[thebean11]

> If you live somewhere where the police, a judge, or government can make you whole in a dispute

You're missing the point. If you create a system where you won't need to make use of the legal system because transactions execute correctly by default, your transaction costs are suddenly way lower.

Obviously your counterparty can still sue you after the fact, but thats a much better position to be in than needing the legal system to push the transaction through in the first place.

[hiq]

> transactions execute correctly by default

That's not what you get, because in practice you want some physical good for your BTC and a blockchain cannot enforce that you do get it, it can only enforce that the BTC are transferred from one address to another.

[thebean11]

Not necessarily..tons of financial transactions are purely digital (currency exchange, stocks, derivatives etc).

You can also tokenize a real world asset (for example a token representing an amount of gold). Then you have to trust the issuer of the token, but it's very possible you trust that issuer but don't trust your counterparty.

[hiq]

The examples you mentioned are not purely digital since they rely heavily on the legal system. You don't consider tokens abstracted from the whole physical world.

I meant that nothing is fully embedded within a blockchain (maybe physical was the wrong word).

[thebean11]

For sure, something like a stock still has a real-life counterparty that you can't get rid of. Trading it on a blockchain eliminates only the counterparty risk from the person you trade with, not with the party issuing the token / asset. This is true for basically everything except the native token.

[hiq]

> Trading it on a blockchain eliminates only the counterparty risk from the person you trade with

I think we agree here. The question then is: how useful is this really?

For example, assume I have some USD that I want to trade for VT, and I want to decide between using a blockchain or not.

The counterparty risk solved by using a blockchain is:

1. No blockchain: the broker (who's between me and the person I want to trade with) can technically keep the USD and the VT.

2. Blockchain: this cannot happen because a smart contract prevents it.

But:

a. How often are you in a situation where you trust the entities backing the two assets (USD and VT here) but can't find a broker whose trustworthiness is implied by the trustworthiness of the two entities backing the two other assets?

b. Less trust is always better, but blockchain-based solutions bring their own problems (e.g. private key custody). Are there even cases in which this trade-off is worth it?

[thebean11]

What if I:

- Am not in a jurisdiction where there is a trustworthy broker for VT or USD?

- Want to loan someone my VT (for example for them to short)?

- Want to buy some derivative of VT (easy to do in the US for VT American-style options, but this isn't true for all derivatives on all assets in all markets)

- Need to buy a large amount of VT and using the open market isn't cost effective?

VT maybe isn't the best example in favor of crypto as it's probably already one of the easiest assets in the world to trade safely online. There's lots of other stuff that's way trickier in the current system.