 Some of you may remember me from the early days of Ethereum. I came in to manage the project, release Kana, I guess it was late 2014. It's been about a year with the foundation and I have been pretty quiet for a couple of years because I was working on a big unsolved problem. So when I was still at the foundation, I started building outreach to the city of London legal community because I knew that we were going to need some way of enforcing smart contracts as legal contracts. And the template that I was working from was Ian Gregg's recordian contract model. So this entire talk is basically an update of the Ian Gregg recordian contract model from the perspective of trying to turn that into a generically available technology which we can use all over the ecosystem for basically everything where we need to touch what we call fiat assets. So basically I spent a lot of time rolling around with lawyers, this is what I have learned. So the first concept is the concept of a fiat asset. We have a nice clean compartment for crypto assets, we all kind of know how that works. We know that possession of the keys is possession of the asset, all the rest of this. Fiat assets are the assets that are controlled by governments and a nice way of thinking about it is if the legal status of the asset changes when you cross a border with the asset, it's a fiat asset. So if I take my wallet out and I put it on the street in London, and it's later my wallet is gone and the police don't want to know. If I take my wallet and I put it out on the street in Saudi Arabia I come back in two weeks and it's surrounded by traffic cones. So that is an example of a fiat asset, the local governance regime directly controls how the asset works. The asset is in a sense produced by the governance of the material world that the nation state provides and this is the world of fiat. Now fiat is not just fiat currency, it's houses because there are national property registers. It's cars, it's anything that has regulation attached to it. That's the fiat world. So the question is how do we control fiat assets with code? Simple enough. So I want to put this in the context of global trade, right? Right now something like 50% of global trade goes over high-frequency trading systems which are basically enormous server farms where they measure out the cables to the trading computers basically to the millimetre so that nobody gets an advantage in trade because they've got a shorter cable and they can make decisions faster. We're in an age when nearly all of our really big global systems are directly affected by the speed of light delay, right? GPS works on the speed of light delay, HFT is optimised for speed of light delay, Google Spanner gives you a 7 millisecond window in which a transaction could have happened so they just put a little delay and that's why things like Google Docs don't get screwed up when you use them internationally. And we've got blockchain which solves the light speed delay problem which prevents us from synchronising the computers with a batch of block, right? 10 minutes for Bitcoin, 15 seconds for Ethereum. That's there to manage the speed of light delay. So my contention is that global trade is either going to be completely centralised or you're going to have to synchronise computers internationally to conduct global trade and for that it's either going to be a blockchain or something equivalent. So I'm completely convinced that the synchronisation of the world's computers for all purposes of global trade is going to wind up on a blockchain or a closely equivalent technology. This is the big game, right? This is what we're chasing and in that process we can either wind up with a better world because that same system tracks carbon, tracks slavery, tracks environmental pollution, tracks political oppression in the regimes in which these things were produced or we can have a global system that washes all hands and optimises all payments and leaves you with no record keeping. So how we implement this transition from paper-based trade to computer-based trade is hugely going to affect the everyday economic reality for the entire planet. This is a fight that it's worth us participating in and it's a fight that it's important that we win. The balance of power that shapes global trade is a complex adaptive system. It's a set of multiple competing forces that are struggling for control of the society, right? We are essentially in the people part of that group, right? We're not in a single enormous global faceless corporation run by one massive shareholder, right? We are actually an assemblage of the people. So our position in this is that we the people attempt to represent a better future by implementing a set of technologies that give us access to a better world and that economically out-compete the competitors for that role, right? I mean, one way that I talk about this is Star Trek loyalists or cultural loyalists were kind of the science fiction faction that are trying to get to a preferable future and to get there we have to out-compete the state and the corporations to arrive there, right? This stuff is all extremely political. We are not less political than the Bitcoin community. We're just a little slower to figure out what our values are. But it's the same game. It's just we're going after a much, much wider spectrum of activities than just competing with states to issue currency. It's a much broader perspective. So this is our issue, right? We are having a horrible problem breaking out into the real world so that we can use smart contracts to control fiat assets. Until we solve this problem, we are not fully empowered, right? We can't get hold of the future and shape the future because as soon as we get outside of the world of smart contracts outside the world of crypto assets, we're suddenly powerless. The magic stops working. We have a threshold and we can't get past it. So what I'm going to tell you is I've breached that threshold but the solution is kind of ugly, right? I know how to get to the real world now. I know how to control the smart contracts. Some of you are going to hate what I have to say. Some of you are going to love it. Please, if you find a better way of doing it, let me know. But let's go. So 50 trillion of assets a year. I've already talked about the size of this. It's worth noting B to C on credit cards gave us three of the world's five biggest companies, right? B to B is conservatively 20 times the size of the entire B to C e-commerce market. It's a vast pool of transactions. And if we could figure out how to get into that market, it's a very, very big game, right? The entire e-commerce game is about two and a half billion trillion dollars of transactions a year. There's a vast space next door, which is completely underserved because credit cards are no good for B to B payments. This is all of the real world stuff, right? 200-acre robot ports tied together by paper contracts and bills elated. If we could figure out how to get into this game, we become a global economic superpower and our values become amplified. If we can't get into this game, we remain relatively marginalized in an environment which is increasingly going to be regulated by people that don't like our values, right? We have to move into the real world. So the first thing that we need to be able to do is we need to be able to identify real-world assets in a way that's unique enough to get control of them. We need the equivalent of IP addresses. We need the equivalent of DNS. We need the equivalent of cryptographic hashes. And the world is already filled with assets that have these numbers, and there are lots of numbering schemes to give assets numbers. These numbering schemes are under constant attack. The top one is a banknote. The middle one is a car registration number. The bottom one is a laptop number. All of those kind of structures are constantly under pressure from things like counterfeit goods. But even if you just start the game with these numbers, it puts you at parity with the real world. If you can then make these numbers properly cryptographic and bind them to a chain at point of manufacture, you get better than the real world. Lots of projects working on that for things like drug delivery. So it's not that the real world is unenumerated and unidentifiable, we can't actually get hold of things. The problem is that if we get hold of things without an appropriate binding to some kind of legal entity, you don't have any ability to control the asset. You can identify it, but you can't control it. So the first piece of new stuff that we're building out is a thing called an asset passport. And an asset passport is basically digital identity documents on the self sovereign model more or less for assets. And it's implemented to handle the kind of squishiness of the real world using a set of staked partners that do things like value the asset, identify the asset, verify the asset, it doesn't have more than one owner and these kind of processes. So you have an asset, you take all the relevant legal facts about the asset, you attach a stake to each one of the legal facts in case the fact is wrong, and then you bundle that all up into a nice machine readable bundle. And this asset passporting process is the first step in getting an asset onto the blockchain and under sovereign contract control. Does this make sense so far? That's a pretty easy thing to conceive of. There's no magic there, we haven't hit the hard part yet. Second thing, automated custodians. This is kind of where the fun begins. So a custodian is a corporation or a trust. It could be something like a bank. And it has the legal requirement of owning an asset as a proxy for some other actor in the system. Now these things are all over the commercial world. They handle goodness knows billions or trillions of transactions a year that are an unenumerated number of these things. Different jurisdictions handle them in very different ways. So the job of the custodian is to look to the digital world as if it's a smart contract and to the analogue world as if it's a paper contract. So it's basically the structural equivalent of the Ricardian contract. The Ricardian contract has a digital component which is a smart contract. It has an analogue component which is a paper contract. And it relies on an arbitrator to interpret both sides of that in a successful way. And that puts a lot of load on the arbitrators. It's very hard to find qualified arbitrators. In this model, rather than having that element which has a foot in both worlds be instantiated as a contract pair, it's instantiated as a legal institution. One side of the institution looks like a smart contract. You call the contract and it does things. The other side looks like an analogue institution which has a full set of regulatory licenses. So this thing is the adapter between the smart contract world and the legal world. And what works to make that happen is a concept that we take from the crypto world which is staking. These things have extremely strong contracts, insurance, indemnification, regulation, dispute resolution, arbitration, every single mechanism you can use to make sure that the automated custodian does exactly what the smart contract tells it to do is deployed to give us a nice clean interface between the fiat world and the crypto world. And in this direction, this is a unidirectional interface you write to the material world by writing to the smart contracts that drive the automated custodian. Now at this point, what we've introduced here is a point of centralization. So if you imagine a single automated custodian for the entire planet, you can see that that might have some issues. Let's go back to that a little further in. Does this all make sense so far? I want to make sure that we don't, because the legal machinery around building these things is seriously non-trivial. So that is a very complex legal object. Multiple layers of corporations, complex legal instrumentation, different jurisdictions implement in different ways. It's a really, really serious piece of work to build one of these things. Never mind to build a planet's worth of them. So what comes out of that is that the assets which have passports and which are embedded inside of a custodian are now what we term smart property. So smart property is where you take an asset, you take an object, you bind it to a set of metadata, which is the asset passporting process. So now the object is, for example, searchable. You could figure out where it is and who owns it because you can interrogate the metadata, which is on chain. So it chooses to publish a set of, essentially API hooks, a contract endpoints that you can hook. You could then do things like buy the asset directly on chain, and as long as the asset is correctly lodged through the custodian, as soon as you put the money into the smart contract, you're now the legal owner of the asset. And that works equally well for a single asset as it works for a house or a portfolio of stocks or anything else, because the legal machinery of the custodians is able to correctly address any legal object. All fiat property has the necessary handles to be embedded in a custodian, and at that point, as long as you've got the correct smart contracts and the correct legal contracts, you can use the existing machinery of state to get hold of any physical asset and turn it into a blockchain addressable asset. It's a ton of legal work, but the engineering is sound and you can actually do this. So what this gives you is a world in which the fiat assets are as easy to access as URLs. You could, in theory, in fact, drive one of these automated custodians using standard web technologies. You could just publish a bunch of APIs, but the problem then is, by the time you've built the necessary security and identity machinery around those APIs, you might as well have used the blockchain. It builds a very, very different model of how we think about the world. So I'm going to run through that again. You start with a bare piece of fiat property that you cannot address on-chain because it has no identity. There's nothing to talk to. We attach a set of metadata to that on-chain. That gives us a way of indexing the object. We can talk about the object. We still don't have control of it, but at least now it exists. We take control of it by giving it to an asset custodian, and that custodian is automated to the point where what the smart contracts tell it to do it legally performs or it pays. A very ordinary model inside of the crypto universe, we bind the asset to the smart contract using the legal authority of the custodians. At that point, we now have real control of assets. Those assets then form a category of things called smart property, and the smart property assets can do whatever you tell them to do. Now, that is a way of totally unifying the physical and the digital from the perspective of both the blockchain where you're writing out into the real world but also from the perspective of the governments that control so much physical matter. Because these systems look to the real world exactly like the real world. An automated custodian is just a custodian and there are thousands and thousands and thousands of custodians. It's a seamless integration. It's not that there's a clunky bridge. What we have is a container which is a set of legal engineering and smart contract engineering and contract engineering which takes all of the messy mismatches between the crypto world and the real world and manages them in a completely controlled environment. So it's not that there's no complexity there. It's not that there's no trickery. It's not that the real world and the fiat world are the same place. It's that you build a set of machinery which matches these expectations in a way which makes the contracts completely coherent across both the fiat and the crypto domain. In software engineering, you've all seen systems that work that way. In any situation where you've got two technologies which are of completely different generations, you wind up having to build a bunch of difficult, complicated interface code. Anytime you interface with legacy systems, you wind up with legacy system adapters. So this model, the smart property registers and the asset custodians and the passports, that is the equivalent of the legacy adapters which give us direct access to the namespace defined by the nation states. It's a way of taking all the assets which are currently under nation state governance, making them visible on-chain and moving them around. And this is the key, it's the magic, to enable us to get into the next step of blockchain growth. This is the adoption mechanism. Until we can touch the real world, we can't go anywhere. The security token model, which is currently getting so much play, is a very simplified model of doing this. We take a single legal right which is the ownership of an asset. We figure out how to get that legal right correctly represented on chain as a security token and then we use the standard tokenization machinery to bring these things to market. That takes just a single legal right and automates it in an on-chain way. But all that allows us to do is own things and build portfolios of property. It doesn't generate any kind of new functions. You can't use it to start new businesses. It's just the ownership function. What we really want to be able to do is something much bigger and more complex. What we want to be able to do is take all of the functions that a thing could have and build machinery around those functions. If you have something like an apartment, you can buy it, you could sell it, you could rent it, you could auction it, you could rent it on short terms like an Airbnb model, you could contract out the maintenance on it. There must be 50 different legal rights associated with an apartment. What you want is to be able to bring the entire suite of legal competences into a smart contract environment where you could get the entire set. What that gives us is what we think of as being smart property. It's the ability to fully drive the APIs of the real world from blockchain smart contracts. You could imagine the wallet software where you take something out of your phone and it gives you an interface that looks like the property screen from an MMO. Here's all the stuff that you own. Basically, you drag it to your friend's face and you say, lend, and it just goes off and does a set of transactions that transfers the necessary rights so that the bicycle is your friend's until it gives it back to you. That gives you all the insurance liability if your bicycle breaks. You take your house, you drag it to Securitize, it hands you back a wallet full of security tokens. You can then sell some of those to somebody that you owe some money to. You've got 5% percent of your house, that gives you my car. All of those kinds of models become possible when we follow transformation of the physical into the digital where we just do the ownership rights. We want to take all the use rights as well. You can see that this model completely wraps around the utility token model because utility tokens then bind directly into the material world because those are the tokens that you give people when you want to use the asset and the Securitize tokens are the tokens that you give people when you want to own the asset. Ownership and use are two different contractual rights. It took me a long time to learn how to think about law this way. It's a very hard learning process because I have no legal background at all. I came into this as a nerd. What I eventually realized was that lawyers are simply the programmers for the real world. The real world is a nasty, squishy, imprecise place so the lawyers are basically constantly writing error handling code. When you look at a paper contract it's about 90% exception handling and about 10% logic. That's just because the real world is really squishy. When you actually get to know the lawyers it's a process. What you discover is they're just programmers that weren't given computers young enough. You accidentally become a lawyer and 5 years later you're like damn I should have become a programmer. My chief legal officer Christopher Ray who figured all of this stuff out is an extraordinarily nerdy man and only very narrowly avoided becoming a programmer. That's part of why we have this system working is because what we built was a culture which was fully tech and fully law. That was basically two years of conversations around my dining room table really getting to the point where everybody spoke everybody else's language well enough to come up with something which was a genuine fusion of code and law rather than a frayed and impedance mismatched parent. Once you understand that the processes which generate law and the process which generate code are the same kinds of people solving the same kinds of problems just with two different eras of technology back into law in the same way that we're backing into legacy systems like SAP. If you're doing integration with the ERP system so that you've got the asset control logic that currently runs capitalism connected to the blockchain you could do the same thing with law it's just the case of getting fully immersed enough to the point where it begins to look like one thing rather than two and this is basically the core of what we spent our time doing. It takes a long time to make these kind of problems soluble and the next thing that we have to do as a community after this is governments because if we could figure out how to deal with the lawyers where it becomes a single system we ought to be able to do the same thing with the state or any other standing institution. It's just a question of getting deep enough into the understanding of the systems to understand that we're all trying to solve the real world problems in a way that works in the real world. It's just as the real world changes you get different generations of solutions and all these different generations of solutions are kind of running on top of each other and this is the complex system of society. If we want to interact with that complex system we have to make deals and form partnerships with these entities and that involves understanding their logic and understanding their historical period. Okay very briefly because I want to leave time for one question governance protocols if we take something like a Stradivarius violin and we very nearly had one with us today but we hit some logistical problems you need to protect the things value because it's hundreds of years old which means you need to be in a position where it's properly maintained and cared for if it needs a replacement of one of the parts which wears out with play you need to make sure that it's done by a proper person who's going to decide it's a proper person so making the assets such that they're protected over time whether it's rainforests or violins you need to take a ton of time to design governance structures so that the owners don't put short-term interests ahead of long-term interests and damage the assets that they're custodians of because I don't want us to build systems which basically turn into kind of capitalism where we have leverage by acts followed by asset stripping we want this to be a system where things are put under long-term custodian chip and management so that they are cared for for the future and we need that approach both for historical artefacts we also need it for cultural artefacts, we need it for environmental artefacts how are we going to do things like correctly tax carbon probably there'll be a blockchain in there you want to be able to take a rainforest and put them under real governance structures so the final thing is centralization and decentralization building protocols where the automated counter parties the automated custodians are reliable enough that you can use them on smart contracts and not wind up with a ton of error where error implies dispute which puts us back in the Ricardian model where we've got to go to arbitrators and all the rest of that stuff being able to get this stuff correct requires that all of the custodians and all of the other actors in the system are doing things like providing title insurance all of those actors have to be at an extremely high level of professionalism in the analog world the analog world actors have to be the best plus of the analog world actors and we need to make sure that as we grow these systems out we've got the appropriate certification, training and technology packages to make sure that the analog world actors are not stealing things out of the custodians and then screwing up the dispute processes by bribery if you want to think about doing business in developing world countries where we really desperately need effective trade infrastructure there are enormous pools of assets in developing world countries that could be used to stake and secure smart contracts that would enable trade if you're selling goods from a factory if you stake the factory itself on the performance of those goods it's much easier to do business with you than if you've got nothing but a promise and that ability to anchor deals against hard assets to work in low trust environments those kind of competencies require the entire analog system to be as good as it can possibly be or it would constantly dispute and disputes are expensive so our big challenges as we go forward are finding the correct set of partners on the analog side to build analog systems which are fully integrated and compatible with the blockchain reality we just published the light paper it explains a lot of the logic it explains a lot of the legal reasoning about how these systems work there will be a white paper very likely associated with a fundraising event at some future point that stuff is not happening yet if you hear anybody say that it's happening it's not happening but at some point the intention is that there will be tokenization of these things if we can find legal structures that we like for it that is TBA and I guess that is all I had to say there is a generalization of custodians to the point that they would look like the big tech landscape we have right now so my expectation is that the custodians will turn into marketplaces with extremely strong oversight from the community so in any situation where you think that the custodians are becoming centralized that creates an opportunity for a second custodian to enter the market because nobody wants a centralized custodian to enter the community-enforced antitrust regulation the other possibility is that we build market machines which punish custodians who get too large by for example taxation so we could build anti-monopoly machinery directly into the underlying contract frameworks