Worldview of Bystack (I): The Three Dimensions of Asset

This article is translated from “Bystack世界观(一):资产的三个维度” written by Chang Jia, founder of Bytom, a Chinese star blockchain project aiming to connect the atomic world and the crypto world.

Xiao Feng (CEO of Wanxiang Blockchain) defines assets by three states: Solid, represents the verification of asset, in which state assets can be transferred as a whole; Liquid, represents the securitization of asset, where assets can be split into parts; Gas, represents the blockchainization of asset, a state where assets can diffuse in the whole space and are no longer subject to the limitation of container (asset platform), and every individual, institution and organization can manage their own assets via their private key.

This is a very vivid metaphor, which also inspired us to name Bystack’s sidechain Vapor. However, the three-state theory above seems to consider only the evolution process of assets, but does not define asset types. When it comes to the definition of asset types, the industry has not offered a unified standard. The advent of protocols like Ethereum ERC20, though targeting different asset types, still bring no unified standard, for example, ERC721, ERC875 can realize asset blockchainization that cannot be divided or replaced and have the uniqueness of property right, but there’re subtle differences between them. In such a context, the industry is in urgent need of a standard definition for asset types, which is applicable to all blockchain asset protocols.

Well, so, how Bystack define asset types? How we vary on-chain asset from offchain asset (traditional asset), and what’s the difference among onchain assets, what dimensions should assets have?

The Tao produced One: Trustworthiness

When we withdraw one hundred yuan from the bank, it was as if the bank gives you an IOU (I owe you) of a hundred dollars, and we trust the bank would accept the 100 dollars. In the past, there was 100-dollar worth of gold back it, while now there’re no more physical assets behind it but the credit guarantee from the state institutions. In this sense, it is the country and banks that we trust rather than the money.

When we shop online, we’ll place the order quickly if we see positive customer reviews about the commodity we want to buy. And in this case, it is the ratings system of the e-commerce platform that we trust rather than the shop.

Nevertheless, that trust is actually unreliable, as fiat money may depreciate and the good ratings may be faked. In blockchain thinking, any trust that requires a third-party is not reliable, that’s why Satoshi Nakamoto figured out the trustless electronic payment system in a decentralized way. And there comes the definition of Trustworthiness – a feature owned by asset or transaction without going through a trusted third-party.

Trustworthiness has three connotations:

  1. Self-proof. Blockchain accounts are based on Elliptic Curve Digital Signature Algorithm (ECDSA), where everyone can prove their identity with their own private key, without having to face the common “prove my mom is my mom” dilemma in reality. A person can easily pledge his onchain assets for a loan from a bank, and the bank can easily verify the identity of the person and the authenticity of his onchain assets through the message signature. Therefore, the identity and assets onchain can be self-proved.
  2. Exclusivity. Once a blockchain account is created, it is for good and cannot be transferred. The trust in the shops on an e-commerce platform is unreliable because user accounts can be traded and transferred by changing the identity information. But the private key of blockchain cannot be transferred, because unlike the atomic asset, the private key cannot be copied, and thus the account, identity and credit on blockchains are absolutely exclusive. Trust based on private key (person) is closer to the essence of true real trust than that based on stores or platforms.
  3. Unidirectionality, or irreversibility, immutability. Apart from guaranteeing the security of transactions, the one-way transaction also brings an unexpected convenience due to the thermodynamic arrow. Due to the Bitcoin Days Destroyed recorded for each transaction on blockchain, the credit evaluation model based on the Bitcoin Days Destroyed has the natural anti-fake advantage over the traditional credit cumulative model.

The narrow definition of trustworthiness should contain all the above three attributes, but in fact, some onchain assets, though under the name of blockchain, which is actually a distributed ledger, do not have unidirectionality in transaction, but only have the first two attributes. Technically, self-proof and exclusivity come from Elliptic Curve Digital Signature Algorithm (ECDSA), while unidirectionality comes from proof of work (PoW) and hash (SHA256). Hash itself is a one-way function (difficult to calculate and easy to verify), especially when the calculation is carried out in a competitive way, because of the incentive generated by new coins, considerable computing power will be devoted into it, so economically it can be considered that the onchain transaction is one-way.

Since Bystack is based on the architecture of mainchain PoW and sidechain DPoS+BBFT, we should pay attention to distinguishing assets’ trustworthiness on Bystack. By narrow definition, assets on the main chain have the trustworthiness in a narrow sense, while assets on the side chain are endowed trustworthiness in a broad sense. When the asset is transferred from the side chain to the main chain, during which trustworthiness is enhanced, and this process is called transition.

Trustworthiness is the line to separate onchain asset from offchain asset, but what’s next after assets are transferred onchain? We’ll continue.

One produced Two: Fungibility

A thought came to me when I was a child. The television often reports those who rob a bank, I wondered why doesn’t the bank announce on the television directly that those robbed banknotes will be invalid, (it is not difficult to do that) as banknotes are numbered, and a lot of them are numbered in sequence. When I confided my thought to my dad, he denied it immediately but I didn’t remember the reason he gave.

Now, of course, every adult knows that this is impractical. Though banknote has a number, the fiat currency has no numbers, every banknote has the same meaning and is fungible. The value of a banknote cannot be affected by its material, condition, numbering, its value is only related with its denomination. That’s why the solution in my childhood didn’t work. But what happens when an asset or currency is migrated onto a blockchain? We know that none of BUTXO’s assets is fungible, which means, if a bank robber robs a UTXO-based fiat money, my childhood proposal will be viable. In fact, something similar is happening now. When hackers steal money from an exchange, it is almost impossible to use it before it is mixed, because once it is used, it will be detected and frozen, just like a banknote is declared invalid.

Fungibility has very deep physics connotation, which may derive from parity conservation, and conversely, infungibility may derive from broken symmetry. In fact, all things in reality, as competitive resource, are not fungible, that’s why people say no two leaves are alike on the earth; while on the contrary, all things on the Internet, as non-competitive resource which can be copied, are fungible.

So why are UTXO-based onchain assets not fungible? Isn’t blockchain an Internet technology? We should give the credit to Satoshi, who combines the proof-of-work mechanism and UTXO technology, for the first time he creates bitcoin, an asset that cannot be copied on the internet, which makes it possible to transfer atomic assets onto blockchain, of course it’s essentially a kind of simulation at the cost of information entropy (power consumption). Using an example to illustrate the difference between the nature of onchain payment and third-party payment like Alipay, the experience of onchain payment is the same as that of receiving one dollar of money in reality. You don’t have to worry the money will disappear from your pocket, which may happen in third-party payment, this one dollar may disappear because of rollback of the database. This may happen because the latter is just a database-based bookkeeping method, which means the money has not really lay in your pocket.

Two produced Three: Severability

This is the most intuitive property. The first blockchain asset, bitcoin, is typically severable. Some people once questioned how bitcoin, with a supply of only 21 million in total, could adapt to the ever-increasing real economy. These skeptics clearly ignore the fact that bitcoin can be divided indefinitely in theory. In fact, the experience of using 0.000001BTC is no different from using a dollar. And the advent of money is also because of its severability. In the 7th century BC, the Lydian used lentil-shaped pieces of metal to make payment, which could accurately measure the value of goods. Its king Croesus thus owns great wealth for the minting business, and there came the expression “rich as Croesus”.

The potential impact of onchain assets’ severability is huge and not widely known. Currency, for example, is not really necessary. Because any asset is as severable as a currency, for example, in the BUTXO transaction shown below, transaction happens, without the involvement of currency. Since the existence of currency is not necessary, the words “exchange rate” and “price” will disappear, or their connotations will change. In the transaction below, there is no exchange rate or price, but only an atomic bartering (exchange of assets). When the Bystack team was designing a business points wallet, one member asked, ‘so how do we set or agree on the exchange rates for different points?’ No sooner had he said it than he realized the absurdity of his conventional thinking – in the BUTXO wallet, there’s no such thing as a traditional exchange rate or price.

The opposite of severability is indivisible. Some researches take CryptoKitties would pop out for example when talking about typical indivisible assets. This cannot be said to be a mistake, but CryptoKitties are not typically indivisible asset because of the neglect of uniqueness. Indivisibility is not equal to uniqueness, for example, cats are indivisible assets, but they are not unique. Uniqueness (n=1) is a subset of indivisibility (n= N). So the best example for typical indivisible asset is that the cat is an indivisible asset, the XX cat is a unique asset, and the XX cat is a subset of the cat.

Three produced All things: categories of assets

According to the broad sense of Trustworthiness, all onchain assets can be considered trustworthy. Then the dimension of trustworthiness is no longer needed in the detailed definition of onchain assets, so assets fall into one of the four quadrants as follows based on the severability and fungibility.

  1. Byte assets (BAP-01), severable and fungible. This category includes virtual assets of ERC20 tokens and real assets including currency, points, stocks (same share class has the same rights)
  2. Atomic assets (BAP-02), severable and infungible, include virtual assets like Bytom’s native coin BTM and other BAP-02 tokens and cryptocurrencies, and real assets including stock (same share class has different rights)
  3. Quark assets (BAP-03), inseverable and infungible, include virtual assets of gaming tools and pets, real assets including real estate, collections, commodity and security code.
  4. Quantum assets (BAP-04), inseverable and fungible. Virtual assets like red packets and real assets including coupons, admission tickets and QR code fall into this category.

After getting straight the dimensions of assets, we can also combine it with other trendy concepts. For example, the aforementioned three-state asset theory actually takes the two dimensions of asset – severability and trustworthiness (but not including unidirectionality) into consideration. Because of the severability, asset securitization is possible, and because of the trustworthiness, people can manage assets through private keys without being subject to trusted third parties. The competitive resources or non-replicable resources we often mention are actually non-fungible assets. The two popular concepts of homogeneous assets and non-homogeneous assets in the industry is actually based on the fungibility dimension. According to the four quadrants above, homogeneous assets include bit assets and quantum assets, while non-homogeneous assets include atomic assets and quark assets.

To sum up, trustworthiness is like the first cut, dividing assets into onchain assets and offchain assets. Fungibility is like the second cut, dividing assets into homogeneous and non-homogeneous assets. Severability is the third cut, dividing homogeneous assets into bit assets and quantum assets, and non-homogeneous assets into atomic assets and quark assets.

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