The Road to RWA
Where Crypto Came From and Why RWA are the Next Logical Step
All of this stuff really began in the 1990s; In the 1990s, crypto was a very, very different world. It was pre-blockchain, it was very much a world that was dominated by email, even the Web didn’t have any cryptography; there was no HTTPS. All it really had was a program called PGP (Pretty Good Privacy) and the ability to encrypt emails. If one person wanted to send a message to another, you did a key exchange, you encrypted the email, often at a command line on a Unix box, and then you would send an email. That seems like prehistory, but that’s really only 25 years ago, and from that we’ve basically gone through probably three or four major stages of building out the crypto ecosystem that we have today.
In the 1990s, crypto was a very, very different world
Getting crypto built into the web browsers and into the infrastructure of the Internet was the first stage, and the thing that enabled ecommerce. It was probably the single largest transformation that we’ve ever seen in terms of mass consumer adoption of cryptography. Cryptography built into Web browsers is the thing that created multiple trillions of dollars of value in the form of the entire ecommerce ecosystem, and then the Web 2.0 ecosystem that survives on advertising largely driven by ecommerce. All of that was cryptography; prior to the building of the crypto into the Web browsers there was no ecommerce, there were no credit card transactions online, there was really nothing but documents. So, we’ve already gone through one almost industrial revolution in real-world asset trading driven by crypto. The second huge transformation was the creation of SIM cards. SIM cards and bank cards that have chip and PIN and all the rest of these kinds of things were the first real large-scale adoption of hardware cryptography, that was when we started having cryptographic algorithms embedded in chips, which gave you a completely new kind of security.
Getting crypto built into the web browsers enabled ecommerce
Then, the next turning point, the third, is the Bitcoin whitepaper. As crypto has developed, there have also been waves of resistance. In the 1990s, with the advent of PGP, the US government freaked out and reclassified cryptography as munitions. They literally said that encryption was armaments, and it became illegal to export from America without a licence under what was called the ITAR [International Traffic in Arms Regulations] regulations. ITAR drove a huge number of cryptographers out of America and a lot of those folks wound up in a place called Anguilla and formed an early crypto island community there. That’s also where you began to see the hybridisation of offshore finance in cryptography, and some people would suggest that that was where you got the birth of some of the stuff that became crypto economics that we started in the late 1990s.
ITAR drove drove a huge number of cryptographers out of America to Anguilla where you got the birth of crypto economics
One of these waves of resistance led to the fall of E-gold in 2005. E-gold was a perfectly reasonable gold-backed digital currency system: fully centralised, no real use of crypto, it was a very successful platform. You could transfer $100,000 from one cell phone to another cell phone in the late 1990s for 50 cents, instantaneously, and that was all gold-backed, it was essentially gold-backed stablecoins. That system was effectively shut down in 2005, when the FBI raided its offices over E-gold’s use in criminal activities and confiscated its equipment and files. I would say that almost everybody thinks that the fall of E-gold was the thing that triggered Bitcoin. It was a case of if there was going to be another E-gold and it was not going to get shut down by the government, then it was going to have to be decentralised. The response from the crypto community to E-gold, was Bitcoin and the blockchain, and that led to what we now know as the whole cryptocurrency space.
The fall of E-gold was the thing that triggered Bitcoin
Finally, in the fourth step, Ethereum made it possible to run decentralised applications on the blockchain, making NFTs and DeFi possible. I was launch coordinator for Ethereum, but I’m really quite disappointed in the way that things have gone since then. There’s a video from the early days of Ethereum, mid-2015, called “Ethereum: The World Computer” and it really lays down the vision where Ethereum is going to be used to do things like auction off the slots for air traffic control: you want to land a plane, you book a slot in two weeks, you decide you’re not going to charter that plane, you sell off the slot and it’s a token. They talk about real estate, electrical grids, satellite infrastructure. There is this whole notion of “We’re just going to tokenize the real-world assets,” and what’s going to happen is you’re going to get these new, efficient economies that will enable just a much better deployment of capital globally, to get better goods and better services available for people, with less waste and less inefficiency. That was the vision that I think everybody in the Ethereum team shared in 2013, 2014, 2015. There was no notion in the early days of Ethereum that there was a digital world and a physical world and they played by two completely different sets of rules and didn’t really touch; the idea was that we were going to roll out infrastructure directly into the physical world, and it was going to touch everything. And then it didn’t happen.
The idea was that we were going to roll out Ethereum Infrastructure directly into the physical world. And then it didn’t happen.
The way that I think about Ethereum is that Ethereum, the blockchain in general in fact, is like an enormous engine, and it’s an enormous engine in an enormous vehicle, and the problem is the engine is not connected to the wheels because there’s no gearbox. It doesn’t matter how hard you rev the ICOs in 2018, how hard you rev DeFi in the DeFi summer, how hard you rev the NFTs… The wheels don’t turn. I could see that problem happening; in 2016 it became clear that we were having a real problem getting traction, because the lawyers kept not approving the things that were going to be world-changing, and I realised that I had to go off and fix the legal problem. I had to go out there and figure out how we were going to get the lawyers on board, because until the lawyers started saying yes rather than no to the deals, we couldn’t get access to the real world. As a result, I started Mattereum to address these legal issues, and spent several years and a good few million pounds coming up with a system that can effectively connect the real world to the blockchain in a way that is legally binding. It was not easy, but we did it, but that’s also why, to date, we’re the only people to have done it.
The blockchain, is like an enormous engine in an enormous vehicle, and it’s not connected to the wheels because there’s no gearbox
When I started Mattereum, what I said was, “Our customer is the General Counsel or Chief Legal Officer of a Fortune 500 company that controls a bunch of real-world assets. The people that actually have the yes-or-no legally, when you want to touch the real world, these are our customers, and we have to figure out how to get them to say yes to blockchain transactions in their asset classes.” I figured it was going to take us a couple of years of research then a couple of years of prototyping, but the pandemic got in the middle of that and really slowed us down quite a lot. It took us four years to get to the first live transactions, and six years to get to the point where we could do securitisation, but we’re now at a point where we have the adaptor, we have the connector, which makes it possible to legally control pretty much any asset in pretty much any country in the world in a way that lawyers will approve of. Now, there’s a bunch of work to be done in some jurisdictions, there are some countries that we’ll simply never work in, but the kind of core commercial structure of the entire world is now accessible to the blockchain. You have to bring lawyers, there is always detail to be done, but generally speaking, we’ve got the power-dyne in place, and we’ve got the worked examples,we’ve got the legal analysis, and we can do this now. I think of this as being kind of back to the future: we can go back to the 2013–2014–2015 vision and now we can implement it fully, and we’ve got the gearbox, so now when you run the Ethereum engine, the wheels turn and the vehicle move and the real world will come with us.
Mattereum have got the gearbox, so when you run the engine, the wheels turn and the vehicle moves
An important functionality that the Mattereum system opens up is fractional ownership of real world assets (RWAs). Fractional ownership is kind of how the real world works. Everything in the world that is big, and I’m thinking here big like electrical grids, airlines, large scale real estate developments in many cases, these things don’t just have a single owner, there isn’t just a single monopoly of like “This person owns the electrical grid,” that’s not how it works. What you have is publicly traded companies, which in the UK they call publicly listed companies, that’s your Facebooks and your Apples and your Amazons and your IBMs: they have stock, and just about anybody in the world can go buy that stock, and they can buy it and they can sell it and they can trade it. Those companies are massive, they’re very, very heavily regulated, and that’s how things like electrical grids get built. It’s just normal for the big stuff. With the companies that make the cancer drugs, the companies that dig up the oil and the coal and the gasoline and all the rest of that stuff, the car companies, you just naturally assume that you can buy equity in them, you can buy stock. The world is built on fractional ownership, because really these things are too important and too powerful to be owned by a single individual who could change their mind about how they’re going to work overnight. You can see this a little bit with the politics around Twitter, where because it was something that could be bought and sold by a single individual, once it was bought by Elon Musk everything changed. Publicly listed companies, publicly traded companies don’t work like that: they have governance, change is much more slow, it’s much more moderated, and that’s why they tend to be trusted to do things like run electrical grids.
The Mattereum system opens up fractional ownership of real world assets
So we’re not inventing fractional ownership from scratch. What we’re doing is we’re using the efficiency of the blockchain to apply this kind of fractional ownership concept to much smaller things, in a much more inexpensive and lightweight way. That brings the benefits of the fractional ownership model and the associated governance right down to the point where you can begin to imagine doing it for individual cars, individual houses, individual works of art, rather than thinking more at the scale of an airline, or an electrical grid, or a utility that serves hundreds of millions of users a day on the Internet. This is relatively easy now with Mattereum, and good to go.
Mattereum is using the efficiency of the blockchain to apply fractional ownership to much smaller things
It involves the concept of granularity. Say that we’re going to have a situation where you’re sharing 10 homes in this kind of fractional way. One way that you could do that is you could put all of those homes into an enormous bag, called something like a real estate investment trust, and then everybody could take 10%, 2%, 5%, and they would equally own one part of each one of those 10 homes, and it could be 10,000 homes.
That’s one model, that’s the kind of trust model, everything is kind of in a single bucket and you own little pieces of the bucket, and that’s a perfectly practical, reasonable way of doing things and it has a lot of advantages. The other approach is that you could take these places individually and tokenize them, and at that point you could own more of the places you spend a lot of time in, and less of the places you don’t spend very much time in. Then, instead of every person having the same strategy and the same portfolio, they just own different percentages of it. You could actually decide you want to own more of the stuff in Bali and less of the stuff in Hong Kong, and somebody else decides they want more of the stuff in Hong Kong and less of the stuff in Bali, and so you get this ability for each person to shape their own investment strategy and their own deployment of resources, much more granular. Then maybe at some point you decide you’ve had enough of the fractional ownership lifestyle, you sell all of your equity in all of these assets to somebody else, and then you take that and you buy 70% of a house that you’re the majority owner in, and that’s your primary residence and you live there from then on.
Each person can shape their own investment strategy and their own deployment of resources
We’re moving away from Ethereum as a thing that largely exists in the ethereal realm, you make up a new kind of property, you document it in the form of a smart contract, you then exchange this new form of property with other people that believe in that new form of property holding value — all very airy, very esoteric, very ethereal — into gold bricks, which are about as dense as a thing can get; into real estate, it’s the stuff that you’re literally standing on. So for us, the Mattereum name has taken on more and more meaning, as from the ethereal to the material. It’s the bringing of the blockchain to earth, grounding it in the real world.
