’s Government is the first in the world to aim to enact a Blockchain Act. This will support a legal infrastructure for blockchain technology, and to also support a token economy. Within tokens, we define applications which trade only with tokens. These tokens can then define costs of effort, and eventually could be “cashed-out” into fiat currency. Economic activity could then be enacted with tokens rather than currency — the creation of the token economy [details]:

The Act

The consultation document [here] defines a trusted technology transaction systems (VT systems). For the first time, we see blockchain methods being translated into legal speak, with a token being defined as:

enable the transformation of the ‘real’ world to blockchain systems while ensuring legal certainty, thereby opening up the full application potential of the token economy.

The Act also defines methods which aim to protect client interests from scam agents, and these are at the core of cleaning up the cryptocurrency market place. It defines “legal certainty” for blockchain implementation and projects a world where our existing assets are added onto blockchain, and then traded there. Our centralised economic trading models may thus disappear, and a fully distributed and more trusted model replaces old fashioned practices.

The tokens that are likely to be defined are:

  • Payment tokens (currency coins). This includes cryptocurrency coins.
  • Utility tokens. This allows for a spend against a service.
  • Security tokens (equity and assets). These could define the ownership of an asset.

Overall the Act aims to properly define the key legal consequences of the ownership, possession and transfer of tokens:

The Act defines:

  • Subject and purpose (Art. 1 VE-VTG): This defines that the main focus is around the protection of users, and to thus build confidence in tokens.
  • Trusted technologies (Art. 3 VE-VTG): This defines the technology that is required to build a VT.
  • Definitions (Art. 5 VE-VTG): This defines a token as something that defines claims of a person to the rights to goods.
  • Rights of disposal (Art. 6 ff. VE-VTG): This defines the rights to transfer tokens, and is normally defined by the owner of a private key signing the transaction. A disposition is defined as the transfer of the disposition authorization on the token. Within the Act, it is defined that a buyer has the rights to dispose of a token, even if the seller was not authorized to dispose of the same token.
  • Requirements for VT service providers (Art. 13 ff. VE-VTG): This defines the entities who will perform services within the VT. These entities must provide an organisational structure, control mechanisms and a minimum amount of capital.
  • Basic information on the issuance of tokens (Art. 28 ff. VE-VTG): This defines the assurance in the issuing of tokens and their legal requirements. They must provide a minimum amount of information, such as the technology used, the purpose of the token, and any risks. There should be at least 10 years of issuance, and to also prevent token cloning, along with prevention of a token not being released with the same rights.
  • Obligation to register (Art. 36 ff. VE-VTG): This defines that service providers must register into the Financial Market Authority (FMA) before starting their commercial operation.
  • Supervision (Art. 42 ff. VE-VTG): This defines that the FMA implements the Act.
  • Penal provisions (Art. 49 ff. VE-VTG)

A token protector is defined as someone who holds the token in their own name, and on behalf of the owner. Custodians are then defined as a person who can provide custodial services for the private keys of a third party. Overall the custodian should be able to operate without disruption. They should also provide strong controls against the loss or misuse of private keys, and provide separation between business assets and the private keys of their customer.

In order to clean-up on those to operation within the token economy, the Act requires the following entities to register with the FMA: Token issuers; token service protectors; token service custodians; token service exchange platforms; physical validators; and token service identity service providers.

The Act then defines that tokens held by a company will not be part of their estate in the case of bankruptcy, and must be held separately from the companies other assets. A fine for beaches of the Blockchain Act will range from CHF20,000 (around 20K) to CHF30,000 (around $30K).

The core of this new economy must be the ownership of private keys, in order to truly prove identity. But how will citizens know how to map this to their real identity? Well that’s where our partnership with Blockpass comes in, and where we map strongly focused cryptography to real identity, and make the whole thing useable by humans. Blockpass truly understand what identity is, and how it can be scaled into a tokenized world.

Conclusion

The debate is nearly over … so let’s get on, and build a tokenized world. To fully form this, we need a legal infrastructure in place. In the future, I will own my car, as I have the token for it, and not that I am a name on a database in some government department. I will have complete ownership of something, and I will control my own identity.

The world is watching Liechtenstein for its Blockchain Act, and countries around the world must act soon in order to apply their laws into a tokenized world, and respect that cryptography signing is (almost) infinitely more trustworthy than wet signatures. Our legal infrastructure must respect that the ownership and governance of a private key and for tokens, otherwise we will never progress past our 20th Century world.