MICHAEL MCFALL CTO, THE ONLI CORPORATION
May 2nd 2018
Blockchain Distributed Ledger Technology, simply put, is a kind of public record that is immutable (cannot be changed). Whether it is permissioned or permissionless (who can write to it), public or private (who can read from it), and they go across an entire spectrum from experimental to enterprise grade. They are usually built on an infrastructure sharing model, where miners provide the infrastructre and in return get a portion of the transaction fee revenue, which is tokenized. What you use this for is a function of the use case. ONLI is a completely different from the ground up. For starters, it doesn’t use a general ledger, that is distributed. It is also part of an enterprise grade tokenization system that comes with integrated ownership and user management out the box. Blockchain DLT’s do not. ONLI is also designed to be configurable so that each use case can adapt itself to it’s regulatory environment. Today’s systems are a one size fits all. Therefore this comparison isn’t apples to apples, but it may still be instructive.
Onli is an enterprise class software stack for building your own digital asset exchange. Ethereum is an open-source, public, distributed blockchain-based computing platform featuring the ERC-20 smart contract (scripting) standard, created for the purposes of defining publicly accessible transaction records. You can use ONLI to build a public record that functions similarly to Ethereum (and by extension ERC-20) but ONLI comes with a whole lot more. Onli and the Ethereum ERC-20 smart contract standard are not competitors. There is more to building a digital asset exchange than just a public record of transactions.
Building a Digital Asset Exchange
Minimum requirements for building a Digital Asset Exchange (or DAE) include:
1. Tokenizing System
Tokenization is the process of replacing sensitive data with unique identification symbols that retain all the essential information about the data without compromising its security. Every DAE needs a tokenization system that allows users to efficiently identify an asset, prove ownership of the asset, and transfer ownership to another user of the system.
Storage is required by the DAE to store not only the description of the asset represented by the tokenization system, but regulatory and business data required for reporting and management of the DAE.
3. Transaction Manager
Financial Services businesses are capital intensive because you’re asking people to trust you with their hard earned money. At the core of any FinTech business is the transaction itself. Maintaining the integrity of each transaction, and the commitment and potential rollback of separate parts of the transaction in the event of failure, is a well understood and well traveled problem in computing science. Implementing such a system is not cheap. The open and distributed nature of the modern internet complicates transactional systems. It can inexpensive but it does require an investment, not just in technology. Technology is only the plumbing. Meeting regulatory and legal compliance requirements are a primary consideration when implementing a financial transaction management system.
4. User Management
User Management (including identification, authentication of identity, and authorization for purposes of transferring and accessing value) is of paramount importance in a FinTech system. In addition regulators require that users data and transaction history be kept private, so secure and private access is also required. These user management systems provide a foundational layer underlying KYC (Know Your Customer) and AML (anti-money laundering) regulations.
Financial Transactions Functions
Financial transactions involve three basic sub-transactions, proof of ownership, transfer of ownership and transfer of value in compensation for the ownership.
1. Proof of ownership
Financial transaction systems require that proof of ownership of an asset be established, before any proceeds or benefits from the ownership of the asset can be distributed. This proof of ownership step is required before any transfer of ownership can be accomplished. Irrefuteable is a requirement of the legal system, used during claims against the owner of the asset.
2. Transfer of ownership
Transfer of ownership must be safe, secure, reliable and finalizable. If any part of the financial transaction fails, the original owner must be restored.
3. Transfer of Value
Transfer of value in compensation for the transfer of ownership must also be safe, secure reliable and finalizable. If any part of the financial transaction fails, the original owner must be restored, and any value transfer that has taken place must be reversed.
The designer of a DAE have lots of decisions to be made. When looking at blockchain they must first decide if transaction records are required to be public. About 90% of financial transactions are best served with private records, either in the entirety of the transaction, or at the very least the owners must be kept private to meet regulatory requirements. In any case, public or private, the infrastructure must be proven reliable. Institutional applications need enterprise grade software. If transactions must be publicly visible, DAE owners would be well served to evaluate IBM’s Hyperledger, or one of the public blockchains now coming available through services like AWS, Microsoft and Oracle.
Cost of ERC-20
Ethereum (and by extension ERC-20 based transaction systems) do not include User Management systems, affordable storage (current Ethereum costs are around $0.30 for 256 bits), or transaction managers. A DAE built on top of Ethereum would thus have to develop or purchase such a system, with costs estimated around $500,000 to start and substantial ongoing expenses. Annual license revenues for such a system (Oracle or Microsoft for example) can run in excess of $1 Million annually. Per transaction costs will run between $4–7.00, depending upon the price of Ether, Ethereums native token. This extends out to $20–35,000 monthly transaction fees for a 5000 transaction per month system.
ONLI costs can be broken down into 3 catagories: tokenization system (the Mint), transaction managment system (the Treasury) and Marketplace (white label applications). Optionally, you may also need infrastructure-as-a-service, which is ONLI.ONE. This includes vescel.io, the database, user and a DCOS, which is an infrastructure stack upon which ONLI is built. ONLI is not opensourced. The Software is licensed but ONLI has a non-conventional approach called a participatory license.
1. MINT (generate tokens) — $50K/billion proofs, one time cost 2. Treasury (Ownership Management) /Marketplace (Buy/Sell/Transfer) — $135K one time cost 3. Vescel.io (General Purpose Database) — $4K/month 4. Software License — Participatory (paid once and paid in tokens).
These fees (about $185K up front, $4k on-going) provide DAE owners with very low costs of entry, as the ONLI system includes everything required to build a fully functional system for storing value, moving it around and keeping it safe. ONLI includes a tokenization system, the distributed transaction system for managing ownership and value transfers, a secure, blockchain identity management system, all implemented on a scalable, stable and secure enterprise class infrastructure. This is literally cheaper than opensource. There is nothing cheap about free. https://blog.lucidea.com/there-is-nothing-cheap-about-free.
When you bottom line it. Onli, all in, including license costs, cost about $0.0005 per token. Complete with an exchange, a marketplace, and infrastructure. Anyway you want to measure it, that is many times cheaper than everything else.
Onli’s participatory licensing structure is very different from conventional software licensing. Instead of taking money out of your business every year to license software, Onli gets paid from the same market you get paid by. As your business grows and succeeds, Onli gets paid when you do, 5 tokens the first time you issue every 100 tokens. Onli partners with you. A DLT system such as Ethereum, takes the cost of their shared infrastructue out of every transaction, effectively renting out their infrastructure to it’s users. This rent can be extremely expensive, and is why Ethereum is 40 million times more expensive than AWS.
Onli is different than Ethereum or any other public or private DLT. It is specifically built for tokenizing asset backed offerings. Onli is an enterprise grade software stack, built from the ground up for transactional systems. Onli is not open source and has registered developers, that are required to attend developer training to develop the skillset required to implement secure and compliant FinTech applications. In short, ONLI is enterprise software and ERC20 is standard. Onli and ERC-20 are not competitors.
ONLI is a registered trademark of the ONLI Corporation.