WHY GLOBAL TRADE NEEDS THE BLOCKCHAIN

The essential use case — what Satoshi knew, but most people have missed

TLDR

• Computers worldwide cannot all agree on what is true due to the speed of light, which creates a significant delay that affects things like global finance
• The current solution for this issue is ‘High-frequency trading’, which involves a single exchange that moves the asset being traded, but there are problems because it has to be in a single country
• To avoid the resulting political problems, the two options are to fully decentralize all the exchanges or partially decentralize and sync them up
• The best way to sync them up is to stop time, check all the transactions that happened during that time, and then start time again to do the next batch of transactions
• We call these batches blocks, and link them on a chain — the blockchain
• Instead of dealing with time as a continuous variable, it uses blocks that are long enough to cover the whole world
• This way, everyone trades at the same speed, regardless of their location. The Ethereum block is 12 seconds long, which is enough time for everyone to trade at any distance.
• This is why the blockchain is vital to the future of global trade — Mattereum provides the missing piece to make it work for physical assets

The last year has seen the crash of the NFT market, crypto winter and the utter dumpster fire of FTX, which has led to the reputation of the blockchain hitting an all-time low. It’s currently seen basically as a tool for grifters to separate fools from money, and it’s common to hear the opinion that there’s nothing useful it can do that a database plus some governance couldn’t already manage.

This is not surprising, we’re in the turning point of the Perez Cycle for the blockchain. The technology has gone through a growth frenzy where all the get-rich-quick types jumped aboard, its misuse created a bubble, bankrupted vast numbers and put its reputation in the toilet. The grifters have now fled for AI and the criminals are being rounded up, but the technology remains, ready for stable and mature actors to move in and turn it into something solid, unflashy and profitable. We saw this with the dot com boom, we saw it with apps, the 19th century saw it with railways (the blocktrain?), it’s nothing new.

Is blockchain technology worth anyone using?

The question remains, though, is blockchain technology worth anyone picking up and using? After all, not all the subjects of bubbles get to have an afterlife. There was never a viable use case for fancy tulips after February 1637.

So, why bother with the blockchain? I believe it is profoundly important and that its critics are completely missing the point. Here’s why: Special relativity — yes, that special relativity, the Einstein one.

Special relativity and the political economy of the world create a problem, and there is only one known solution to that problem, and we call it the blockchain.

“[A person’s] ability to take on Bitcoin was a full measure of a future IQ test”

Very few people truly understand the blockchain and very very few people understand special relativity, so you’ve got a double-layer problem there. You have to be very smart to understand this problem, there’s no way round it — Salim Ismael of the Singularity University told me “[A person’s] ability to take on Bitcoin was a full measure of a future IQ test”. It took me about two years after reading Satoshi Nakamoto’s Bitcoin whitepaper to actually understand the implications, and it hasn’t gotten any easier; because there’s so much bullshit noise around the blockchain for people that don’t understand it, that actually penetrating to the heart of the story has gotten harder and not easier. But at the heart of the story, this is driven by physics.

Let’s start by thinking about a Zoom call with someone on the other side of the world. There is a probably roughly 1/10th-second delay between you saying something and it going around the world to reach the other person, and that delay is caused by the speed of light. Nothing can go faster than the speed of light, so over really long distances, even a signal travelling at close to the speed of light will end up with a delay. For a Zoom call, it’s not hugely perceptible, but it is there and we notice it. Have you ever tried singing with someone else over Zoom, or reciting something together? Yup, most of that is due to this.

A modern high-frequency trading system will do more than a million transactions in a second

So the speed-of-light delay, to get the message all the way around the world is about 1/10th of a second. That doesn’t seem like very long, but a modern high-frequency trading system will do more than a million transactions in a second. So what you have is a 100,000-transaction delay between two computers that are right next to each other doing trade and me doing a trade with a machine on the other side of the world. I agree that I’m going to sell this thing to somebody in Australia, I send the message to Australia; in the meantime, I sell it 100,000 times to a bunch of other people that are in the same data centre that I’m in, because there’s hardly any delay when the computers are right next to each other, certainly compared to the delay you get to Australia. When it arrives in Australia you send me the money, and by the time it comes back they’ve collected the money from 100,000 other people as well.

To summarise, there is no way of synchronising all of the world’s computers to agree about the state of a piece of property.

“If you’re just trying to get a distributed system, there are trade-offs,”

This is the double-spend problem : the double-spend problem is about light latency. In computer science it’s dressed up as a thing called the CAP theorem. This is a bit of fundamental computer science about distributed systems. The CAP theorem includes the reasoning about signal appropriation and relativity to create a result. CAP stands for consistency, availability and partition tolerance, and it’s the thing which basically says, “If you’re just trying to get a distributed system, there are trade-offs,” because the propagation delay means you can’t just do magic synchronisation, and then if the system partitions into two parts, you have to decide what happens to those two parts: do they continue to run independently, or does one of them turn itself off, or how does it… bla-bla-bla. So, the CAP theorem just neatly encapsulated this understanding, and then all the engineers talking about this stuff say, “Oh well, it’s just in the CAP theorem.” CAP theorem is computer science addressing special relativity.

The political economy of trade is not heavily studied by people that understand relativity.

So, the understanding that this blockchain stuff was all based on fundamental physics wrapped in this wrapper called CAP theorem, and in the early days of blockchain conferences, you would stand up and say, “CAP theorem,” and a third of the room would nod. I did an event in 2016/17 in Switzerland, and I stood up on stage and said, “CAP theorem,” and there was one hand in a room of 500 people, because we’d gotten diluted out. The original wizards that understood that all this stuff was driven by physics got diluted out with a mass of people that didn’t understand, and even in the physics community, the political economy of trade is not heavily studied by people that understand relativity.

This is all very well, but what has this got to do with the blockchain?

If we just want to solve the synchronisation problem, there is a simple solution, which is we put one computer in one country, and everybody trades using that computer. “Hey, let’s just do it with an SQL database.” For example, the Chicago Board of Trade is in Chicago, and the commodities market runs out of Chicago. Why might this present a problem? Firstly, that’s a single point of failure right there, and it sucks to be Chinese in that model, because you’re always trading at a massive disadvantage, relative to the people who are trading in America. OK, so, now you say, “Well, why don’t the Chinese just put their assets in America, under American law, trading under an American hub, and then they can trade with exactly the same kind of rights as they could trade with because everybody is the same distance from the machine…” In other words everyone has to submit all their assets to American legal control, if they want to be able to trade at parity. That is a huge sovereignty issue, and it makes everyone’s assets vulnerable to the political whims of the host country, so when someone like Trump comes to power…

You have to be standing in a very specific place to see the elephant

It’s this intersection between special relativity and political economy that creates the problem and Satoshi completely understood this. You have to be standing in a very specific place to see the elephant. But if you’re standing in that specific place, it’s very, very obvious that this elephant is the only way forward for us.

So, the solution to the problem is this: we can’t put a single trading machine in a single place and have people trade, because it is politically disadvantageous and therefore people won’t do it. If we have a whole bunch of different local trading mechanisms, all of them have very limited liquidity, because they’re only trading inside of a local region, and what this results in is the balkanisation of global trade. Now, if you have a heavily balkanised global trading system, is war more or less likely between the trading blocks than if we have a global trading system with global liquidity? If there’s a Chinese exchange and an American exchange and a European exchange and a South American exchange and an African exchange and an Indian exchange, and everybody is trading only with their neighbours, all of those exchanges have limited liquidity, and it cuts the interdependence between the trade blocs. it’s more likely to create war, and it also makes it almost impossible to do any kind of large-scale regulation.

We need a global trading infrastructure

The alternative is that we need a global trading infrastructure, where commodities are traded on a global system, which doesn’t advantage anybody based on their geographical location or their legal status. The folks are all able to trade equitably, it doesn’t matter what your nationality is, what your citizenship is: you connect to the system, and you can trade. But, relativity gets in the way, because the speed-of-light delay means that you’re always going to be able to trade with your neighbour better than you can trade with somebody on the other side of the world, unless we fix it.

How do we fix it and make it possible for you to trade with your neighbour and somebody on the other side of the world on the same equitable basis, where neither one has an advantage based on geography? And the answer is we quantise time.

Time, if you deal with time as a continuous variable, when somebody is next to me then they are trading at two microseconds, and if somebody is on the other side of the world they’re trading at 200 milliseconds. So instead, we create a new quantised unit of time, and the time unit that we’re going to use is called a block.

This is what Satoshi saw and this is what the blockchain does

The speed-of-time limit is 1/7th or 1/10th of a second… So if the block is 12 seconds long, the speed-of-light phenomena only apply at very ends of the blocks; 98% of the trade is in the middle of the block, and is unaffected by any kind of locality effect. This is what Satoshi saw and this is what the blockchain does; it takes these 12 second blocks of time and records them in a chain so anything traded in each block is essentially happening at the same time, and that evens out the temporal inequality and enables trade across the world to take place on an equitable basis. That is, once you have cleared the fog of hype and bullshit, what the blockchain does, and it’s going to be hugely important for the future because of what this means for global trade. No other system can do this.

The blockchain gives us the technology for the global equitable trade backbone, because it allows people to trade without disadvantage based on their jurisdiction or their physical location. However, we’re still going to need an interface between that system and those trades, and the state law inside each of the nation states and inside each of the subunits, like Alabama or Kentucky or Arkansas or whatever it is. We have to have a legal interface between this blockchain global data trading machinery and the law that controls who owns physical assets. So, I built it.

My company, Mattereum, enables anyone using its system to attach a transaction on the blockchain to a physical asset in the real world in a way that is legally enforceable in 170 jurisdictions across the world, which pretty much means it’s applicable everywhere. It is a universal translator, but for law. Couple that with the global equitable trade backbone of the blockchain and you have a way to trade anything anywhere, physical or digital, with incredible convenience backed by internationally enforceable law. It’s literally limitless e-commerce for any asset, even high value ones like real estate and bullion, which until now has been horribly risky.

That is the future, and we can do it right now.

If you are working on an e-commerce project that you think could be enhanced by the Mattereum system get in touch with us via contact@mattereum.com