How Censorship-Resistant Digital Goods, DAOs and DEFI apps are driving a new "Digitalization Era"

Enterprises and Startups are crazy about the idea to use the Blockchain to track products, building trust and develop new services. In fact, Blockchain Technology is designed to work as a Triple-Entry Accounting to solve Cross-Boarder Trust with math.

Please not another story on how Bitcoin changed the world. But here’s the deal, whether Bitcoin survives or fails, the blockchain will continue to thrive and flourish, as will triple entry accounting.

From Daniel Jeffries on HackerNoon | Why Everyone Missed the Most Important Invention in the Last 500 Years

A blockchain solution could essentially allow for an automated third party verification by a distributed network to ensure that transactions are complete and accurate and unalterable.

From Matthew Spoke on Coindesk | How Blockchain Tech Will Change Auditing for Good

In the Bitcoin Network, the Triple-Entry Accounting works well for ten years as a censorship-resistant shared ledger without intermediaries thanks to the decentralization of its network.

After the idea of Turing-complete and Censorship-Resistant Scripts “Smart-Contracts” promoted by the Ethereum Project, finally, the Blockchain Technology and Decentralized Triple-Entry Ledgers can host more than Financial transactions.

In fact, we’re experiencing the rise of Decentralized Finance “DEFI”, with Decentralized Exchanges (like Uniswap, ForkDelta), Decentralized Stable Coins (Like DAI), Decentralized Loans (Like Compound), etc.

These applications work without any entity to trust, without a single point of failure and without involving Custodians, every transaction are made by Smart Contracts, and at the end of the day, these applications are more trustable than every institution.

If you compare it to existing technology outside of blockchain, finance is the sector that’s the most terrible. In many countries, even really developed ones like the United States, you’d be surprised how insanely inefficient it is to move money between accounts and once you start talking about international payments then it gets even worse.

From Vitalik Buterin at ETH Cape Town Conference 2019 | “Decentralized finance is going to come first”

A killer app of this technological wave is the concept of Decentralized Autonomous Organization “DAO”, using Fungible Tokens to use the Triple Entry Decentralized Ledger technology, to share voting rights and build scripted voting events to rule a new kind of Decentralized Organization securely and transparently.

Non-Fungible Tokens “NFTs”, built on top of Smart Contract standard ERC-721, is an excellent tool to Decentralize Non-Financial and Non-Scriptable Assets, in fact, they are unique tokens that can store unique pieces of information.

NFTs are already tested in the Gaming Industry as Exchangeable and Unique Collectibles involving some unique in-game features for holders. In this case, the value of a unique asset is based on the demand for the scripted application on top of it. The best example is Crypto Kitties; Rare Kitties NFTs have values because they can be used to generate new and more “Legendaries” in terms of rarity Kitties.

Collectibles, DAOs, and DEFI apps have the same approach in common: Building scripted features on top of their Smart-Contracts to creates new values and characteristics without needs to trust a Company or a Custodian.

This approach works for Scripted things, but if we want to Decentralized Tangible Assets or non-scripted objects, things are little bit more complicated.
For example, the existing approaches in the “Tokenization Bubble,” was to “Tokenize” assets just building Tokens with a custodian that recognize the connection from them to assets. This approach is not Censorship-Resistant.

For better understanding, This is an example I wrote in my last article on HackerNoon | A proposal for a worldwide regulation of Cryptocurrencies, DAOs, and Taxation

The main issue that the SEC wants to solve is to regulate the difference from custodian-based projects and projects with no need for a custodian or an entity to trust. Take, for example, the Tether, a custodian-based token.Every Tether is set to $1 due to the trust to an entity that stores $1 for every Tether created. In this Case the SEC has to be sure that the Tether’s issuer company (incorporated in Hong Kong) has this money in its bank account, because if exchanges or the entity behind Tether don’t recognize the value of Tether = $1, investors will remain with nothing.

Another Example can be in Real Estate, during the ICOs bubble of 2017 a lot of projects aimed to “Tokenize” houses, just building tokens on top of ETH that represent the asset in a non-scripted way.

Yes you are able to transfer a portion of the entire ownership of a house in a Triple-Entry Decentralized Ledger, but with huge a single point of failure, the connection between these tokens and the asset is not censorship-resistant, but is trusting a Custodian.

In this scenario, a lot of Enterprises and Startups are trying to understand how to enter in the space and solve Cross-Boarder trust in Services, Payments, Agreements, Governance, Supply Chain and Products Traceability, without being illegal and in the cheaper way possible.

First of all, Enterprises didn’t need to build Tokens or Crypto, but instead Solutions and Scripts on top of the existing one. Especially for regulatory issues.

From my last article on HackerNoon | A proposal for a worldwide regulation of Cryptocurrencies, DAOs, and Taxation.

In terms of regulations, if 100 companies use a Federated Blockchain to transact pieces of information (not values), and they choose to trust each other, there is no legal problem (it is like trusting the Titanic as an unsinkable ship… it means they don’t hurt anyone but themselves). But, when they transact money, they have to secure customers in a regulated way, providing all the certifications that a bank has.

Strategically, for Enterprises or Startups is better to use existing Stable Coins (Like DAI, Ps: not Tether or other Custodian-Based Stable Coins) and existing DEFI applications for financial transactions.

Using the DEFI Ecosystem rather than centralized FIAT and Old-School Finance ecosystem, is cheaper, because, as a CEO or CFO you don’t have to deal with complicated accounting expenses and you can transparently conduct your business in a Triple-Entry Ledger on top of a censorship-resistant Public Blockchain.

In terms of security, using DEFI apps allow you to transact without trusting banks or institutions 24/7 in a cheaper way without any possibility to be censored by governments, some financial cartel and even independently from malicious regulations (In some country regulations can censor entrepreneurship and free market).

DAOs is another exciting opportunity to solve ethical problems in decision making. In fact it can be used not only to rule an entire organization structure, but even to solve fake news, investing or ethical decisions without building lobbies of validators. Building a DAO with smart economic incentives is a tool to generate a distributed participation to answering unaddressed questions in a new way.

For example in MakerDAO, the protocol behind the Stable Coin DAI, the DAO is used to vote risks management decision in the math that maintain the value of DAI = $1. For more information here is explained how: https://makerdao.com/en/whitepaper/

The Enterprise and Startup world had tried to enter in the field building the “Private Blockchains Bubble”.

As I wrote on HackerNoon | Decentralized Data: “Why Blockchain is meaningless and Trustless is everything”

The blockchain is only a DB structure and trusts it without other features that create values in Blockchains Networks like Bitcoin, Ethereum is massively dangerous…The concept of Trusteless is what create values in a Blockchain network, the idea to validate transactions and logic by an algorithm without trusting entities.

Building private Blockchains can’t solve any Cross-Boarder problem, because a single entity or a federation of entities can manipulate every information on top of it, but this bubble was not bad at all, because Enterprises figured out how to rebuild their operations for this technological transition, in terms of R&D and they built a lot of helpful solutions, ready to be used adding some security layers.

By definition, private blockchains are also not truly open. They provide control (and leverage) to a select number of individuals. A truly open blockchain network — a public one — will always beat a semi-decentralized one. Why? The more decentralized, the better — because less control over users is better — and because the network of various counter-parties can grow faster as industry participants change. Finally, privacy and security. In an era when rarely a week goes by without news of a major data breach, the single best way to safeguard process integrity is on a public blockchain. Only a fully decentralized blockchain can protect against a single point of failure. Private blockchains are only as good as their weakest link.

From Matthew Spoke on Forbes | Private Blockchains Were A Good Start: But They Are Not The Future

NFT Technology (Collectibles) could be a solution for supply chains, traceability and to decentralized non-scripted things as a starting point. 

Building Decentralized Unique Digital Objects for an asset in Public Network could be a huge step forward If you want to solve Cross-Boarder Traceability of items, Ownership, and Supply Chain Trusting.

For example, if a company sell digital or tangible products, building NFTs for every products they made, is a good starting point to Securely Timestamp them transacting i the Blockchain some unique information and use the hash from the transaction as a unique traceability code. 

In this case products that are “NFT-Based Digitalized” can be recognized as not fake by everyone, because they are able to control the issuer wallet.

Obviously, to build a 100% Trustless Solution in tangible assets without trusting the company issuer, we have build a futuristic world where every product are made by machines driven by Decentralized AI Algorithms, positioned in some secure fabrics where human can’t have any kinds of physical access. BTW is not impossible in the future but for sure is not a short term scenario.

Using NFT as a starting point for items, the existence of an item have the security from the item itself and the NFT stored in a Public Network, without trust the issuer for its existence like in private or federated Blockchains. 

After the “NFT-Based Digitalization” step, Enterprises and Startups can build their own private, Off-Chain or Federated solutions, to test a lot of functions but on top of Public Recognized Digital Object.

In fact, the "NFT-Based Digitalization" on the Public Blockchain, can help to address the “Fisherman’s dilemma” on building Trust trough Layer 2 Technologies (Plasma | Z Snark). The Fisherman’s dilemma is explained by Vitalik Buterin in his post: The Dawn of Hybrid Layer 2 Protocols

Basically, there are two ways to try to cheat in a layer-2 system. The first is to publish invalid data to the blockchain. The second is to not publish data at all (eg. in Plasma, publishing the root hash of a new Plasma block to the main chain but without revealing the contents of the block to anyone). Published-but-invalid data is very easy to deal with, because once the data is published on-chain there are multiple ways to figure out unambiguously whether or not it’s valid, and an invalid submission is unambiguously invalid so the submitter can be heavily penalized. Unavailable data, on the other hand, is much harder to deal with, because even though unavailability can be detected if challenged, one cannot reliably determine whose fault the non-publication is, especially if data is withheld by default and revealed on-demand only when some verification mechanism tries to verify its availability. 

With my friend Marco Vasapollo we have developed ROBE, and open-source protocol on top of Ethereum and AION to easily create Chained NFTs using HTML standards for information, To accelerate this approach, and helping everyone to use NFTs.

More at http://www.robe.ninja