There has been a lot of interest in the “tokenization” area of cryptocurrency and blockchain lately. Everything from SingularDTV, aiming to become a decentralized version of Netflix (or at least partially decentralized), to Golem, seeking to redistribute computing power across the globe has the potential to have a token. These tokenized entities are doing what are called ICOs (initial crowdfund/coin offering) or “token launches” (if you want to be official about it like the folks at ConsenSys). So what exactly is this emerging “tokenization” concept?
When a company is starting off they need these things (and probably some others too, but these are the focus for this piece):
- Concept or Product — What you are doing
- Money — How you get it built
- Users — Who is using it
- Solid roadmap, ability to execute, experience are helpful
- Ethics, morals, and just in general being good people might help with building a solid community
The traditional route to get to a live version one of the idea/store/application/whatever is to have the idea, create the business plan, marketing materials, etc and pitch it to VCs or other wealthy individuals, hoping that they see your vision, and are willing to take a chunk of your company in return for a seed investment. The unfortunate thing about this model is that the owner of the business could end up getting screwed over by the VCs (who now have and ownership stake and voting rights). On the VC side, they are holding equity, which is essentially a dead asset until the company sells or IPOs.
This model isn’t really practical, and considering how banks don’t really do loans for new businesses anymore (but instead invest in building unnecessary oil pipelines and harming peaceful individuals trying to protect their indigenous lands), it’s clear that we should really be looking elsewhere for money (and also be seeking to replace fiat based currencies in general due to the potential abuse from the powers that be at the top of the pyramid).
Okay… So what does a token have to do with this?
Well a token, otherwise known as a “digital asset”, is a blockchain based representation of a part of something. What is that something? Literally anything. You can dream up anything you want and create a token out out of it. A token can also be created to be used as what we will call “fuel”. As a real world relatable example, when you go to an arcade like Dave and Buster’s, you trade your US dollars in for credits or tokens, which allows you to play the games in the arcade.
Each game, depending on its awesomeness, costs a certain number of tokens. Some of the games, aside from the fun factor, also give you the ability to win tickets, which can be redeemed for prizes. This is so close to the makings of a completed tokenized ecosystem. However it is missing some key components that don’t allow for it to be completely self-sustaining.
D&B vs. What I’m really talking about here
Okay, so now imagine if instead of tokens that can only be inserted into video game machines providing a minute or two of enjoyment, you could have a portfolio full of digital tokens, that serve a wide range of purposes. Maybe one allows you to watch your favorite shows, access information, rent storage space (digital or physical), eat ice cream, get an Uber (without Uber), and who knows what else.
Let’s even take this to the next step here. Imagine if these tokens had an inherent value (relative to a stable base), and the tokens could be traded on a bunch of different exchanges. This is really important. It means that your need for fiat currencies (currencies backed by countries) goes down significantly. Your stored up energy is constantly powering and supporting the things that you care about and use on a regular basis.
Wait, what about the raising money part?
Well, this might be the best part. Let’s say we have a grand idea to totally revolutionize some really big thing. We can create our digital asset and offer the tokens to interested parties at a discounted rate. Now if the idea is a good one, it should get funded because people think it’s a good idea and would use it. We currently aren’t there yet because people are still in the initial hype stage funding everything based on essentially nothing. This will pass, and people will learn to be more conscious of what they are getting involved in after getting burned a few times (this is life).
You are validating your user base before you spend your time building the thing.
So we sell our tokens (kind of like a pre-order) and then we have the capital to revolutionize the really big thing!
In part 2, we’ll dive a bit deeper into what a solid token model could potentially look like and what the benefits of holding/using them can be.
- Bancor: The Fluidity Protocol - 12 June 2017
- Jake Vartanian – The Significance of EthEnt for Ethereum - 11 March 2017
- Jake Vartanian – How Blockchains and Digital Assets Make Investments Liquid - 15 February 2017