Blockchain’s Ground Zero Opportunity
Why Mattereum matters to the Blockchain Big Picture
“The blockchain industry skipped over the opportunity to improve liquidity and security in traditional currencies and other assets. This is the blockchain industry’s ‘ground-zero use-case’. Its story will dominate 2018’s blockchain news.
Any asset that relies on central governance or on 3rd party agents for security can be secured (and governed) on a blockchain. Traditional assets face opportunity for efficiency, liquidity and total disruption.”
— but —
“Consensus is a painful process.”
From the Theme 3, Blockchain Big Picture, Q1, 2018
Traditional asset management is ‘ground zero’ for blockchain innovation.
The blockchain revolution could begin with a ‘Bitcoin’ because there were no property rights to worry about. Local laws are being reverse engineered to regulate the flow of governed capital into ungoverned speculation in Bitcoin.
Meanwhile, governments and private enterprise have devoted centuries of litigation to law that protects property and other rights. More generally, binding agreements in document form enforce real-world contracts today. The resources that these agreements govern can now benefit from open distribution on blockchain networks. Some quantum of ‘security’ of traditional resources must be allocated to the blockchain — while preserving integrity of real-world agreements.
This theme of digital securitisation will repeat until all traditional resources are publicly secured or privately captured on blockchains. How we get there from here is the topic of this post. As the first solution I review in this space, it’s fitting to look at a platform play. Mattereum promises to offer to any paper legal agreement the same programmable security that Ethereum offers to any digital asset.
The Mattereum project is best viewed as an extension of Ethereum that allows smart contracts to also act on traditional legal (paper) contracts or agreements. Mattereum’s primary innovation is to allow existing paper contracts to live in Ethereum’s smart contract world. The best technology doesn’t reinvent the wheel, it just greases it well.
The Ricardian Contract is a form of digital document that captures the contract between parties, ensures by its hash that the right contract is identified and also always present, and includes all the necessary components to keep up with trade as users want it.
The Mattereum white-paper makes a lengthy argument for why we need legal agreements — that this must be explained to a blockchain audience illustrates how nascent these applications are. It is still day one. The Mattereum project, founded in 2017 by an experienced team of lawyers and engineers, also just recently begun. Its plan is broadly inclusive of both the legal and blockchain communities.
The Ricardian Contract is an interface between our physical world and the programmable smart contract world of Ethereum. Ricardian Contracts confer legal property and contractual rights to blockchain assets and their owners. In return, the blockchain asset agrees to meet the contract’s real-world obligations. I think of this as a switch — a mapping exercise between the set of real-world rights (and their parameters) that the blockchain needs to know about — and a set of obligations (jurisdictions, KYC, events reporting etc.) that the blockchain must meet in order to satisfy the contract on earth. Extending this switch idea further, the Ricardian contract is a way to find the union between the set of blockchain assets and real world assets that play well together. The potential value of such an interface is immeasurable — viewed this way, the Ricardian contract could be the next ERC20 (and could be an easy route to ERC20 coins for private company shareholders.)
There are so many use cases for this interface and that will be the project’s challenge — where to start? In articulating the product, the whitepaper discusses smart contract libraries that coordinate end-to-end compliant transactions on Ethereum. I think this approach is too broad and limits potential adoption of a far simpler, more generic switch.
The primary innovation is to leave a paper contract untouched — likewise, I believe this protocol shouldn’t dictate the behaviour of a blockchain asset beyond the rights and compliance discussed. That way, both blockchain assets and real-world contracts are free to innovate independently — interfacing only as needed.
In the simplest form of a Ricardian contract, the MVP feature is dispute resolution by arbitration. This simple contract assumes a happy path until there isn’t one — it’s required for every contract-to-smart-contract mapping. A large share of legal arbitration work could ultimately result from this single channel if the Ricardian switch became the real-world on-ramp to Ethereum assets. Mattereum is constituting a specialised arbitration body — the communication effort on this project will be immense once its potential is fully realised.
The value in building such a switch lies in adding value to its coordination. By adding discovery features, a marketplace is born — where the most valuable digital assets can bid for the most valuable real world property rights — and vice versa. This Googlesque scenario is my speculation on where Mattereum could find value. The whitepaper describes venture investment opportunities in programming complex legal workflows on top of the Ricardian base layer. Follow Mattereum founder, Rob Knight on Medium for some great insights in this space. I’ll be rooting for this project.
