This is article #1 in a series of four on Public Distributed Ledgers — The Case for Tokenisation written by Coinstone Capital. Coinstone Capital is an evergreen investment fund. Coinstone Capital manages a portfolio of liquid tokenised assets that have a strong distributed ledger use case, appropriate business model and are set to benefit from the activation of network effects.

What is a public distributed ledger?

A distributed ledger (DL) makes the recording of transactions in a decentralised way possible. This decentralised recording cannot be changed after the transaction has been recorded. This allows people and organisations to transact with each other without relying on a central organisation to establish trust.
Anybody can take part in a public DL without permission from an authority or group of participants. This is in contrast to private DLs with their controlled participation. Bitcoin is an example of a public DL because anybody can do a transaction on the network or run a node. In contrast, a consortium of banks would use a private DL for international fund payments.
Private DLs can rely on a “lighter” type of consensus mechanism than public DLs. This gives private DLs the ability to handle more transactions than public DLs. Currently, private DLs also address the issue of privacy better than public DLs.
For these reasons, corporates favour private DLs. So, most of the live DL projects marketed in the media are private DLs. This creates the impression that private DLs are better than public DLs in every way.
This is, of course, not the whole truth. Public DLs have three important value adds which are exclusive to public DLs:

1. Public DLs foster permissionless innovation:

Widespread access to computer hardware brought more efficient ways to create, process and communicate information into the public realm. This allowed individual innovators to apply their creativity. The world-changing results speak for themselves.
In very sharp contrast to information, the creation, storage and transfer of value have not undergone the same revolution. Yet.
The most basic reason for this is that if something needs to carry value it needs to be scarce. Gold is the most well-known example of this. Keeping something which is digital scarce is particularly challenging. Until now the specialised skills and procedures needed for this were only available at banks. The result is that individual innovators could never innovate with value without the permission of banks.
What access to computer hardware has done for information public DLs does for value by making digital scarcity possible. If you want to create a decentralised store of value which can be used by anybody with a smartphone or you want to create a decentralised insurance product you can now do so. It is only skill and imagination holding you back — not permissions.

2. Public DLs manage incentivised coordinated cooperation:

Our biggest problems, such as climate change, need international coordinated cooperation to solve. This issue is, we are becoming more divided along national and ideological lines at the exact time when these issues become more pressing.
Public DLs are structures that support coordinated cooperation through incentives. Recently, Bounties.Network incentivised 224 people to remove three tons of waste from a beach in Manila, The Philippines. This experiment illustrates the possibilities of public DLs in fostering incentivised, coordinated cooperation.
Another example, the Bitcoin DL runs at 99.98% uptime since 3 January 2009. At the time of writing, it processes 354,868 transactions per day at an average value of 58,908 USD and runs on 10,000 nodes spread over 100 countries. Independent participants following a specific set of rules enforced by incentives are all that is needed to achieve this.

3. Public DLs is an enabling technology

In a short amount of time private DLs and Enterprise Resource Planning (ERP) systems such an SAP or Oracle will fuse together. These combined systems will enhance ERP systems with the advantage of the lower cost of cooperation between companies. This cost of cooperation refers to the combined cost of data coordination and verification as well as intercompany dispute resolution costs.
What will the result of this be? More of the same — improved goods and cheaper services. So, instead of enabling members of society as creators we are yet again empowered as consumers. Something we are good enough in already.

We get the technology we deserve

In the paper titled How the Refrigerator Got its Hum, tells the story of how the battle of one home refrigeration technique against another was won. The technique that lost was silent and had no moving parts that needed to be serviced but still lost due to broader economic forces.
Point is, based on regulation, market forces and lack of understanding we risk turning our backs on public DLs. Something that, based on the reasons mentioned in this article, is something that would leave us all less well off.
Next week we will look into tokenisation and the important role it plays in the decentralisation of public DLs.