As of writing, there are over 1600+ coins and tokens listed on Coinmarketcap.com. Coins, to be clear about the thing, generally act as stores of value; tokens, on the other hand, can be considered along the lines of a digital asset that grants you access to a product or service.
Granted, most tokens – as of writing – don’t grant access to anything. They have largely been sold to market relatively recently in order to raise capital to finance projects that seek to build products or services whose development is still ongoing (assuming that it will get somewhere in the first place).
There is, of course, a strong argument for stating that most of these tokens will never amount to anything – leaving aside the value they may take on as they become the object of purely speculative trades over the course of their lifetimes.
There’s a strong argument for stating that most of these tokens will never amount to anything
But the very existence of tokens does pre-suppose an interesting assumption: the future economy will incorporate a range of services and products that will only be rendered accessible to those who hold these tokens. It is effectively the same thing as saying that many companies of the future will need to paid in their own currencies.
So the question is: is this actually a valid assumption to make? Or are we simply watching one of the greatest episodes of speculative hype mixed in with mass self-delusion ever witnessed – as manifested by the ICO phenomenon?
The Original Tech Bubble
To answer that question, it is never a bad idea to consult with history. And it looks like we may not have to go back too far in time to find a comparable example: the Internet tech bubble of the early noughties.
It has to be remembered that the Internet was still a largely unfamiliar thing, even among populations of the developed economies as late as the late nineties. Google was still not a household name, and even email was still a relatively recent development.
There was, however, a minority of players who had gauged that the Internet was indeed a revolutionary thing. As a result, hundreds of tech start-ups emerged from nowhere, IPO’ing to market with market caps that were the reflection of something other than the sound underlying fundamentals that they were all mostly missing. Many of these simply never generated any revenue in the first place.
What we witnessed, then, was a surge of investment in internet start-ups, often spurred on by naive investors who were happy to throw their money at any operation that carried the “Internet” label. Seem familiar?
From the Ashes
That bubble peaked on March 10, 2000 when the so-called dot.com craze resulted in the NASDAQ Composite stock market index reaching its highest ever value of 5,048.62 points. From then on, however, things went downhill – with a number of internet companies declaring bankruptcy over the following weeks, setting the snowball rolling for the oncoming economic chaos which followed.
Of course, there were some macro-economic factors at play – a Japanese recession and 911 had a huge impact. But the fundamental problem was that a craze had been set in motion in which stocks gained value not because of their underlying business models but simply because people were buying into those stocks – because they were gaining value.
Telephone and Internet Analogy
We are witnessing, of course, the same phenomenon today with cryptocurrencies and ICOs. But none of this, however, negates the legitimacy of blockchain technology (and its implications) in the same way that the bankruptcy of Pets.com could not undermine the legitimacy of the Internet.
If the historic comparison does apply here, then what this likely means is that there is an impending token economy – but one which will likely be consolidated through a small number of successful market actors dominating large chunks of the services and products that will eventually be tokenised.
It is also likely that fiat technology will be API’ed with crypto/blockchain tech so that this all remains transparent for the user. So the token economy is coming, but it will likely be invisible.
Internet vs. Telephone Analogy
The justification for that last statement comes from Andreas Antonopolous who has served up another analogy – a more intriguing one this time in his Internet as Money pamphlet series. The internet, Antonopolous points out, originally piggy-backed telephone’s existing analogue technology.
But the need for a digital solution was addressed with the likes of ADSL and Fibre Optic solutions which now, ironically, are now piggy-backed by telephone operators instead.
We may, then, just see something similar happen with the token economy: tokenized products and services which are first accessed through fiat API technology, before the fiat economy itself becomes tokenized in a manner which improves the original token economic models.
How this all manifest itself in concrete terms is anyone’s guess. But, however it pans out, the observation still stands that today’s early adopters need to be more selective in their choice of tokens. Most will simply not survive the oncoming storm.