...by Daniel Szego
"Simplicity is the ultimate sophistication."
Leonardo da Vinci

Sunday, March 18, 2018

External assets and IOU contracts

In a blockhain system usually there are two kind of an assets:

- internal asset is realized and controlled directly by the blockchain protocol. As a consequence, internal asset can be directly forced to move on the network as an example with the help of smart-contracts. Internal assets like Bitcoin, Litecoin or ether at Ethereum.

- external asset is administrated by the blockchain network but it is not controlled directly. As a consequence they can not be forced to move on the network. In other words external assets like IOU contracts on the network where IOU is denominated by some kind of an external, perhaps even physical asset. As a consequence moving an external asset on the network is like moving IOU contracts or balances on the network, blockchain does only the administration, but the settlement is carried out independently. 

There are usually initiatives to try to bring an external asset as much internally as possible, because in this way settlement can be directly carried out in a programmed way. The most typical Example is the direct IoT and hardware integration between a physical asset and the blockchain.