A closer look at app-tokens
There’s been a lot written about app-tokens or CATs (custom application tokens, as we’re calling them in Waves) recently, with opinions ranging from them being the best thing since sliced bread through to dismissing them as ‘snake oil’. (Point of information: snakes — particularly Chinese water-snakes — do contain oil and it happens to be particularly rich in omega-3 fatty acids. ‘These acids not only reduce inflammation, such as arthritis pain, but also improve cognitive function and reduce blood pressure, cholesterol and even depression.’ Just saying…) Fred Ehrsam’s recent article, and the articles to which it links, provides a good overview of many of the key points, though they’re somewhat Ethereum-centric.
But the point of this article is not to argue for the existence of CATs or otherwise in general. They do exist, they’re here to stay and efforts to put the toothpaste back in the tube will be a non-starter. The point at stake is how to use CATs responsibly, which is another way of asking, ‘What are the use cases in which a CAT might genuinely add value?’
Finance is only a starting point
Creating new currencies is one of the obvious use cases for CATs. We have bitcoin to blame for that. The very first peer-to-peer cryptographic token was a form of money. So was the second, and the majority of those created since. In fact, there’s a case for saying that all app-tokens are money of a kind, because they can be transferred and traded against each other thanks to the decentralised nature of the blockchain — you can’t prevent it. Whilst the value might be low, there is value, and price discovery will take place. They might be poor currencies, but currencies they are.
This point aside, blockchain tokens representing ‘proper’ currencies will have a place in the world. Blockchain-based USD, CNY, EUR, and so on, will offer advantages over and above the legacy banking system. So long as the fiat reserves backing them are insured and audited to give transparency and confidence in their respective blockchain tokens, these currencies will offer fast and low-cost cross-border transfers.
There is also the use case of private currencies of various forms — what I’ve previously called CAT money after the so-called wildcat banks of the mid-19th century. By backing it with activity from many different companies, it is possible to create a form of truly distributed private money that is largely immune from the risks of wildcat money.
But currencies are just one application of many and it would be wrong to limit thinking to explicit forms of cash alone.
Voting rights
You can issue a token that gives the right to vote on a particular issue, whether that is a business decision, the way a community is managed or some element of the underlying protocol. In the last case, it might make more sense to use the native token of the protocol, since this will most fairly represent those who have a stake in the platform — see Fred Ehrsam’s point about Monetary policy. In other cases, there is a legitimate argument for using a separate token. For a start, that token might already represent something else, such as ownership in a venture — as in the case of traditional shares — or another initiative that runs on the same blockchain platform but is distinct from it. (The Waves Community Token is one example of this, being distributed to help create a decentralised reputation system and bring value to long-term participants in the ecosystem.) You could see the value of a crowdfunded project asking its backers for their opinion on the direction of development — from elements as simple as what colour a particular item should be to significant technical decisions.
A voucher for goods and services
There are times when businesses will want to issue a token that acts as an IOU for goods or services. An example is when a project is crowdfunded, with the token providing the holder with the right to the finished product — whether that is a music track, software or a piece of new technology. The difference is that this IOU can be transferred to other people, so supporters can send them as gifts or sell them if they want to exit their stake or reduce their exposure for whatever reason. At the simplest level, a cafe might choose to offer a voucher for a cup of coffee. Making this transferable adds value for the customer, because they can sell it or give it away. (It also changes the mathematics of loyalty for the store, but that’s another matter.)
Subscription services
These are all well-established uses of CATs or app-tokens. But there are more creative use cases. For example, it would be possible to create a subscription service for a website, where the right to view content behind a paywall took the form of a blockchain token.
The user would log in using their blockchain address. The site can check whether a token is held by that address and asks the user to sign a message with the key to that account, to prove that they really are the token owner. This system would allow anyone to purchase access to a site, but to be able to transfer that access to another person (for example, buying a subscription as a gift) without retaining it themselves. It would also be possible to ensure that only the person who originally bought the token could have access, by checking the blockchain to ensure that the site transferred a token to that specific account.
This would have immediate application in the music industry, where there is a widespread problem with ticket touts buying up concert tickets as soon as they come on the market and reselling them at much higher prices. By signing a message with a mobile phone number at the time of purchase, it would be possible to ensure that only the holder of that phone could enter the concert.
Singleton tokens
There are use cases for tokens with a supply of just one. This could be used for instances where there is ownership of specific items that need to be tracked to an owner. Switzerland has an authority that keeps track of all land parcels; every change of ownership is officially recorded. It’s not hard to see the advantages of porting this to the blockchain. Similarly, the Laphroaig distillery has a scheme where square feet of land on Islay are registered to individual supporters. Another use case is for unique in-game items that can be traded, as is the case with many MMOs.
These are just some of the applications for app-tokens. There are many ways to skin a CAT, and the same end result could be achieved in many different ways, on or off the blockchain. Some people in the blockchain world have strong ideas about what app-tokens should be used for, or otherwise; it has become an article of faith or a strand of maximalist philosophy. The reality is that they will be used, and if a CAT provides a more convenient solution than other methods, then that’s inevitably what will happen.
Snake oil gained a reputation for being, well, ‘snake oil’ not because oil extracted from snakes has no medicinal value, but because it was offered as a panacea (and, as a complicating factor, often contained zero oil-of-snake in the popular remedies). Snake oil has valid use cases and is therefore valuable. The same is true of app-tokens. Taking into account the differences between ophidian biology and blockchain-based enterprises, of course.
