During the latest BlockTalks podcast, Tokenized CEO and Co-Founder James Belding explains the benefits of putting all commercial records on the blockchain. Tokenized is a technological firm that focuses on the digital transformation of contracts through tokenization and the application of a combination of the best features of Ricardian and smart contracts, making each agreement legally valid, as well as machine and human readable and forcible.
“We’re basically trying to put commercial record-keeping on blockchain and deliver real value to enterprises and consumers through products that leverage the blockchain and commercial records on it, essentially. So, there’s a lot of novel things that can be done when you’ve got a properly designed protocol that encapsulates contracts, instruments, tokens as they call it commonly, other types of commercial records like governance and resolutions being passed, votes being cast and things like that,” Belding said.
“The idea is that [a Ricardian contract] codifies and structures contracts and the associate instruments such that all of the legal pros, the machine readable, machine forcible, as well as the human readable and human forcible components of the agreement are all combined together and stored digitally. So, it’s like a digital transformation of contracts,” Belding added.
It must be noted that digitally transforming contracts is not the same as converting it from a paper document into pdf or Word format that is digitally signed. A smart contract is a digital agreement on which a software code is executed that automatically enforces a set of predetermined conditions agreed upon by the parties involved. But it is not human readable and not legally binding, while a Ricardian contract is both machine and human readable and forcible, as well as valid in the court of law. It also uses standard language that will be hard to misinterpret or find loopholes.
Combining the two will revolutionize the way contracts are digitally transformed. It will not only reduce time frames by more than half, but it will also minimize cost as as lawyers, accountants and executives will not need to put in as many hours into the agreement. Business on blockchain is definitely more efficient and has the ability to maximize profits.
“Even in a very raw dollar-saving, time-saving perspective doesn’t tell the full story. Because if you can free up the smartest people in your company from having to worry about that stuff and they can spend that time on more productive endeavors, developing bigger visions, building better connections with people and dealing in more agreements per year for more business, that’s going to have a real step change in the pace of business globally in a real material way,” the Tokenized CEO explained.
Tokenization, on the other hand, is the process of converting an asset into a digital token, and Belding explains that for their company, tokens are considered to be legal and financial instruments that act as a digital certificate of ownership. Tokenization also allows for assets to be transferred or exchanged more easily between parties and assets become more liquid, where changes in ownership are recorded immutably on the blockchain.
Tokens are non-custodial and come in a variety of forms, such as a shareholder agreement, banking transactions, investment agreement, and so on. They all have equal weight when it comes to substantiating proof of ownership. When one record gets lost, other types of records can be depended on to support the claim of ownership. When one enters into an agreement, all these instruments or tokens come together on the blockchain, and Ricardian and smart contract features are applied.
“I think the same thing applies to tokens. So, it’s just one piece of the puzzle. And we think that all of the records can benefit from being on blockchain, from being timestamped, from having the properties that the blockchain offers, which is the highest marks in data persistence, data availability, data integrity. And therefore, we want to get all those records on chain and we want them to be highly integrated and interoperable so they can benefit each other. And you can have a single source of truth that is ultimately linked to the other records and just create a much less risky, less error-prone, more robust solution as a whole, and one that the software can take advantage of for a much better user experience,” Belding pointed out.
