The first Mattereum briefing

Photo credit Rachel Megawhat

Today, we make smart contracts legally enforceable

The initial success in the blockchain space has been to create purely digital assets (Bitcoin, Ether, ERC20 tokens) that can be traded internationally. Our first customers come from the blockchain space.

Our customers want our help to bridge the divide between the atomic exchange of value for on-chain assets via smart contracts, and the messy, uncertain processes that manage access to the world of what we might term “fiat property” — the $700 trillion of assets managed by the existing property control architecture provided by national courts. Our challenge is getting other classes of non-digital assets represented on blockchains and legally transferred using smart contracts.

We have partnerships with several customers in the blockchain arena, including:

  • SweetBridge — blockchain financing for the $45 trillion supply chain
  • Ocean Protocol — B2B market for data such as for self-driving cars
  • Mycelia — artist-led modernisation of payment rails for music IP licensing.

All these businesses share a single challenge: “if I buy this on the blockchain, can I prove that I own it?” They trust Mattereum to make their assets (defined by existing legal structures) transferrable to new owners (which courts will recognize as the legal owners) using smart contracts on the blockchain. Success will critically enable trade in fiat assets on chain.

Mattereum creates and manages the legal and technical systems required to implement the control and transfer of rights in material and intellectual property as well as digital assets, enforced by a decentralised commercial arbitration court. Our panel of technically competent independent arbitrators will be able to make legally binding rulings enforceable in more than 150 countries, including the world’s major jurisdictions, under the 1958 New York Convention. Both the court system and the property control architecture are supported by smart contract security services, legal contract review, and assistance in recommending appropriate legal counsel for our customers.

Tomorrow, we cross the digital-physical divide

Mattereum clears legal obstacles to the full integration of the digital and the material world. Our solution applies across many domains. The internet of things, self-driving cars, blockchains, augmented reality, drones and AI all sit on the digital/physical interface. They all have full exposure to the complex regulations that universally apply to physical matter. Mattereum manages this legal boundary.

Our first customers are using blockchains, but the underlying logic applies universally. Self-driving cars rent parking spaces, drones buy airspace clearance, AR systems buy real estate in overlay layers in public space. All these technologies are embedded in the physical world, and need access to the legal frameworks which control the real world in order to function.

Over time, Mattereum will present an increasingly API-like interface to a wider and wider part of the material world. Software systems will be able to legally buy, sell, rent, lease, lend or borrow against a wide range of fiat property classes eventually including even highly regulated asset classes like houses and cars. When things go wrong, the commercial arbitration court will catch them in a way that national courts will enforce, without the risk and uncertainty associated with high tech litigation.

This infrastructure will underlie many, many companies’ operations; ideally it will be as silent and pervasive as SWIFT or VISA, or as utilitarian and commonplace as PayPal or Google Maps.

Mattereum simply aims to be how things get done.

How does Mattereum work?

Our Chief Scientist, Ian Grigg, is the closest thing we have to Satoshi Nakamoto. Ian is an early digital cash pioneer, and was operating DigiGold, a gold backed anonymous digital cash system, in 1999. In the course of this work, Ian was confronted with a question: how do we legally prove the gold in the vault belongs to the DigiGold token holders?

Ian invented and deployed a specific legal/technical structure called the Ricardian contract. The precise semantics of the digital system of ownership were described in a written legal contract executed between the parties. The written contract specified the parties’ legally binding intentions implemented by the code. Ian Grigg’s Ricardian construct was tested in litigation in the 1990s, with the judge recognizing the relationship between the written contract and the technology.

Ian then went on to pioneer the use of courts of arbitration to manage these contracts in a way which still has the full legal weight of the world’s court systems behind it, but provides strong assurances the arbitrator will have the necessary technical expertise to correctly determine such cases.

Mattereum builds on and extends Ian’s approach to the world of smart contracts. We are establishing a decentralised commercial arbitration court which can recognize and understand smart contracts. Specifically, this court is recognized as an arbitration court under the 1958 New York Convention, and can therefore make legally binding awards that will be enforced by national courts in nearly all of the countries in the world. This means that the legal obligation to transfer value based on the correct execution of a smart contract can be enforced all over the world. This finally removes the ambiguity about whether or not smart contracts are legally enforceable, and whether fiat property can be handled using blockchains.

The size of the opportunity

In the first phase of the internet, it lacked cryptography. There was no secure way to transfer value, so people made deals then posted the cheques. It was, to all intents and purposes, only an internet of ideas. In the late 1990s, the advent of e-commerce began with just enough cryptography to secure retail transactions. It relied on credit card chargeback requests to handle disputes. This cryptography/payment/dispute architecture generated well over a trillion dollars of value over the next 20 years.

Credit card transactions account for about 1% of global GDP, give or take. For every $1 that is accessible with today’s e-commerce systems, there’s $99 being moved with mortgage payments, bank wires, net 90 invoices, shares, bonds and options. Much of this terrain will be accessible using blockchain-based smart contracts in future (although perhaps using fiat currency on chain, rather than BitCoin/Ether — this remains to be seen).

Beyond this, there are several hundred trillion dollars of assets such as real estate, ships, planes, power grids, etc. listed on government-operated property registers.

Mattereum will own the legal contracts and blockchain technology which provides the easiest, highest quality and most reliable way to reach the real world with smart contracts. We will initially work largely with the Ethereum blockchain, but the approach will work equally well in scaled blockchains, permissioned blockchains, and any next generation systems which may arise. We expect to be competing largely with “homegrown” solutions which companies generate internally to get started, and then abandon in favor of professional services as their limits become apparent.

Our business model will be to charge fees for contract security analysis (to be conducted before an asset class is taken into our system), to charge fees (as a percentage of value transferred) for use of the smart contracts which have been integrated into our platform, and to charge fees for the administration of the dispute resolution process when issues arise. We expect the current crypto boom to produce many start-ups which want services in contract security analysis, fuelling the initial stage of operations. As the crypto space matures, we would expect the percentage of value transferred contract fees to become the dominant revenue stream, akin to the model used by VISA, SWIFT, or PayPal today.