How AMPnet Enforces Trust in Decentralized Tokenization
AMPnet makes it possible for anybody to digitize any asset, bridging the gap between the traditional financial markets, real-world assets, and the blockchain ecosystem. Creating a decentralized ecosystem that verifiably and reliably digitizes trillions of dollars in value, however, is no simple task — here’s how AMPnet enforces trust in tokenized assets.
We’ve covered the impact of tokenization on the decentralized economy in previous articles that outline the obstacles faced by asset tokenization platforms. Unlike direct-issuance tokenization platforms that rely on centralized arbitration, AMPnet leverages a self-policing blockchain-based asset verification process.
AMPnet’s asset issuance and verification process operate on a democratic model. To understand how AMPnet’s AMPnet model enforces trust, it’s worth taking a quick look over how trust is enforced in blockchain systems as a whole.
Enforcing Trust in Decentralized Networks
The blockchain ecosystem, as it exists today, is founded on mechanisms that enforce trust in decentralized networks. Satoshi Nakamoto’s Bitcoin white paper, published in 2008, presented the first case for a decentralized ledger system through which positive network participation is incentivized and bad actors are disincentivized without the need for centralized arbitration.
Bitcoin’s Proof of Work system, a refinement of Hal Finney’s prior work on Reusable Proof-of-Work (RPOW), discourages bad actors from manipulating the Bitcoin blockchain by forcing network participants to expend resources when mining.
Hashing and adding blocks to the Bitcoin blockchain is an economically intensive process — a bad actor attempting to hash a corrupt block is unlikely to complete this task before hundreds of thousands of honest miners. Furthermore, a node that receives an invalid block will identify it as fraudulent and refuse to add it to the blockchain.
Bitcoin’s Proof of Work model renders the efforts of bad actors invalid by enforcing financial investment via the cost involved in hashing blocks.
Other blockchain models take the same approach in a more direct manner — Proof of Stake, for example, enforces trust by forcing participants to lock up a specific amount of capital, or “stake” when participating in a Proof of Stake blockchain. Bad actors risk losing this stake when attempting to defraud Proof of Stake networks.
The core concept expressed through both Proof of Work and Proof of Stake is code-enforced trust. Blockchain networks don’t rely on third party or centralized arbitration in order to discourage bad actors — trust is enforced via the architecture of the network itself.
AMPnet mirrors this approach to decentralized trust by establishing a system through which tokenized asset issuers are audited through a democratic process. All participants in this ecosystem stake value, which is forfeit in the event of malicious behavior or incompetence.
How AMPnet Handles Trust and Good Behavior
The AMPnet protocol leverages the same concept in order to ensure the integrity of tokenized assets. Rather than rely on a company, financial institution, or a small panel of third-party arbitrators to verify trust across all stakeholders in a tokenization ecosystem, AMPnet creates a decentralized system through tokenizers that are verified by auditors.
The AMPnet protocol makes it possible for anybody — a business, charity, company, or anyone else — to tokenize any real-world asset within the AMPnet ecosystem. We’ve outlined the potential of asset tokenization in previous articles, demonstrating how AMPnet’s asset tokenization holds the potential to digitize over $24 trillion in real-world assets.
All asset tokenization platforms, however, encounter significant obstacles — how can we ensure that the assets tokenized on the platform are backed by real-world assets, how do we verify that these assets exist, and how can we do this at a scale that keeps up with the vast demand of the global market?
AMPnet establishes a verifiable, scalable tokenization model through two key roles within the AMPnet protocol:
- Tokenizers, who use the AMPnet protocol to tokenize assets and use them within blockchain or DeFi ecosystems, and;
- Auditors, who audit tokenizers and verify the integrity of assets tokenized through AMPnet
Next week we will devote a separate blog piece on AMPnet tokenization and auditing system where we will explain in more detail the key roles of the Tokenizers and Auditors.
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