Only An Introduction
ONLI® is a new way to store economic value, move it around and keep it safe. ONLI® is a blockchain platform for asset backed securities. ONLI® began in 2009 around the same time as bitcoin and other blockchains. ONLI is not a fork of any opensource blockchain like bitcoin and other coins. ONLI® is new and different from the ground up.
Onli® is fundamentally a different approach to digital asset value management. For starters, it is based on a different economic theory called ‘actual possession’. This model is fundamentally different from conventional blockchain technology, which is based on the economic theory of ‘custodial possession’. ONLI is a peer to peer value storage and transfer system built on the theory of actual possession, and is therefore something completely different from other storage and transfer systems using blockchain. ONLI begins with a ‘uniqueness quantification’ algorithm and a quantum source of entropy to mint, not mine, the origin token. Wikipedia defines uniqueness as ‘there can only be one’. Hence the name ONLI. This is entirely new from the ground up.
Blockchain is very popular now. It is almost hard to believe there was a time, not long ago, where people scratched their heads, puzzled by what we were talking about. Now it seems everyone knows about blockchain and yet it has never been more confusing. Let’s simply the idea.
- A blockchain is a list of records, called blocks, that are chained together using cryptographic keys so that it makes it difficult to change any single block.
- These chain of blocks, or continuously growing list of records, can be used as a ledger. A ledger is record of transactions. In a computer a ledger is a database of economic records.
- There are many different techniques for securing multiple copies of a database. One such technique for making a database of transactions secure is to distribute lots of copies of it. This is called a distributed ledger. The main advantage of a distributed ledger is no single central authority has control of the database.
- When you make copies of something that you are hoping to hold its integrity you run into some interesting challenges. Who can make an entry in the ledger ? and How do you know which entries are valid? and how do you accept the changes and distribute new copies of the ledger?
- A group of researchers under the psudonym Natoshi Sakamoto used existing technology to come up with a novel solution. They came up with a contest like a computational review process determines who can make an entry in the ledger, then all the nodes, the people who has a copy of the ledger, come to consensus that the entry is valid and that the history of the ledger is valid.
- Of course this costs lots of computing power. To encourage nodes to participate in maintaining the ledger you will need some kind of reward system?
- What if we use a special entry in the ledger as -a unit of account — an special generic kind of entry that can be fungible (identical), divisible and countable.
- People can then trade the key to this entry and so use it as a measurement of value. This would provide a way to store economic transactions and motivate others to maintain the ledger because they can benefit by receiving the key to a “unit of account” entry in the ledger.
- A chain of these kind of database entries and a transaction log can form the basis of a peer to peer cash system but this isn’t the only use for this. What if you could also store metadata (data about units-of -account) in the ledger entries? You can then use this metadata to reference assets other than themselves, and then you can use this ledger as both a recording and exchange mechanism.
That is the basic framework of what the technology is. Blockchains are an imutable way to store information and a protocol for writing to it. If we want to understand blockchains then we need to differentiate the fantasy from the reality. When you want to build an understanding, you start with the first principles. How the technology accomplishes this is a separate idea that will look at later.
There is an economic concept behind a ledger when it comes to real property. A ledger is A ledger is the principal book or computer file for recording and totaling economic transactions measured in terms of a monetary unit of account by account type, with debits and credits in separate columns and a beginning monetary balance and ending monetary balance for each account. .
A ledger usually keeps track of something that is in the custody or care of the person holding the ledger. For example you give your currency to a bank. They give you an “entry” in a ledger which is in essence a claim against the currency in the bank. Entries in a ledger record the ‘owner’ of an asset, even though they not have “custody” of an asset. Ownership and Custody are two different ideas when it comes to economics. You can have custody and no ownership and ownership without custody. This is important since you don’t want to go around moving large assets, it simply works better if there is a custodian who holds the assets, keeping them safe and managing the transfer of said asset, minimizing risk of theft or loss. (see https://www.investopedia.com/terms/c/custodian.asp). A ledger is a great way to manage changes in the ownership of value. Another way to think of this is a “custodial” possession. It is where ownership is a claim drawn from an entry in a ledger.
So now we have a clear idea of what we mean by Blockchain and Ledger. We can now draw a clearer perspective. A blockchain ledger is a series of economic transactions, stored in a specific method of record keeping on a computer called a chain of blocks.
In a blockchain, records are stored in blocks that are chained together with a series of calculations. The calculations, based on cryptographic hashing, guarantee that if any of the upstream blocks are corrupted or hacked, the calculation at the end of the chain will no longer be the same. This is defined as being immutable because any change to the data, however small, will show up as a very different final chain value. This chain of blocks can now be used as a ledger of record.
A distributed blockchain is a technique (and a well understood technique) where a database of chained blocks is copied, and then distributed to multiple computers. There the database is a ledger of units of account. This is referred to as “distributed ledger technology” or DLT. These computers, each that holds a copy of the database form a network where each computer is referred to as a “node”.
There are many techniques to keeping multiple database copies consistent. However, there is some overhead required in keeping the copies to provide the “true” state of the database to the users of the network. Basically, each copy has to agree with either the master copy (known as master-slave) or the majority of the nodes in a democratic system which use some method for determining which new entries are to be trusted. All distributed database systems require that some member be authorized to make an entry. In “public” distributed blockchain systems, there is a contest held to see who can solve a math puzzle first. This is called mining. The first ‘miner’ to solve the math puzzle, publishes the winning solution to the other nodes of the network, along with it’s updated block. Other ‘miners’ verify the correctness of the solution, and record the updated block if they agree. This is just one of many techniques used to maintain consistency in distributed systems.
Managing and maintaining a distributed network of copies using this democratic mining technique, especially for public DLTs, requires a tremendous amount of computational power and therefore electricity. In order to incentivize operators to participate in the network, a unit of account is added to each block, where that unit of account represents an appropriate value a digital currency that will reimburse the amount expended for the computation. This is why blockchain miners are willing to invest in the infrastructure to participate in the network.
Finally, all database networks, public and private distributed blockchain networks have a property called eventual consistency. This means that while there be a temporary disagreement between copies of the ledger (a “soft fork” in the network), eventually the system must reach an agreement on the record. This is sometimes referred to as the “consensus mechanism”. This however assumes that there is not or has not been a change in the rules that govern how a block is recorded, that there have been no hard forks (splitting of codebase that runs on the nodes, bifurcating the network). Such hard forks or splits in the database have and do happen (see Dao, Bitcoin Cash). Unresolved soft forks have a similar effect. The question then arises: when a fork or split occurs, which chain holds the actual record? This will become important when we try to use a distributed blockchain ledger to record ownership changes of a financial asset, in a custodial possession system of control.
Next up, we discuss how ledgers are used in the process of asset securitization.
Securitization is a financial method of issuing securities that are backed by a pool of assets. There are two kinds of securitization. First is where a stream of income is split into chunks so investors can participate in the income stream. The second definition is where an illiquid asset, for example a corporation, is split it into chunks so investors can participate in the value of the corporation. Securitization, then is about the sharing of either income or value.
There are two core logical challenges that at the core of securitization. The first is the ability to maintain proof of ownership of the chunk, while maintaining the integrity of the whole. For example, how does an individual prove they own a specific piece of something, without affecting the ownership of the thing itself? The second challenge occurs when ownership of the chunk is sold and transferred. Specifically, how is the change in ownership recorded.
Transfer of Stock
Corporate stock transfers are traditionally recorded in a physical ledger, including name and address of a new owner, date of transfer, etc. Historically, each corporation keeps a stock ledger where current ownership (and therefore changes of ownership) are recorded. Technically, the transfer of stock is not complete until this recording has been completed.
Historically, the original stock certificates had ownership changes recorded on the back of the stock certificate itself, allowing remote transfers when the corporate ledger was not immediately accessible due to distance. The final recording of the change in ownership took place when the stock certificate was shipped to the recorder responsible for maintaining the corporate ledger.
Digital Transfer and Settlement
Today, most stock transfers and settlement processes (known as clearing) are performed by custodial services that hold the physical stock certificates in custody (if it does not exist in electronic form), and clearing is performed using traditional relational database technology, where the RLDB is distributed (copied for security and reliability) and consistency is maintained using a master-slave architecture. In 2011, Depository Trust & Clearing Corporation (DTCC, founded in 1999) settled the vast majority of securities transactions in the United States and close to $1.7 quadrillion in value worldwide, making it by far the highest financial value processor in the world. This is a traditional custodial possession system.
In December, 2017, the Australian Securities Exchange (ASX) announced it will replace it’s current clearing system with blockchain technology that has been in development for more than two years. When implemented (timeline to be announced in March, 2018), this distributed ledger blockchain will be built on a private network, where member institutions each maintain nodes on the network. It’s primary goal is to eliminate the traditional custodial middle-man, and associated transaction costs. However, even the most advanced blockchain system is still modeled on a ledger and thus by default custodial possession. The only change is that a cooperating, democratic process is used to determine who gets to record the entry in the ledger. What of the thing that is being transferred and settled is a function of the business model not the technology used to store a record. In securitization this raises additional challenges, such as which of the nodes has legal possession of the chunk of slice of the thing that was securitized? Who is responsible if there is a dispute? This is where the risk of a network or database fork (soft or hard) in a distributed blockchain ledger represents higher risk when trying to implement them for management, as well as for parties to the transfer and settlement of financial assets.
The economic theory of Actual Possession predates Custodial Possession and is defined as “what most of us think of as possession — that is, having physical custody or control of an object” (United States v. Nenadch, 689 F.Supp. 285 (S.D.N.Y. 1988)). When we are in physical possession there is no custodian that manages or possesses the object on our behalf. When the original stock certificates were issued, ownership was established by actual possession. Historically it was assumed that the bearer of the certificate was the true owner. This actual possession was enhanced further by recording transfers in ownership on the back of the certificate itself.
Enter Onli (how it works)
ONLI is a peer to peer value storage and transfer system built on the theory of Actual Possession, and is therefore something completely different from Distributed Ledger Transfer systems using blockchains. ONLI begins with a concept called a ‘uniqueness quantification’ algorithm. Wikipedia defines uniqueness as ‘there can only be one’. ONLI uses a specially designed and built computer called the MINT, that generates a quantum entropy pool that is used to create 1 billion unique proofs. The MINT is never connected to the internet, it is air-gapped eliminating the possibility of counterfeiting. Upon completion, the proofs are transferred to a cold storage system, the TREASURY. The MINT is destroyed (motherboard, disks, memory) after the proofs are generated, guaranteeing that the original conditions of the proof generation process cannot be recreated for purposes of theft or counterfeiting.
When proofs are issued to the TREASURY, the origin hash of each proof is created and it is assigned it’s first owner, the TREASURY. The way the software works is not a kind of storage in a single unchangeable block, chained together that record all the economic transactions. Think of each proof as a chain of DNA, that records changes in ownership in it’s own singular cryptographic record of blocks.
To transfer ownership of an ONLI electronic token, the original owner sends the token to the TREASURY, with the identifier of the new owner and the secret key for the ONLI (providing proof of ownership). After the ONLI is unencrypted, verifying the current owner, the new owner is recorded on the blockchain for each singlular ONLI, and the ONLI blockchain is sent to the new owner’s vault, where it is encrypted with the new owner’s encryption key. The resulting blockchain output is then recorded in a Validation Network providing independent proof and evidence of current ownership.
All tokens are stored in each individual owners vault, on the device which they specify and control. The TREASURY cannot access these vaults and therefore has no control over any users store of value. Therefore the end result is that users are in Actual Possession of their cryptographically secure tokens.
An ONLI, when used in securitization of a value, is literally a digital recreation of the historical transfer of a physical stock certificate combined with a secure, private, digital version of the record of ownership. It’s private in the sense that only the owner of an ONLI (or an authorized agent) can verify the ownership of the ONLI token.
Actual possession has an important consequence for operation within existing legal and financial frameworks. While central actors can adjust trading rules, halt trading of a fraudulent actor, and prohibit hard forks, no central authority has control over the value of any user. The ONLI tokens cannot be confiscated. Similarly, distributed evidence of ownership cannot be altered. The existing legal process must be used to seize and adjudicate token confiscation. This provides checks and balances for both users and the token issue.
Designed for FinTech
The ONLI token is not an asset class. It is plumbing for the securitization process. It was designed from it’s outset to be a valuable tool for representing physical assets (there is only one token per asset chunk). The chunks that reference a real world asset, can be traded, transferred and liquidated quickly and at very low cost. For example, unlike some public blockchains, transaction cost does not change dramatically as token value increases. In fact the transfer cost is just that of electricity, and without the overhead of the mining process. ONLI tokens model the original securitization structure of actual possession, that solves the problems and overcome the limitations of a custodial possession system, represented by distributed blockchain ledgers. As a result, transactions in financial assets can be made with greater security and scalability, clear lines of legal recourse and true settlement finality.
Unlike most blockchain technologies you will read about, ONLI isn’t a theory or concept or something yet to be built. ONLI has been used in various applications for the past 6 years. ONLI is by default a “white label” technology. Registered Developers use the ONLI platform to design their own brand of token, deployed on their or their clients own infrastructure. Traditionally ONLI is used by enterprises to create their own value management system. We recently added ONLI.ONE an infrastructure-as-a-service platform for developers looking to deploy their own applications that are more publicly facing. What is important to remember is that the difference that makes the difference is that ONLI is a blockchain that based on a fundamentally different economic theory of Actual Possession. This is different from the herd, which uses ledgers which is based on the economic concept of Custocial or Constructive Possession.
ONLI is not an asset class like bitcoin. It is the plumbing. The developer or client, uses a business process to create the asset. ONLI is not a currency although you can configure it to function as one. ONLI was invented to be a platform for asset backed securities. In the ONLI system, ownership is distributed, user management is centralized and no one controls the value of the owners. ONLI is a value management system using blockchain technology however ONLI.ONE is different. ONLI.ONE is a computing stack of technologies that includes a private network, private transfer protocol, identity management, configuration, a marketplace and these apps run on a Data Center Operating System. ONLI.ONE is infrestructure-as-a-service. This is new and different from the ground up.
ONLI is a registered trademark of the ONLI Corporation.
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