Smart Contracts v. Tokenized Approaches

When are smart contracts better than tokenized approaches to blockchaining?

Smart Contracts Give Us Verifiable Process

Smart contracts, which are really scripts that have been saved onto a blockchain and operate in a distributed manner via all of the participants in the network, are a game changer for commercial and governance processes. Smart contracts give organizations the ability to put in place process which can be executed sequentially, safely, on any machine, and remain completely verifiable – down to the individual computation process.

This is increasingly important as the information age and other various forces distribute work geographically but also increase enterprise’s compliance requirements to ensure that certain processes comply with certain metrics.

The Issue of Tokens

Current blockchain design largely focuses on providing its utility in the enterprise context via “tokenization”.

The Advantages of Tokens

Tokens on a blockchain are interesting indeed. These tokens can be used to formulate a system where the tokens represent value or represent other assets.

Either way, what is happening generally with the token based systems is that they are tracking title over something. Indeed, the “something” varies, but the general idea is that these systems are simply tracking pieces of property and the transactions in their blockchains represent verifiable title transfer from one participant in the system to another.

The Disadvantages of Tokens

There are a few challenges to crafting blockchain backed systems which overly rely upon tokenization. The primary challenge is that title transfer over “something” is rarely the interesting, or, indeed, the important parts of a particular deal in most cases. Generally, processes of checks and balances are necessary to be satisfied prior to title transfer in almost any modern commercial context one could imagine.

While these checks and balances may be able to be automated (or at least tracked) in a smart contract based network, there is no general mechanism for handling these checks and balances in many blockchain designs (permissioned or public) which generally fall under the “transaction optimized” category.

For these reasons, at Monax we feel that smart contracts represent a massive leap forward while tokenized blockchain systems alone are moderately interesting.

The Flexibility of Smart Contracts

When one deals with a tokenized approach generally one is taking business logic and putting into a set of blockchain nodes all connected to the same blockchain network. Distributing changes to the business logic required that the entire network accept those changes and update their blockchain nodes.

In a logic optimized blockchain node and its relevant network one simply needs to deploy smart contracts via one connected blockchain node to update the business logic of the application.

This is a massive boon for flexibility; particularly while prototyping quick solutions.

The Modularity of Smart Contracts

Smart contracts are also modular. This gives them inherent advantages over tokenized approaches as they can be more easily mixed and matched in a coherent fashion.

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