Token Hall Series

2 — Authenticity

Welcome back to the Token Hall, your trusted guide for Tokens, Contracts and Identity in the exciting world of blockchains.

Brought to you by Marley Gray in collaboration with Conor Svensson at Web3 Labs.

Bearer Instruments

Let’s get back to bearer instruments from Part 1, they belong to the holder and are used just like physical money. The single most important thing about any bearer instrument, regardless of its form, is its authenticity.

For example, if you have a $100 bill with a serial number of H4829310239 and come across another $100 bill with a serial number H4829310239, one of them is a counterfeit. But which one?

How much is your $100 worth now? $50? No $0 — you can’t trust the dollar bill your are holding.

A bearer instrument’s value is a zero sum game of confidence. Absolutely authenticity or the extreme unlikelihood of being able to produce a convincing counterfeit, is the name of the game.

Where does this trust in authenticity and how do we determine it? Well it depends on the properties of the instrument.

The Journey From Gold to Bearer Instrument

The authenticity of gold coins was initially determined dentally, which at the time meant evaluating coins was risking your gleaming smile as the dentist was also likely the town blacksmith. Anyway, a gold coin is not a bearer instrument because the coin itself has value. You could melt it down into a gold blob and its value would be the same. Because of this, gold coins were of great value in of themselves but came with a lot possession risk that often led to problems dwarfing the state of your dental health.

It wasn’t until the issuers of coins began plating rubbish materials with precious metals that their value was greater than their melted form. This was an interim step in the direction of full on material substitution to make the coin by using low valued metals and even paper to represent a blob of gold held by the issuer of the coin.

The bearer instrument was born, well kind of. Meaning, the notion of a token as the bearer instrument representing value located somewhere else. Risk in using gold as currency could simply be the possession of them, with a bearer instrument the risk resided in determining authenticity when accepting it as payment for your labor or an asset you are selling.

If a rubbish material coin or paper bill represented a certain quantity of gold held in the issuers coffers, safe or vault, the bearer of the coin or bill could march right up to this institution and exchange the bearer instrument for the amount of gold it represented.

This is often called the Gold Standard, which technically its not, regardless this token scheme was the trust anchor underlying fiat currencies around the world until the early 1970s. The bearer of these instruments trusted that the institution that issued it had the gold to back it up, so all they had to worry about was that the instrument itself was authentic.

Note, historically, minted coins where government issued currency and paper notes were bank or institutional issued instruments. This was the norm, until a sufficient number of crisis and fiduciary judgement days required for humanity to eventually learn that was generally a bad idea.

So, in a way, a good measure of the general trust in a currency is the length in which someone will go to thieve them from you instead of attempting to counterfeit it.

Gold backing provided part of the trust equation representing value for bearer instruments, but what about authenticity?

Minters of coins and issuers of paper currency employed difficult to duplicate properties that could almost instantly calm any concern by its holder as to its authenticity. The molds or plates used to generate these instruments had fine detail that at the time of their issuance was difficult to duplicate in order to create an effective counterfeit at scale.

Counterfeiters, would experiment and eventually be able create “good enough” instruments or just steal the molds or plates. This would then cause a new series of instruments to be created moving the difficulty bar further out. This continues to this day, all around the world.

Determining authenticity wasn’t just an issue to the general public, but to governments and the minters they employed. The United Kingdom, in the twelfth century, began regular inquisitions called the Trial of the Pyx for the minter to prove conformity to a jury of metallurgical assayers, just in case they were skimming or creating extras. This too continues to this day.

Perhaps the most interesting aspect of today’s currencies is that they are not backed by gold, but trust in the backing government and authenticity. This, to most, is magic. However, the authenticity challenge persists.

Ok, enough of that, let’s get back to physical money which can be thought of as a type of token, let’s examine properties and behaviors of money.

Physical Money — Properties and Behaviors

Often it’s useful to state things that are obvious and clearly understood about money and then applying these concepts to tokens. For, as you will see, properties and behaviors provide ways of distinguishing different types of tokens.

Properties of Money

• Look & feel — physical properties that can help establish authenticity almost immediately and can be verified with further scrutiny. Paper quality, holographs, etc.

Note: Interestingly, the amount of intricate detail implemented can actually make it easier to fool people into accepting counterfeits that are deemed to have the same level of intricacy at first glance.

• unique serial number
• series information
• a denomination
• etc.

Behavior

• subdivides into smaller denominations, or making change
• can be coalesced into larger denominations, for example, converting a bucket of coins into a much lighter bill
• interchangeable value with any other money of the same denomination
• supports supply control, central banks can “print” more money and also remove older series that are susceptible to counterfeiting or to implement monetary policy.

Now, let’s translate these concepts that all readers should be familiar with into token jargon. This jargon is used for basic token types or categories, and when combined with a selection of many different behaviors, is adequate to fully describe everyday tokens like airline tickets or an annual club membership.

Let’s talk tokens

That’s all for now, watch out for our next post where we’ll be talking more about tokens.