Tokens: single-spend as a service

In this post we discuss the evolution of digital assets and argue that the one of the most important paradigms arising from blockchain technology is the separation of double spend prevention from the custody of digital assets. This results in what is commonly described in the industry as digital tokens. We discuss that Corda’s notary service provides this single-spend capability without asserting any unwelcome business level control over the assets.

By: Antony Lewis, Director of Research and CBDC Lead

The biggest problem with the digitisation of assets is that of the double spend: How can you be sure that a digital file (or row in a database) is authentic, and can’t and won’t be counterfeited (copied)?

Hollywood often glosses over this problem, which is amusing:

“This computer disc with the real names and addresses of all the secret agents will cost you ten million dollars.”

“But how do I know it’s the only copy?”

“Pinky promise.”

While that might be good enough for criminal masterminds in films, it doesn’t work for money, financial assets, or anything where authenticity (is it really from who it says it’s from?), liveness (what’s the current state of this thing?) and uniqueness (is this the only copy of this thing?) are important.

So until today, we have needed to trust specific third parties to hold our assets for us as balances in accounts. The most important thing these custodians do is prevent double-spends. But due to their capture of the assets, they have ended up with a highly beneficial side effect.

The nice and profitable side effect is that the custodian has a temporary monopoly on your assets — after all, they control them, and while your assets are in their hands, they are the only service provider you can use. While my money is with Citibank, I can temporarily only access Citibank’s services. For example if I want to do FX, I can only use Citibank’s FX rates. If their rates are uncompetitive, or if they don’t provide me the services I want, I need to move my money out of Citibank and into someone else. This costs time, money, and effort. This is drag on the real economy.

While in many countries money movement is more or less ok nowadays (ie it’s relatively straightforward and cheap and quick to move money between banks), services for financial securities (shares, bonds, etc) is less straightforward, so the assets are less mobile. Other assets such as invoices are much harder and more expensive to move around, sell, and carve up — there is plenty of room for improvement here, and invoice tokenisation is probably a topic for a separate blog post.

We can do much better.

Bitcoin is often described as a digital token, but it is not quite a token in the same way physical cash is, or fairground ride tokens are, because tokens are used for peer to peer payments, and Bitcoin payments are not peer to peer.

But, Bitcoin’s bookkeeping cloud has given us the concept of “Single-spend-as-a-service”.

What we have learnt from Bitcoin is that it is possible to separate the single spend guarantee from the custody and control of assets, and the provision of services against those assets. By separating the single-spend function from the provision of services, we can allow a healthy competitive market of service providers to emerge.

Imagine if you had a bunch of banknotes and were able to instantly access all of the bureaux-de-changes, and pick the most competitive one, without having to walk from one to another. We don’t have this yet in the digital world, but we are building it.

Are we there yet? No. Can we move closer to digital versions of physical tokens? Yes. While Bitcoin’s bookkeepers do the single-spend-as-a-service, they also still maintain a ledger of all Bitcoin transactions, and have knowledge of who owns what. This has resulted in privacy and scalability challenges of this kind of blockchain architecture.

With Corda we are creating digital infrastructure that can guarantee single-spend-as-a-service, but where the data that represents digital assets is passed from hard drive to hard drive, from peer to peer, without needing to be tracked as balances in accounts in a bookkeeping cloud run by unknown and unaccountable parties.

Corda is the only platform that explicitly achieves this, and it is this critical separation of single-spend from asset custody and control that will enable a new healthy competitive digital asset ecosystem to flourish.