Misconceptions about tokens and smart contracts

What are some of the common views on tokens and smart contracts that are wrong, misguided, or narrowminded?

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hello zbingledack!

Welcome to the Tokenized forum, it’s an honour to have you here.

I’ll put together a considered response when I’m not so jet lagged. I just got home from a 24hr travel mission from Toronto.

Wrong: A token called a token is useful (Token is the base item. It must have a function outside of just being a token.)
Wrong: Smart contracts are codified law (Law is law. Smart contracts are code. If your smart contract has a bug that does not mean the law has a bug. It means you are a poor developer.)
Narrow minded: Pegging a token to the dollar (Sell your token for a dollar value, but imbue it with added value by providing services worth more than the price. Use it to grow your business.)
Misguided: Digital tokens are new (Every law ever written for ‘Tokens’ applies to Digital tokens. Sorry Vitalik.)


In no particular order:

  • Many people in this space don’t appreciate the fact that any token with an issuer is inherently centralized. The technical implementation can’t change this fact.
  • Locking/unlocking scripts by themselves aren’t very ‘smart’. If a script returns false, then the transaction is dropped and nothing happens until the user broadcasts the transaction again at some time in the future. Software agents can be used to continuously rebroadcast the transactions on behalf of the user until the script returns true and the transaction is included in a block. Smart contracts are really just the combination of off-chain software agents and on-chain locking/unlocking scripts.
  • Physical objects aren’t practical to tokenize unless the tokens represent ownership rights to an entity (eg. company, unit trust) that owns the physical object. On-chain titles are typically better represented by a static contract unless a government agency runs the smart contract and the courts recognize the associated tokens as the only acceptable method for transferring ownership.
  • Operating a smart contract (off-chain daemon) is a huge responsibility/risk, and it doesn’t provide the operator with any power or control over the token holders. Everything of consequence to the contract, and the relevant contracting parties, is published on-chain in such a way that the moment the smart contract does not follow the rules (eg. breaks with the terms and conditions or rules of the Tokenized Protocol) it will be trivial to notice and to prove. The contract operator will then be liable for damages.

I’ll add some more as I think of them :slight_smile:


Thanks for the responses, guys.

It may help to have a table chart showing how tokens and contracts work now, how people think they will work on the blockchain, and how they will really work.

Once you clear up the misconceptions their next question must be, “So what is the benefit?” Such as, “If a token with an issuer is centralized, what is the benefit of using a blockchain?” The answer that explains both what using Bitcoin for these business processes doesn’t do and what it does do would seem to hit the mark. Probably a subtle answer.

“Many people in this space don’t appreciate the fact that any token with an issuer is inherently centralized. The technical implementation can’t change this fact.”

Yes, with “A” issuer that would be true, but what about a token anyone could issue?

Can you describe a scenario in which multiple parties issuing the same token makes sense?

In banking u ve Syndikats that are able to source huge capital between their different clients. I might make sense

I believe that would still be multiple parties forming one party to control issuing.

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One takes over the lead in general, but this are details for capital markets.

Yes. I am very interested in a token project, one that anyone could issue the token with.

What I envision is a token that has an objective standard, I prefer the joule standard but others would work. 1 token = 1 joule of work.

Anyone would be able to issue a joule token and declare what they would be willing to redeem their self issued joule token for. I own a mushroom farm and a boat parts business, I would make my tokens redeemable for mushrooms or boat parts and would probably lock up some usd funds if needed.

Then for governance of the issuance of joule tokens there would be a p2p reputation keeper

So self issued tokens with a socially objective base unit of value who’s issuance is regulated by personal reputation.

This can be done in two different ways:

  1. A contract operator could host a smart contract for a group through an organization where N representatives (anyone) administer the smart contract through an M of N multi-sig/threshold signing arrangement. This could be thousands of people/representatives across the globe, with a majority vote used to govern.

This could be a non-profit organization like the Australian Energy Market Operator (https://www.aemo.com.au/About-AEMO/Board-and-governance) or the International Organization for Standardization (https://en.wikipedia.org/wiki/International_Organization_for_Standardization) where they maintain the definition of the token (eg. 1 joule = 1 token) and have governance procedures for managing the smart contract…all on-chain. Anyone could request the issuance of a token from that smart contract for their purposes.

  1. Secondly, everyone could simply issue their own smart contract and follow a set of guidelines to make sure they are interoperable/equivalent. Since all of the relevant information is published on-chain, users could use software to quickly check that the token conforms to the standards.

It is great to know that it would be possible with tokenized :sunglasses:

I see a token like the one described as being the solution to onboarding, but am concerned it would be too successful. A unit for the measure of value that is more stable than the dollar and self issued rather than bank issued would be an actual threat to usd. I wonder what the choke points would be in regards to tokenize? if they can be avoided? and if tokenized would commit to supporting a project like the one proposed?

Is there a place I should post for new token proposals?

I’ve just created a new topic called Proposed Asset Types. Would you mind posting your proposal there?

Hopefully we can kick a discussion off once we have all of the details listed out clearly.


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I would be happy to. :pray: