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James Belding, CEO and co-founder of Tokenized, a technological firm specializing in the issuance, management and trade of security and utility tokens, explains the benefits of blockchain smart contracts on a recent BlockTalks podcast. Smart contracts were developed by Nick Szabo in 1994; but it was not until blockchain technology was popularized by Bitcoin that its real value and full potential were recognized.

Blockchain smart contracts allow for parties to enter in a rule-based digital agreement or transaction without having to rely on third parties, like lawyers and accountants, to facilitate, verify, or enforce the negotiation or performance. Tokenized goes one step further by utilizing Ricardian contracts designed by Ian Grigg, which is legally binding, and combining all the useful features of blockchain smart contracts.

“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 explained.

“One part of our thinking that led us to believe it was important to have the entire contract on chain and as part of the structure protocol rather than say, having a pdf agreement with a timestamp hash or storing that hash agreement on chain, whereas you can do some interesting features in terms of the automation, basically, software enforcing things and codify terms of conditions that can essentially just remove the need for humans to be involved,” the Tokenized CEO added.

Belding further goes on to take proof of ownership as an example. There are many ways to prove ownership of a company, such as a soft copy of the ownership agreement, bank accounts and transactions, subscription or investment agreement and shareholder agreement. If one is lost, the others can still verify ownership. All of these documents of proofs of ownership have equal weight, and the same can be said about tokens as they are financial or legal instruments that act as ownership rights for something.

“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.

By putting all these records on the blockchain as tokenized assets and combining the concepts of Ricardian and blockchain smart contracts, companies in financial markets for private securities, bonds, debts, and the like can limit misinterpretations and loopholes that cost a lot and take time to resolve. Digitally transforming contracts to make them machine readable and forcible, meaning they automatically obey a set of predetermined conditions or rules without having to be manually enforced or explained, massively compresses the time frame for deals to be completed, as well as minimizes lawyer and accountant fees.

“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,” Belding concluded.

The benefits are all there for the taking. However, Belding says that a huge challenge Tokenized is faced with is making people, especially top-level executives who make company decisions, understand the way it works. Non-technical people tend to have a hard time appreciating the value of something they have not tried before.

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