A Token-Powered Future on Ethereum

Recently we had ConsenSys Tokens Week*. We focused on our token issuance and management system, spearheaded by decentralization engineer Simon de la Rouviere.

Briefly, What is a Token?

A token is a digital asset. It is an object of value itself, or representation of any other asset on a digital ledger. In this case, the Ethereum blockchain acts as a ledger. At ConsenSys, we are building a stand alone DApp that allows people and businesses to issue tokens of all types with specific rights and purposes. We are also currently integrating the system into other DApps and platform ecosystems on Ethereum, which will provide the ability for others to do so in the future.

Historical Context of Tokens

Tokens have been a useful part of society for the purposes of trade: from trinkets and shells, to coins, to the digital era of Bitcoin and Ether. In most of these circumstances, tokens are a way to reduce the social transaction costs. Money thus provides us the ability to work together on grander scales. It has allowed us to incentivize working together towards a common goal efficiently.

At ConsenSys we are building networks that use tokens to enable the ability to work together and share responsibility in the distributed organizational structures of tomorrow. These include open industry platforms for energy, music, agriculture, events, and poker.

Generally, blockchains enables this token powered future by:

1) reducing the barrier to entry to create tokens (in terms of security & cost)

2) allowing global and free trade of token s

3) (probably the most important) allowing the tokens to interoperate on a transparent global ledger. Previously, all tokens were contained within their own silos. Being able to automatically exchange on a global scale enables more efficient and far reaching forms of cooperation.

So What is a Token on Ethereum?

The bitcoin token is a successful case study in the ability to send and transfer value on a transparent public ledger. But what else can we do with tokens?

Using the Ethereum Virtual Machine and programming language, we can add arbitrary computer code to tokenize many different kinds of value. Smart contracts govern rights around their ownership, transfer, expiration, and even decay. Tokens can represent

any asset such as:

— a weekly basket of a farmers produce on FarmShare

— an hours worth of rooftop solar energy

— a currency such as dollar, euro, rupee, or gbp

— promise for a product in a crowdfund

— a future download of a song from your favorite artist

— an insurance policy

— or a ticket to an event.

Why do we need Tokens?

Tokens are a mechanism to introduce property into the digital realm. They enable valuable components of a digital economy to become tangible because they can be claimed, and in some cases traded. Additionally, when trades are automated on a permissionless ledger such as Ethereum, it lowers the barrier to entry to create, manage and participate in more efficient networks of value. The conditions also allow more effective price discovery for individuals and groups.

Tokenized assets allows for goods to be traded as close to directly as possible, sometimes without an abstraction of money. Ether, the native token of Ethereum network, acts as the crypto-fuel required for the processing of a transaction. Imagine trading excess solar energy for a ride to work from your neighbor. In this case, the tokens are exchanged on a decentralized platform, like etherex, which can happen automatically and fluidly for the parties involved. Exchange platforms can take a small fee for their services if they are providing value for the swap.

Because Ethereum is an open protocol, the best exchange service for particular use cases will flourish. Services like Etherex will only continue to thrive as they add value in the system, because new ones will have access to the available protocol to outcompete stagnant incumbents. Exchanges could also be managed and governed only by the people that use it: keeping the cost at the market minimum. These models of cooperative governance are also being developed at ConsenSys.

Those token portfolios will become critical parts of our future reputation. They provide the basis for a reputation based economy, facilitating more organic connections between people and projects. For example, imagine Isaac who participated in the crowdfunded albums of 18 of the top R&B artists and 20 public art installation pieces. He wants to find collaborators in a future project that fuses both interests to create a hip hop hall of fame in Union Square NYC Holiday season.

Because individuals maintain their own reputation portfolios using a wallet like uPort.me, these organic connections are only facilitated on the terms of the actual people who control their wallets. Each person decides how they will want to display their tokens, and with whom. The systems are flexible. It’s up to us to decide what kind of tokens we want to issue, the rules we decide to have around them, and the kinds of contexts with which they will be useful.

The standards are close to being finalised by the community, so stay tuned for more blog posts on a token-powered future. For an in-depth overview on the tokens core component, check out Simon’s talk at DevCon.

Thanks, Simon de La Rouviere, Ashley Taylor, & The ConsenSys Team

*The intention of these weeks are to choose a timely core component or integral system being developed at ConsenSys and explore how it intersects with our spoke projects. The outcome is working towards interoperation amongst the systems and spokes.