As the Crypto winter maintains its steady grip on token prices and the ICO craze of 2017 has all but subsided, for now at least, many are wondering what to make of all these tokens that now float around in cyber space? In this article we look at the emergence of all these tokens in this tokenized economy, if the concept is really new and what’s installed in the next few years.
Blockchain technology has enabled a large wave of enormous innovation with respect to the creation of these so called “utility tokens”, which are essentially promises that they can be redeemed at some point in the future for a product or a service.
With over 1,600 tokens and counting, they all have created their own miniature economies battling for investors, developers and users and of course promised the masses that their Blockchain platform or application is the one that will solve the most relevant problems in today’s society. Problems such as self-sovereign identity, monetization of personal data, or even the provenance of ethically sourced “insert product of choice here”.
The truth is that we are only getting started. In the first wave of Tokenomics, ICOs made a lots of mistakes. The token supply was generally a best guess, some smart contracts were essentially a front end to a glorified excel spread sheet in the back end and the hype of 200% returns in days created the fear of missing out (‘FOMO’), but the concept of a tokenized economy is not new.
We have actually lived in a tokenized economy for thousands of years where rocks, shells and even coffee beans have been used to represent value. However, for the first time in history, we have unleashed the concept of a decentralized token economy where we trust a network of computers instead of a centralized organization.
In fact, this tokenized economy is similar to markets in that there are lots around the world that co-exist with their own ecosystem. Just as markets have flourished, so too will the token economy due to Blockchain technologies that has allowed the creation of digital decentralized trust via very clever mathematics.
With this new technology, all of a sudden, the physical world can be represented in the digital or virtual world where not just information but value can be represented and transferred. The difference? Information can and should be replicated and distributed as widely as possible. Value needs to be scarce and when created, must be registered and carefully tracked.
The token economy may seem like a revolution but on closer inspection, it is more of an evolution and we have all been here before. From the fax machine, to the telephone to the smart phone. From withdrawing money via a teller, to a machine in wall (ATM), to 24 hour access in the palm of your hand (mobile banking apps). And finally from trading paper shares, to digital shares and now the emergence of a new tokenized economy to democratise wealth.
Now that we have had a taste of these tokens and seen some of the possibilities, in the next few years we will see more innovation particularly from the much hyped security tokens where businesses large or small can tokenize their assets.
Tokenizing assets as a security can promote more economic activity because it provides access to capital that would once have been difficult to obtain. To raise capital requires a lot of trust in the stake-holders but now we can trust software. Imagine the need to raise capital where digital tokens can be issued and registered in a crypto securities market. Through automated smart contracts, funds received can be directed as appropriate under the control of custodial token wallets. All of this activity is transparent and verifiable on the Blockchain and should the funds be mis-appropriated, a refund mechanism can be put in place. Smart contracts brought about the term programmable money, the next evolution will be smart programmable tokens.
Extending this concept further, when we incorporate the world of smart devices that we are already seeing in the market, think of a refrigerator that knows to order more milk from the local super market, these devices will be able to participate in the token economy and literally be paid for performing certain functions. Think of a group of friends investing in a driverless car. The car receives income from users in the form of tokens and can return a weekly dividend along with any ride sharing analytics one could ever imagine.
In summary, we’ve seen the emergence of 1,600 plus tokens in the biggest experiment thus far. On closer inspection though, the evolution and not a revolution concept becomes clear and the future of living in a tokenized economy will transform the world to yet another level. The Internet democratized information, the token economy will democratise wealth.
Important Information: The views and opinions provided by City A.M.'s CryptO Insider are of those named in the article and should not be taken as investment advice. This communication is marketing material.