Tokens

The Emerging Token Economy

in Economy by

As of writing, there are over 2000 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 those products or services.

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: a future economy which 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 be offering products and services which need to be paid for in their own currencies.

So this begs the question – is this actually where things are going?

The Original Tech Bubble

To answer that, 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 had still not acquired a household name, and even online email was something of a novelty for most.

There was, however, a relative minority who had gauged that the Internet was the next big 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 sound underlying fundamentals. Many of these simply never generated any revenue.

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?

2000 Crash

That bubble peaked on March 10, 2000 when the so-called dot.com frenzy resulted in the NASDAQ Composite stock market beginning its descent from an all-time high of 5,048.62 points. Companies began to line up as they waited in turn to file for bankruptcy and set the snowball rolling for the oncoming economic chaos which followed.

Of course, there were some macro-economic factors at play – a Japanese recession and 9-11 were important, contributing factors but they compounded the crash as opposed to creating it. The fundamental problem was that a craze had been sparked in which Internet-labelled stocks gained value simply because of that label and certainly for no reason that related to any underlying fundamentals of the companies involved – because there simply were no underlying fundamentals most of the time.

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 nor its implications in the same way that the cease and desist of Pets.com did not undermine the legitimacy of the Internet as a concept back in 2000.

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.

There is also a chance that traditional fiat currencies will be layered on top of these crypto/blockchain currencies so that this all remains transparent for the user. So the token economy is coming, but it might just be invisible to the layman.

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.

We may be seeing something similar happening now with the token economy: tokenised products and services which are first accessed through fiat with cryptos hidden away as blockchain tech turns in the background, before the fiat economy – particularly international transactions – one day finds itself so embedded in blockchain-based infrastructure that it ultimately finds itself being tokenised.

How this all manifest will itself in concrete terms is anyone’s guess. But, however it ultimately pans out, it is unlikely that fiat will disappear – the dream of the die-hard libertarians that you all too often find in the crypto space. What is likely to emerge is simply a hybrid of characteristics of the old world combining with the new. Expect no rupture. Do expect, however, profound change.