The smart-business paradigm

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This post originally appeared on the ZeMing M. Gao’s website, and we republished with permission from the author. Read the full piece here.

A revolution to how business relationships, structures, organizations, assets, contracts, transactions, and records are created, managed and serviced is happening, and people will soon notice.

It is an important part of the biggest business revolution since the invention of computers and Internet.

We are talking about smart-business as a new paradigm (analogous to smart-phone being a new paradigm for electronics) which encompasses all aspects of business, including relationships, organizations, structures, contracts, transactions, and records.

The “business” part in smart-business broadly refers to any economic activities and non-economic activities, whether they are commercial, noncommercial, financial, or legal in nature.

The “smart” part is where the real transformation lies:

tokenization, smart contracts, software contracts, virtualization, and AI.

Just imagine all the above items and transactions are created and managed using a reliable and scalable public blockchain which combines interoperability and security, something that has not been possible with the existing computer, cloud and database systems.

A use scenario

Think about the following example:

You manage a fund, which has general partners (GPs) and limited partners (LPs). You need to build the organizational structure of the fund, which defines a detailed agreement between the GPs and LPs.

What if there is a blockchain-based system that can do all the following:

• the interests of the parties are tokenized to facilitate easier management;
• a “smart account” created on blockchain under the name of the fund (to replace a bank account);
• the smart account is accessible by multiple designated parties of the fund for maximum transparency;
• the smart account has a threshold payment amount above which any payout requires multiple signatures such as designated GPs or even LPs for ultimate accountability;
• style=”padding-bottom: 10px;”all signatures are managed digitally and automatically;
• the smart account is connected with multiple predefined distribution accounts, such that the payouts are managed by automated smart contracts;
• beyond the above basic features, the system has a software suite that can create coded contracts to control various stakeholders’ interests of the company. For example, fund terms like annual management fees, carry interest, layered waterfall distribution schemes, are all preprogrammed under the framework of smart contracts and tokenization; and
• all data of the fund is managed using a blockchain-based system that offers single source of truth (SSoT), and verifiable, auditable time-stamped data integrity.

The above example of a fund is just for illustration. It can be any business, any entity, any organization, or even individuals.

Why can’t the existing computer, cloud and database systems do the same?

The reason is both complicated and simple, complicated technically but simple conceptually: with the current systems, there is a fundamental dilemma between interoperability and security. If you want interoperability, you increase the openness but lose security; but if you want security, you increase closeness but lose interoperability.

This is the fundamental reason why today’s IT systems and data are isolated. Even within the same company, you have data scattered all of the places, across multiple systems. It is common that people within the same company don’t even know where the common and reliable source of the truth is located within the company, because the systems don’t have “Single Source of Truth” (SSoT). And the problem is much worse across different companies.

Very complex systems have been built to partially solve these problems, and these systems are not only expensive but also applicable only within limited verticals, and have no wide horizontal applicability, nor scalability. The examples include financial messaging (eg. bank to bank (SWIFT), security exchanges (FIX) and fiat payment systems (credit cards, e-money, etc.), as well as other EDI standards like X12 which are used in various industries such as supply chains, etc.

But all these problems can be solved using blockchain technology.

Which blockchain?

However, not all blockchains are suitable for providing a meaningful solution to these problems.

Most blockchain offerings today are scams promoting fake digital currencies and tokens by taking advantage of people’s ignorance and greed, rather than undertaking any serious and long-term technological solutions to useful problems. The current digital currency market is almost entirely driven by scams and gambling. Not only do these blockchains fail to provide a solution, but they are also in fact the worst enemies of real solutions because they create a deadly divergence of human resources and capital from useful technologies.

In rare cases of serious and honest technological undertakings, the question still remains whether the fundamental architecture is right for providing long-term solutions to the smart-business paradigm.

The smart-business paradigm requires a platform that has all of the following characteristics:

1. A global, public, immutable, and reliable blockchain ledger managing and time-stamping contracts and documents.

Private blockchains might be useful for certain niche, a public blockchain is necessary for a reliable global solution.

Being “public” does not mean that the data is accessible to everyone. Storing data on a public blockchain does not mean giving everyone full access. Data may be visible in binaries or even in plain text, but not applicable without a properly authorized application. Certain portions of data can be encrypted (even though the blockchain itself is not encrypted). Even without encryption, access can be selectively and securely controlled when the blockchain provides a global fractal database which is sliced into smaller user-applicable databases with authorization filters. This is akin to the current Internet data management. The data of a bank may be private but can be placed on a public Internet and accessed by various users through a secure application layer filtering according to user privileges. But the blockchain provides better security in its own way.

In addition, although a lot of data can be on-chain, data is not required to be on-chain to enjoy the benefit of the timestamped immutability and verification of the blockchain. Data verification reference points using hashes can go a long way in data integrity. An ideal blockchain should offer a range of options to users.

2. A tokenization system that not only allows reliable smart contracts but is also compatible with dynamic and highly expressive software contracts.

“Smart contracts” are both machine-readable and machine executable, while “software contracts” are machine-readable/manageable but not machine executable. The Ricardian contract is an example of such “software contracts”, which are smarter than paper contracts, but cannot be quite classified as smart contracts.

Both smart contracts and software contracts are necessary, because some general aspects of contracting in the real business world cannot be ever made into smart contracts. The limitation is not about coding ability, but about the human reality.

This general aspect of contracts may either stay with the traditional way (extremely inefficient), or be reformed using a purposeful software framework in connection with tokenization and smart contracts. By “in connection with” I mean the two different things coexist, rather than everything become a token and smart contract, which is not realistic.

The above software framework stands as an opportunity for software contracts, but the blockchain along with its tokenization and smart contracts must be compatible with such framework for software contracts.

Being dynamic means that the contract (i) can be properly enforced and modified (as per parties’ agreement), (ii) is interoperable with external third-party providers (contract administrators, contract operators, identity oracles, authority oracles etc.), and (iii) allows efficient interference of the legal system.

Being highly expressive means the contract can fully embody multiparty full-blown commercial contracts that carry the full force of the traditional contracts in prose, to reflect the business reality, yet at the same time makes contract formation highly efficient through standardization.

The above two requirements are both necessary because most current smart contract systems fail to realize that (i) the real-world contracts are ultimately legal instruments subject to the economic, legal, and technical realities, and tokens themselves have no value unless the actual ownership rights and responsibilities are clearly defined and enforceable in the real world; and (ii) the contracts must reflect the full content of the real world contracts, yet are capable of automating the administration of such contracts efficiently, like Ricardian contracts could do.

From experience, this is very difficult. Most people don’t even realize such needs, much less be able to understand any solutions. But for those few who do, just having them in principle does not mean the system actually has it in reality.

3. A contract system that has autonomous agents (smart contract daemons) that are able to automatically search (scan) the on-chain events and be automatically notified for any changes or events that are consequential to a contract.

In the lifetime of a contract there are many events, starting from formation, offering, acceptance, messaging, execution, modification, canceling, termination, confiscation, etc. Today, people tend to think of smart contracts in such simple but unhelpful terms: something happens, and a smart contract is triggered to automatically do something. The problem is that people’s understanding of “something happens” and “triggering” is usually an abstract idea in the mind, at best from their experience in the traditional contract world. For example, a party drafted a contract, and the contract was signed by two parties. In the non-smart contract world, these events happen because some interpersonal communications or interactions happen in the human space. For example, people physically show up at a certain location to meet. Or one party sends an email to the other party, etc.

However, smart contracts and software contracts cannot require the happening of such real-world events, nor can they simply assume the effects of such events. If they required such, there would be very little advantage for smart contracts and software contracts over traditional contracts. But if they assumed such, things will simply not work as imagined.

At an abstract level, contracting is essentially a series of requests and responses from various parties involved. Every form of contracting has to have this essential process. The question is how these requests and responses are handled.

Autonomous agents as described above are the most effective way to fully realize the potential of smart contracts.

4. A tokenization system that uses a standard open protocol.

This may seem unnecessary if your application such as an NFT is a separate niche, but would eventually be important for adoption, popularity, adaptability, and sustainability. The future world is an open but secure world, and systems that are closed will be doomed or at least severely limited.

5. Essentially unlimited/unbounded Transactions Per Second (TPS).

This is necessary because even if your own applications don’t require high TPS, you must still prevent a system from being developed that ends up isolated. That is, no one wants to build a solution on a blockchain/ledger system that has no long-term future and cannot handle millions of transactions per second (TPS) when the next generation Internet based on blockchain arrives.

Which blockchain has the best chance to become the value transaction layer on the future Internet? Hint: that blockchain would need to have L1 capacity of 1B txs/s, and L2 1T txs/s, or somewhere around that order of magnitude.

With the current blockchains offering TPS as low as 5–15 (BTC and Ethereum) and at best promising several thousands (Cardano and Solana), people think that TPS in millions is a ridiculous outlook, say nothing of billions or trillions. But consider this: the Internet communication capacity is about 10¹³ kb/s now, doubling less than every three years. (See, for example, a 2011 paper on Science estimated the communication capacity of Internet was 3 x 10¹² kb/s. Doubling every 3 years, it’d be 10¹³ now, 10¹⁴ kb/s in 10 yrs. The World’s Technological Capacity to Store, Communicate, and Compute Information (science.org)

If only1/100 of the Internet communication capacity needs to be on a value transaction layer, and assuming an average transaction size of 1kb, that is 10¹² txs/s, or TPS one trillion. For reference, the minimum transaction size on bitcoin blockchain is 0.25 kb.

6. True PoW consensus that ensures an incorruptible system.

I do not believe in other consensuses such as PoS (Ethereum 2.0, Cardano) or PoH (Solana), because I believe they fundamentally belong to the failed communism/socialism planned economy philosophy, although they would firmly deny that.

I wrote about what I believe in this article: Proof of Work (PoW) is the Only Way to Prevent Corruption.

7. A system based on a blockchain that ultimately may become the standard for enterprise secure data paradigm.

Enterprise secure data is part of the smart-business paradigm.

An example: the Kensei by nchain.com.

This is a long-term goal and can be temporarily overwritten by other conditions if in conflicts, but I believe that any developments with a grand vision of smart-business paradigm will eventually expand and connect to other parts of the enterprise data systems.

I believe there is only one blockchain in the world that has these requisite capabilities, although I am open-minded and wish to see more candidates.

Bitcoin Satoshi Vision (BSV) is the true Bitcoin blockchain based on Satoshi Nakamoto’s white paper and design. It is the only blockchain that has the following properties:

• Unbounded scalability (orders of magnitude more scalable, designed to reach TPS in the millions);
• Supremely secure and reliable (the only blockchain that has the maximal PoW security track record);
• Extremely low cost (orders of magnitude less expensive, at 1/100th of a cent per transaction);
• Instantly verifiable transactions (due to UTXO, SPV and verification-before-the-next-chain);
• Full smart contract capacity with Turing completeness.

For more information, we recommend you read the following articles:

• BTC and BSV, what is the real difference?
• Why BSV is a value creating system, while BTC a value absorbing system?
• Proof of Work (PoW) is the only way to prevent corruption
• Wright is Satoshi, and Satoshi is Right
• Why I Believe Craig Wright is Most Likely Satoshi?

Which tokenization system?

The BSV blockchain ecosystem supports all kinds of tokenization protocols, including Tokenized, STAS, RUN, Elas, and several other emerging ones.

These protocols each has its unique design, and its strength suited for certain types of applications, and therefore likely will coexist in a total ecosystem.

Of these protocols, some may be more suited for native digital assets (such as virtual assets) that require no or little interference of the existing business and legal framework, but some may be more suited for digitized or virtualized real assets that already exist in a traditional business world and require complex interference and collaboration of the existing business and legal framework.

For example, STAS tokenization protocol creates satoshi-based tokens (tokens created directly based on native satoshi tokens), and further provides on-chain solutions for token logic (i.e., all business logics of the tokens are coded using on-chain scripts). This elegant design makes satoshi tokens “digital real estates” on which many things can be built. It is particularly suitable for creating or converting digital assets to commodities that can be standardized, and efficiently delivered and traded. SLictionary.com, for example, has used STAS tokens to create cashflow-generating automated micro-businesses each based on a customer-created word definition. The concept can be extended to many different areas.

Because the “digital real estates” created by STAS tokenization protocol exist in a completely interconnected and a publicly verifiable “universe” defined by the native UTXO and DAGs on the bitcoin blockchain, they are far superior to other types of virtual assets created within the so-called metaverse. I believe the metaverse must eventually move to a unifying blockchain, because outside of a completely interconnected and publicly verifiable universe, the metaverse is a total chaos without a solid and universal foundation for identity and property ownership. By “identity” I broadly refer to the identities of real persons, virtual persons, and any physical objects or virtual objects.

However, for a tokenization/contracting system that is required to accommodate complex off-chain multiparty business relations and highly expressive commercial agreements, another BSV-based protocol Tokenized offers a powerful open platform solution.

Tokenized protocol creates data-based tokens using an L2 system but places all transaction verification and messaging on-chain. This still takes advantage of the blockchain’s immutable timestamped verifications but allows highly expressive and flexible contracting to accommodate the needs of existing real-world businesses.

For example, Tokenized’s L2 solution may be advantageous in the following areas:

(i) areas where the granularity and permutations of tokenization are so high-level that the limited number of satoshi tokens becomes a scarcity and a cost issue;

(ii) areas where complex business logic is involved, such as financial agreements subject to variable regulatory restrictions, business structures that have highly complex business relations, or business agreements subject to complex business logic (e.g., supply chain agreements, financial agreements, intellectual property licensing agreements etc.); or

(iii) agreements involving multiple parties which do not necessarily want to know about blockchain, tokenization, smart contracts and software contracts but are nonetheless needed to continue to provide services and functions in the new framework.

In addition, Tokenized’s L2 solution allows using popular programming languages such as Go and YAML for much of the software development from data constructs, API to application-level programs.

Regardless of what one may need, a new way for creating, managing and servicing business relationships, structures, organizations, assets, transactions, and records using tokenization, smart contracts and software contracts is quickly becoming a reality with the BSV blockchain technology and the tokenization/smart contract protocols and platforms.

Watch: CoinGeek New York panel, Tokenized Assets, Stablecoins and Custody with BSV