This article continues the series of explorations into the features of the Cosmos blockchain and Inter-Blockchain Communication (IBC) protocol, within the context of the ixo network, which is building on Cosmos to provide the infrastructure for a decentralised internet of impact.
Electronic rights and object capabilities
The Inter-Blockchain Communication (IBC) protocol will enable electronic rights to be securely transferred between distinct decentralised administrative domains, such as blockchain networks.
Electronic rights can be secured by collateralised guarantees. Guarantees are also rights, which are exercised if there are defaults on primary rights.
Cosmos blockchains and the IBC protocol are built using the Object Capability model (Ocap) for securing electronic rights and managing concurrency across digital domains. Powerful new types of applications could be implemented with Cosmos and the IBC protocol, using these rights mechanisms.
Stakeholders with material interests in the cyber or physical domain may have their rights modified by state changes. Rights determine what a stakeholder is conceptually or operationally capable (authorised) to do in relation to either a cyber or physical object.
For instance, a stakeholder can assign rights in the physical world (such as delegating a leader) using digital voting capabilities, based on rights in the cyber realm, such as their digital identity credentials (for instance, membership of an organisation).
With the Object Capability model, we now have a mechanism for transferring rights electronically as secured, invariant capabilities across domains and networks — including between different blockchains. Ocap also extends these capabilities into any software application, using secure smart contracts.
Secure electronic rights, with concurrency, could become pervasive within a wide variery of operating systems and contexts. The Agoric website (from the team that has pioneered the Object Capability model and are co-authors of the IBC protocol) claims this empowers individuals to securely execute transactions, establish new markets, and craft novel patterns of exchange — without centralized control.
Securing rights with collateral
Rights are intrinsically secured by the software protocol (IBC in the case of Cosmos). They can also be extrinsically secured by various forms of collateralised guarantee mechanisms.
Collateral has mostly been conceptualised in financial terms. But when we expand this more broadly to the concept of rights, we are really talking about guaranteeing one set of rights with another set of rights.
In the financial context, this might be the right to seize the property of a guarantor who has forfeited her rights as collateral in the event that a guaranteed right is not fulfilled.
In a non-financial context this could be rights to access privileged information or the right to vote based on digital credentials that are guaranteed by a collateralised issuer.
A complex system of rights
New rights can be derived from compositions of underlying rights and this can be used to build applications that have not previously been possible.
This also gives rise to the potentially treacherous realm of synthetic derivatives of rights!
Automating how collateralised rights are communicated and transacted across blockchains and between cyber and physical domains has never been done before at these levels of abstraction and at scale within complex, dynamic systems.
Research is needed
The systemic consequences of applying these new mechanisms within Cosmos networks and across to other networks must therefore be further researched to identify threats and safe operating parameters. Mechanisms and policy constraints can be built into these systems using sound engineering principles, to reduce systemic risks.
We will start with the discrete use-case of a tokenised development impact bond financing mechanism (alpha-Bond) for quality primary education in India, which is being developed and field-tested by the ixo foundation.
In this impact bond mechanism:
- Service providers (educators) have the right to receive payments for their services when they submit valid service delivery claims. These claims are collateralised against the right of the program to deduct payments in cases of poor performance.
- Impact investors who provide the working capital to implement these services have the right to be repaid their capital at a future date, with an additional coupon value.
- The right to a future payback is collateralised by an outcomes payer who guarantees investors a lump-sum payment when a provable future outcome state has been achieved.
- Outcomes are measured using verified claims about improvements in educational results, based on standardised educational assessments.
- The right to evaluate and verify the educational assessment claims is given to an independent testing service. This service provider is collateralised by a performance guarantee that penalises them for any culpable errors in evaluating the results.
Assignment and transactions of these rights is implemented across the ixo-Cosmos blockchain where claims are recorded and verified as data collateral (executable claims) and settled on the Ethereum network, where financial collateral is held and payment transactions are currently made.
This entire construct is designed to facilitate decentralisation of development impact bonds, by incentivising coordination between service providers, investors and evaluators, whilst automating the execution of rights, using collateralised guarantees.
As a set of generic mechanisms, alpha-bonds may be generalisable to any conceivable performance-based bond application.
This has enormous potential to transform how capital is programmed to achieve optimal financial and non-financial outcomes.
Verified state is collateral
The ixo protocol builds on the W3C specifications for linked data, digital identifiers (DIDs) and verifiable claims. Using this new set of data models and applied cryptographic functions, the protocol can be used to capture the state of any observation in the physical world. Once this state has been digitally encoded, it can be validated, authenticated, evaluated with expert opinion and probabilistically verified.
When the existence of this information is parsed as a valid message into the state machine of a blockchain, this can trigger state changes according to a set of predefined rules. The process is bidirectional: state changes on a blockchain can trigger state changes in the physical world.
We now have a direct connection between the cyber and physical domains. This could conceptually be thought of as an API for the physical world. It opens up a universe of new possibilities!
Oracles of state — the state of the world
The concept of ‘oracles’ has been used in the blockchain context to describe data inputs as feeds from trusted sources. With ixo this concept is extended to include any source of information captured in a stateful way that can be verified.
The implications of this are profound. It touches on the core reason why blockchain technologies can change the world. Potential applications of this will in future be found everywhere.
ixo has focused on applying these new capabilities to sustainable social, environmental and economic development applications that are needed to achieve the UN Global Goals (SDGs) by 2030. However, the core protocol is generic and generalisable.