Vinay Gupta – Mattereum

The host of the conference and CEO of Mattereum talks about how to deal consistently with property and transfer of rights in smart contracts and in real world courts. You can learn more Mattereum on the website or in this blog post by Vinay


The Mattereum thing is basically an exercise in stating the obvious. We know for sure that to get this entire smart contract ecosystem to run, we’re going to need to be able to touch property which is defined by a non-blockchain system. If you take a piece of property… It’s an object. What is it that makes this property? This turns out to be a political question. If you ask libertarians what makes this property, they’ll tell you that it’s something to do with natural rights. Because animals protect their territory, and if I pick up a stick in some sense this is my stick, this is mine by virtue of the fact that I have picked it up. If we ask the UK government why is this my property, they might want to see my Amazon receipt which says that I bought it. If it in fact belonged to the Digital Catapult, that would be because they have paid for it rather than I did. Lots of different people have different ways of figuring out whose property something is. All of these international disputes about who owns something, it basically resolves down to the way that something becomes property is that the machinery of state makes it our property; if the machinery of state does not make it our property, it’s not our property.

The blockchain provides a method of owning things which doesn’t rely on a state saying that you own it; what it relies on is Bitcoin private keys. Inside of that technical system, the ownership of the key is the thing that makes the Bitcoin your property in a de facto way. If somebody steals your Bitcoin keys and then steals your Bitcoin they’ve nicked it off you, but inside of the Bitcoin system, because the Bitcoin system defines the rules of the game where if you have the key it’s your Bitcoin, it doesn’t look like a theft to the Bitcoin system and Bitcoin just registers the key is the owner. The mismatch between the legal systems that are used to identify property and the technical systems that we create on the blockchain is not going to remain dormant forever.

Right now most of what happens when somebody gets their Bitcoin stolen is they get sent home to cry about it, because generally speaking governments don’t have enough in the way of cyber expertise to go and prosecute those kind of cases and try to recover people’s value. For the most part, when this stuff is gone it’s gone, cybercrime is hardly ever prosecuted. But when we start using blockchains to move this stuff around, the mismatch between what the blockchain says what the property situation is and what the government says the property situation is will make the smart contract ecosystem completely ineffective for doing anything in the real world. Because if something blows out, it will blow out badly enough that it will be hugely expensive to figure out what went wrong, there will be expert witnesses for days, and the results that you’ll get from the courts may be extremely surprising until we’ve got a solid body of precedent and the courts have some experience. This is one of these kind of slow-moving, inevitable problems that eventually somebody will get around to doing something about, and because I am somewhat longsighted and I tend to anticipate trouble before it comes, I’ve decided that we were going to be the people to do something about it.

There are tons and tons and tons of folk looking at making smart contracts legally enforceable or looking at making law streamlined and efficient using smart contract technology, there are many, many variations on a theme, going from formal semantics right the way through to enormous marketplaces with reputation-rated contracts, there are lots of people around this space in one way or another. What makes us different is that we are fairly sure that most of the heavy lifting is actually legal heavy lifting. It’s a case of trying to figure out how to represent to the courts what the smart contract really ought to be about, and for this you need paper contracts. You need a paper contract that a court is perfectly comfortable with, to give you a very precise description of what it is that the smart contract is intended to do, and what the legal situation around the smart contract was agreed to be by the parties when they started the process.

In this sense we’re quite close to Clive’s approach, which is “Well, it should have been in the contract,” it ought to be in the contract, and at that point we can reduce the ambiguities around the smart contracts used in the real world enormously, maybe by two orders of magnitude. The idea is to reduce and reduce and reduce and reduce the legal uncertainty associated with how the courts will handle a smart contract which deviates from the expected behaviour, and if both parties are happy with what’s happening it’s never going to go to court. We’re dealing with a situation in which one party feels advantaged and another feels disadvantaged, or both parties feel disadvantaged. What we’re talking about is the problem-handling mechanisms. This is exception handling on the entire blockchain ecosystem.

Why Ethereum? Simply put, I know Ethereum pretty well, I know the people inside of Ethereum pretty well, Ethereum is currently the dominant smart contract ecosystem, but there’s nothing that ties the work we’re doing specifically to a given technical layer. There’s quite a lot of flexibility, for thinking about what would happen if for example YouTube took some of its work and wrapped it around Bitcoin. There’s no reason in principle that you couldn’t do that, because what we’re designing here are wrappers for sociotechnical systems which make them understandable by the existing legal and governmental infrastructure. The entire thing is about building interface layers between the existing systems that define property and manage law and all of these new technical systems. If we get this right, what we avoid is the messy, bloody, awful face-off between the kind of new world in which private keys define ownership and the old world in which legal ownership defines ownership. If we can smooth out those gaps so that we see less and less and less misunderstanding of the situation between the new world and the old world, hopefully what we get is accelerated progress towards this kind of long-term… I don’t want to say techno-optimist but techno-optimist future.

Does this sound a little pedestrian? Because it is actually fairly pedestrian. This is an approach which is very much about doing simple things reliably enough that you can depend on them for transacting real value. If we’re going to get into a situation where you could drive around London with a cell phone, see a house that you like and pay a deposit in Bitcoin, and at that point the process is initiated, 20 minutes later you’ve got a mortgage arranged, the entire thing is signed, sealed and delivered, and then you drive around to somebody’s house to collect the keys… If we’re going to get into a world where buying property looks like that, it’s going to be because a whole bunch of less complicated things all worked perfectly for years, and people got comfortable enough that they were willing to do they transactions for hundreds of thousands of pounds in these kind of highly dynamic technical environments. Building that trust is not just about the technology being flawless, it’s also about not getting ham-fisted, poorly-conducted litigation between parties that didn’t really understand what they were doing resulting in terrible judgements. You have to be in a position where everybody gets comfortable with the process, if we’re going to basically move society onto these technologies in a way which is beneficial enough to all parties, that we can understand and accept the costs of those kind of transformations. That’s essentially the Mattereum approach, that’s why we’re doing what we’re doing.

The practicalities of what we’re doing… I mentioned this earlier on that there’s an application in the Android store called EtherCam. If you have an Android device you could download EtherCam, and EtherCam is a very simple Mattereum system. Basically, you can take a picture of something, you can decide how much you want to license the picture for, somebody else can see the picture that you have advertised to be licensable, and it can execute a legal contract for that license which will allow them to use the image in a publication for commercial purposes, and you get paid for this. Right now it’s running on, it will go up on, it will grow some initial features as we have the contracts that photographers use, and it’s basically there as a demo system to show that you could actually have proper English legal contracts that refer to smart contracts that create systems which are legally binding. Now, we have some very, very big dreams in the room about how all this stuff is going to work in the future, about how well these pieces could fit together in a kind of trillion-dollar industry scale that Scott was discussing, and there are also a lot of ideas about how we fundamentally transform the basic patterns of life using this kind of technology. People talk about having incredibly complicated new structures, but all of that stuff is going to get built one legal precedent at a time, brick by brick by brick by brick, and if one of those bricks cracks and you wind up with a bunch of bad decisions, it’s going to be a very difficult process to go and unpick that, appeals courts and all the rest of that – it will be a slow process.

What we’re attempting to do is get a relatively flawless execution of the simple stuff, such that we can then go and build the complicated stuff on top of it, and that is relatively technology agnostic. There are lots of technologies around in companies that we might license, there are lots of things that we might develop, but the basic attitude is what really counts here. It’s about integration of the digital into the real in such a way that you never get this kind of violent tear, which has been so much part of the American approach to this kind of technology innovation. The Americans love disruption, and that’s not surprising given their history. But I think the European model is much more integrative than disruptive, and for a long time we took some flak for not being very innovative and all the rest of this kind of stuff. But actually, when you begin to talk about transforming the existing systems, nobody is going to be disrupting global shipping in a way that actually disrupts the ships anytime soon. You could mess with taxi cabs and maybe there will be some push and some pull, but when you start interfering with global food distribution, you’re going to discover that disruption has some powerful opponents. Silicon Valley has not shown great success in solving fundamental human problems even with all of this technology, I think largely because nobody will let them disrupt the systems on which the world fundamentally runs. For this we need an integrative and holistic technological approach, and that’s very much what we are planning on delivering.

Earlier on I mentioned this delamination problem: you wind up with two parties, one of them adheres to what the technical system says and one of them adheres to what the physical system is doing, the skill is in one country and the contract is in another country. That we’ve referred to internally as delamination: the technical level and the physical layer tear apart, and the terrible thing about this is that both sides could be simultaneously correct. Somebody is going to have to go and fix those problems when they arise, and in all probability there will be no right answers to the majority of those cases, because you’re patching something which is broken, and at that point it’s never going to be quite the way where everything runs smoothly. I think delamination is the number one agenda for us at a technology level. How do we go about building paper contracts and smart contracts which integrate extremely tightly and are as resistant as possible to make them to delamination? That process of building the expertise and contract construction, both natural language and smart, is basically what we are betting our next steps upon. Our objective is basically to master that art better than anybody else in the world, to make sure that the contracts that we produce are as resistant to delamination as they can be made and are more resistant to delamination than anybody else’s contracts, and this is as much a question of legal expertise as technical expertise. In fact, it’s probably three times as much a question of legal expertise as technical expertise, because the main complexity that would cause that kind of delamination is complexity in the real world, including the pre-existing legal system.

If you didn’t know something about how the Belgians happened to transfer property and your smart contract doesn’t take account of that, you get delamination in Belgium. That’s just a legal problem, and the entire network of international law and national law that would affect those kind of transfers, all of that stuff has to be reflected in the legal contracts or you will get breakage. There’s nothing in the technical ecosystem that is anything like that level of complex, so for all intents and purposes it’s about having really, really comprehensive, well-written English contracts that embody tons and tons of the pre-existing expertise, and then adding just enough technology to those that you get the beneficial attributes of the smart contracts. This is an incredibly paper-based approach compared to a lot of the wonderland that we expect to see later. Once we have the mature tool chains, the kind that for example Meng Wong is building, once that stuff is done, we will very much expect to be early users of that, we might even get involved in the prototyping, development and be early adopters of those kind of technologies. But right now we don’t see anything that’s at a level of maturity that we could simply start using it, pick it up and go, so we’re going to do this stuff the hard way until the tooling arrives which would allow us to do things like formal verification. I think that is everything that I wanted to say about this. Thank you everyone! [applause]