First of all, let’s review some key facts about what Blockchain is and how value occurs in digital assets:
- Digital currency is created as a result of the following: Value = Utility. This process is assimilated via a Blockchain which peruses a binomial random walk to create a unique Proof-of-work algorithm (POS uses a similar function). This process creates what is called a value coeval. A Value Coeval is strictly where chain, shop and network propositions of value are correlated, but it can equally be expressed as V = U.
- Unless V = U there can be no digital currency as double-spending, unidentifiable value etc. becomes a problem. This was Satoshi’s finding with respect to payment utility.
- In recent years there have been attempts by innovators to create a form of payee utility out of the payment utility inherent in the value coeval. The attempts have for the most part focused around recreating securitised products on the Blockchain by employing methods such as introducing token dividends, profit-sharing token buybacks etc. The problem with these mechanisms is they do not resolve the critical question which is: how do we convert payment utility into payee utility?
Here is where things get interesting. Essentially, via using the escrow feature of a smart contract across a spread of assets, we are able to synthesis a continual payment cycle:
- A way in which payment utility can be converted into payee utility on Blockchain is as follows: we subdivide the value = utility that produces the value on the Blockchain into three separate components: core utility, option utility and exchange utility. We then take these three forms of sub-divided utility and divide them by the value coeval that is inherent to Blockchain functionality. We do this via a smart contract which simulates a Blockchain creation without actually being an individual Blockchain (and thereby bypassing the requirement for adding additional coeval value which would clearly make this process obsolete if it were not so): [Core Utility * Option Utility * Exchange Utility] / Value Coeval
- This discovery is significant because it allows us to create a system whereby payment utility is converted into payee utility between every individual function of payment utility separately while still conforming to Blockchain standards such as being an independent non-securitised token offering
- In other words (CU*OU*EU)/VC = Blockchain Payee Payment Utility
- What has made this possible is the act of using Blockchain payment utility as a mechanism of “profitable payment” which thereby allows the payee to make a payment while still benefitting from the greater amount of FIAT-convertible proceeds of such a payment.
- This is because of the dynamic multiplication of the three components of Blockchain payment utility: simply, when expressed in a Blockchain (POW/POS) equations it will necessarily create an enhanced form of payment utility (Blockchain payee utility)
Of course, many ICOs could – and should – copy a similar modus operandus, and that would solve the vagueness in Blockchain asset values. If all ICOs functioned as swap-cycle tokens as opposed to being in and of themselves the end point of value, we could predict values based on EPS and P/E style equations as for listed companies, except the tokens would remain unsecuritized. That would be a huge value innovation.
Factory Banking Profitable Payments With Token Families
The diagram below shows the process of factory banking, which is the manufacture of value via a information technology solution. This particular variant of factory banking is called the token family due to the structure of the relationships between the smart contracts in the system. Here, an embryo smart contract is mined by an embryo token to produce parent tokens.
The embryo is returned to the feeminer (sender) along with the parents, except the embryo is frozen in the wallet for a specified period. If the smart contract to which the parent is sent is full of seed tokens (ETH, ZUR etc.) then the parent is a pregnant token; conversely if the smart contract is empty of seed or has negligible seed to mine the parent is a barren token. The pregnant token is received by the parent smart contract and is destroyed: the feeminer is returned a percentage share of the seed.
The seed is deposited in the parent smart contract by way of one or more child tokens which exchange continuously back and forth for seed tokens, and when doing so, a fee is extracted from the seed and paid into the parent smart contract.
The system results in the value of the seed being inherited by all other tokens in the hierarchy — embryo, parent and child — to different extents the likes of which financial derivatives products reference the values of the underlying securities they are underwritten by. Value inheritance however is purely a function of the utility of the individual tokens specific roles within this factory banking context and is not a pre-functional quality of any token in particular.
See the entire written abstract here.