How do smart contracts guarantee payment?
How do smart contracts work? How does the network guarantee payouts, and remove counterparty risk? How will this make our economy more efficient? In this ...
What's up, party people? Chris DeRose here, Community Director of the Counterparty Foundation. I wanted to answer the question that was posed to me by one of you, which is, "How do you guarantee that the money is delivered as part of a smart contract or as part of an asset? I apologize in advance. I don't know who asked this question or wrote it down. I will see if I find this after the video and put you in the show notes somewhere. It's a good question. How do you guarantee that the assets are delivered? Assets can be any number of things, first and foremost.
It is important to understand that smart contracts work with the assets themselves, the assets themselves being the digital representation. So at some level, if your asset represents a real world thing. Let's say you want to have smart contract for a bar of gold, a bar of gold takes up space. It is certainly going to be a tough thing to enforce the asset itself be redeemable for the gold. That's a separate issue. We will get into that in a second.
But the way that we work in terms of the Counterparty system is that the asset itself in the digital representation, the asset name, the asset unit that you hold, that gets put into the Blockchain. That gets put into escrow on the Blockchain. That's one of the reasons why we call this the Counterparty project. The Counterparty Project is a programmable Counterparty agent. When you design a smart contract, you put the contract under the chain, and then you attach to it your asset. If it is either XPTC of if it is XUSD, those are now attached to that contract.
It is help in escrow. It is unusable by the person who put it there, and it's certainly not usable by anybody else. At that time in which the contract executes, now that asset is released. It goes either left or it goes right depending on what it was programmed to do. You put this into the system. It remains on the Blockchain, not in any one person's custody but on the Blockchain, then it is delivered out of the Blockchain.
Minors themselves are doing the calculations. They're validating whether or not the assets exist to begin with, whether can put there. Then once they are there, minors again or making sure that they're not redeemed by anybody. It has been allocated to that contract and it stays in custody of that contract on the Blockchain. It's pretty exotic. I mean, it's a big part of this whole decentralization movement.
It's getting rid of middlemen and having no Counterparty and no Counterparty risk. Now, towards the actual effect of what about the bar of gold. Let's say you have a unit of x gold, let's say, and x gold is now moved on to the Blockchain. You have one unit of x gold, which is a bar; in case you're the monopoly man and that's what you want to do with your bar of gold. It would have to be held by the agency of some kind for you in order for that to work. So we look at Digital Tangible Trusts, for example, and they're doing this.
What they're doing is they have precious metals for which they redeem tokens. You either share that precious metal or you have a small bar of silver or some such thing, and they are agnostic to the owner of that actual bar other than they exist as a redeemable token. So for them, I believe that Rick is the person who runs that project. When he has a person who comes to him and says "I have an asset for one unit of gold," he looks at it, he know it's true because it's validated by the network. Then conceivably, you can pull it out of there. He will mail it to you, I guess.
I don't quite know how that part works. He himself doesn't have an asset registry. He doesn't look at it. It's kind of meaningless to him who he sold it to originally and it doesn't even matter. What he had that he sold was a ticket. It was an asset.
It was a token. It was an encrypted graphic token that represented a real world precious metal. In his case, we do a contract of some kind. You put that token in an escrow. When that token pops out, whoever is the bearer of that token can then go back to Digital Tangible Trust and redeem it, and they will provide him that thing which it represents. That's how the network manages scarcity, and that's how it manages these assets in the contract.
It's very simple. It's a bonding system of a sort and you put your token into the system, and then it pops back out based on your rules in the smart contract. This also works the same way under distributed exchange. You can execute via sale orders for your assets along with all the other functions that Counterparty provides. That's it. If you liked what you saw, you can email me Chris@chrisderose.
com with your questions. You can tweet me @derosetech, and subscribe to channel if you like it. Thanks for partying with me people.