Token Engineering Explained in 3 Levels of Difficulty

Inspired by Bettina Warburg’s well-known blockchain explainer, here is how I would explain Token Engineering to three vastly different audiences.

Child (5 years)

5 year-olds rarely inquire about Token Engineering, but why not have some easy language ready to go just in case. This can be recycled for adult Luddites.

Child: Hey you work in Token Engineering right? What’s that?

Token Engineer: Wow you ask pretty interesting questions for your age. You really wanna know? You have heard about the internet, right?

Child: Yes, dummy. Where do you think I watch my YouTube channels?

Token Engineer: Sorry, my bad. Ok, so there is a new kind of internet coming along, not sure if you’ve heard about it, it’s called “Web 3”. This new internet is much better than the current one because it makes more people more happy, at least that’s what we all hope.

Child: Why will people be happier with this Web 3? I like the internet we have now!

Token Engineer: If you like the current internet, you will LOVE the new one. It’s basically the same as before, but it has one big advantage: money and many other cool things like pictures, videos, games and much more, can freely flow between people, like from me to you directly, or from your mom to you. And guess what, in Web 3 everybody — you as well — can be a real bank. Sounds pretty crazy eh?

Child: Yey! I have heard about this. My mom has given me MANY Satoshis for my birthday and said “you are now a bank”. That’s really cool, but it’s confusing.

Token Engineer: Yeah we are also excited, and it’ll all make sense to you soon. You’ll also be able to buy a LOT of toys for your Satoshis when you are grown up. The problem with this Web 3 internet is that it’s not easy at all to build. You can imagine it a bit like one of these big Lego sets that take forever to build because there are so many different parts.

Child: My friend Alice always helps me build those, she is so good with Lego. She’s already 6 and can read the building instructions.

Token Engineer: See, and with Web 3 it’s very similar! You need all sorts of smart people and good building instructions. Token Engineers are the smart guys who actually make the building instructions. Makes sense?

Child: I want to become a Token Engineer, too. I’m very smart!

Token Engineer: Sweet! How about you and me talk again on your 10th birthday, and in the meantime you forget about Token Engineering. But tell your mom you want to learn about numbers in school. Numbers are really cool!

Teenager (15 years)

Generation Z grew up with technology and pretty much lives in cyberspace, but as Web 3 has not yet crossed the “chasm” into large-scale adoption, I would still stick to simple language in case the kid is rather into TikTok than Crypto Dozer.

Teenager: Hey, my mom told me I had to sit down and talk to you about Token Engineering, or else I lose my phone privileges.

Token Engineer: You’ve got a very progressive mom. Token Engineering is pretty exciting. But it’s helpful to first chat about what is known as “Web 3”. Heard about that before? Heard about Bitcoin?

Teenager: Nope, I have not. Is it a new app?

Token Engineer: You’re kidding right? No? Either you have lived under a stone or I have lived in a bubble…well…apologies, actually I most certainly have lived in a bubble, and I often forget. Ok, so people like to think of internet technology improvements in generations, because it’s easier for the brain to make sense of. Before you were even born, there was a “Web 1” and it was really boring compared to today’s internet, which most people call “Web 2”. And there is now a new generation of internet technology coming along, and that’s called…exactly, Web 3. Web 1 was really limited, you could basically just put up a website and people could watch it. Web 2 is much more interactive and allows people to share content on platforms such as TikTok for example. A lot of people are now raving about Web 3 because it makes something new and extremely useful possible: “decentralized applications”, or “DApps”.

Teenager: Why are people raving about these Dapps?

Token Engineer: Take, for example, the online games you are playing, or Google Drive where you store your files. These are “centralized” applications, meaning they run on a computer somewhere in a data center, and they are typically owned by a private, profit-maximizing company. And that has many potential downsides. Pretty regularly these companies lose user data — say your email address or where you live — which is very uncool. Gangsters can hijack your bank account for example, if they have all your data. Companies not only lose your data, they also sometimes sell it, and don’t give you any of that money. Not cool at all, would you agree? Now what if you could enjoy your online games and apps like Google Drive in a safer way and without a private company controlling it? That’s exactly what Web 3 technology makes possible, and much, much more which we don’t have time to talk about right now. The main takeaway is that we hope Web 3 will be a more safe, fair, and equitable place than the current internet. Makes sense so far?

Teenager: Yoe, can’t have strangers messing with our money… How does Web 3 work?

Token Engineer: Web 3 is quite ingenious under the “hood” and basically allows online applications to run on thousands of computers owned by thousands of people like you and me simultaneously. Sounds crazy? It is! Because it runs on so many computers simultaneously, it has many moving bits and pieces and the challenge is to figure out how to make them all work well together. It’s a bit like in a sports game where despite clear rules, different strategies of each team, and a referee who makes sure nobody cheats, you still get surprised every time how the game plays out. In one word, it’s complex. I am simplifying here of course and you should download a book called “Token Economy — How Blockchains and Smart Contracts Revolutionize the Economy” to your Smartphone if you’re keen to learn more.

Teenager: Hmm…I’ll check it out. So what’s Token Engineering then? Did you wanna get to that at some point lol.

Token Engineer: Sorry, I was rambling…but I wanted to immerse you a bit in Web 3 thinking first. In addition to the complexity of Web 3, it’s pretty hard and sometimes even impossible to change a Web 3 application after it has been launched, as it’s running on so many computers simultaneously. So if you now imagine that many of these complex and difficult to change Web 3 applications are being built for millions if not billions of people, you get why it’s really, REALLY important to get them right. And that’s where Token Engineers come in. Hey what do you think of when you hear the word “engineer”?

Teenager: Hmm…so in this online game I am playing, I can breed engineers and then build all sorts of things like bridges for my virtual city.

Token Token Engineer: Nice! These would be civil engineers, but there are many different types of engineers in real life who all build different things. What they have in common is that they are real pros at what they do, and they also do everything they can to make sure nothing blows up and they don’t hurt anybody. Token Engineers — sorry for taking so long to get there — are the pros who plan and design Web 3 systems so they don’t blow up. Makes sense?

Teenager: Thanks for explaining, I think I understand. Hopefully they get Web 3 right. And what do Token Engineers do all day long?

Token Engineer: In a nutshell, they use lots of math and computers to simulate stuff until it makes sense. They also swear a lot because their brain thinks crazy math like 24/7, and they often get frustrated that normal people think about other stuff as well. But what’s really exciting is that because we have more and more Token Engineers — there are thousands by now — we will move quite fast from Web 2 to Web 3, much less will blow up, and the internet will be a much safer place. How cool is that?

Teenager: Hey I gotta run, good luck making Web 3 work.

Grad Student (33 years)

Generation Y is a bit of a mixed bag when it comes to tech savviness. Let’s imagine a PhD student familiar with Web 3, but who is not an engineer.

Grad Student: Great to catch up, I heard you are working as a Token Engineer these days? Tell me more, I’m still unclear what to do with my life.

Token Engineer: Hey, likewise! OK, let me throw a technical definition at you first, and then we’ll contextualize it, sounds good?

Grad Student: “Technical“ sounds like music to my ears. Bring it on!

Token Engineer: The field is still in a pre-paradigmatic phase and several definitions are floating around, the one I prefer is this:

“Token Engineering is the emerging engineering discipline concerned with the effective application of time-tested engineering methodologies, scientific knowledge and ethical standard to the modelling, analysis, implementation and steering of cryptoeconomic systems”.

Let’s start with the engineering aspect. Etymologically, the word “engineering” is derived from Latin and means roughly “making stuff in a clever way”. While humans had of course been making stuff in very clever ways for thousands of years, it took them a long time — and many collapsed bridges and other catastrophes — before engineering became a formal social institution around 500 years ago. Since then, many standards of professional competence and ethics across the various engineering fields — military, civil, electrical, chemical engineering etc. — were developed and today form a part of regulation or at least self-regulation in most countries.

Grad Student: What are some of these engineering standards?

Token Engineer: They vary by country and profession, but you can imagine professional competence standards to basically say “You have to demonstrate that you know your craft before you are allowed to carry it out professionally and impact other people”. The ethical standards typically say more or less: “You have to pledge honesty, integrity, respect for life, the law, the environment and public good, do only what your skill set permits, and be transparent about the consequences of your work”. Mature engineering disciplines typically have characteristics such as a widely recognized body of knowledge (e.g., the “SWEBOK” for Software Engineering), active engineering societies (e.g., the IEEE societies for Electrical Engineers), regulated professional designations (e.g., “Chartered Engineer” in the UK), and higher education (e.g., US universities introduced mechanical engineering around 1850).

Grad Student: Got it, and you said Token Engineers are concerned with cryptoeconomic systems.

Token Engineer: Exactly! Let’s take this definition as a basis for discussion:

“Cryptoeconomics is the emerging interdisciplinary science concerned with the structure, dynamics and implications of cryptoeconomic systems. Cryptoeconomic systems are digital economies built using cryptographically secured peer-to-peer networks.”

Typically, cryptoeconomic systems involve Digital Ledger Technology (DLT) such as Blockchains. Imagine Cryptoeconomics as the theoretical science counterpart to Token Engineering, an emerging engineering or “applied science” discipline. Cryptoeconomists are concerned with testable explanations and predictions of why and under what circumstances cryptoeconomic systems exhibit specific behaviors, and their impact on technological and societal progress. Token Engineers, on the other hand, are interested in combining this scientific knowledge with practical knowledge and actually make systems that work for specific purposes and under specific constraints. You might enjoy reading the paper “Foundations of Cryptoeconomic Systems”. it’s kind of the “Principia” of Cryptoeconomics.

Grad Student: This is starting to sound really interesting. But I’m still thinking, what’s so special about cryptoeconomic systems that we need a traditional engineering approach and a whole new scientific field?

Token Engineer: Well, many cryptoeconomic systems are built with the goal of becoming permissionless public infrastructure, meaning anybody with a smartphone can theoretically use them, hence potentially billions of people. Take stable coin protocols, for example, which aim to become the money backbone of the future online world. Like with traditional public infrastructure like roads, electricity systems, bridges, etc. we simply cannot afford these systems to fail. The stakes are too high. But history has shown that engineering standards help build these high-stakes systems reliably.

Grad Student: Wait, but we have all of the required knowledge available from other fields of science and engineering you said, why reinvent the wheel?

Token Engineer: You are right, we have dedicated economists, systems scientists, mathematicians, control engineers, and they will (have to) increasingly deal with cryptoeconomic systems. But these experts are typically constitutionally disincentivized to look beyond their core subject and collaborate — think for example about the publication pressure in academia and commercial considerations for dedicated engineers. We will make Web 3 a reality much faster, if we are successful in codifying and standardizing knowledge, patterns and insights across relevant domains in a unified body of knowledge and practice.

Moreover, we actually do have to reinvent the wheel to some degree: The majority of cryptoeconomic systems fall into a class of systems termed “complex”, meaning — in essence — that you cannot reason intuitively about how these systems behave even if you know the parts they consist of. System Science has been analyzing complex systems for over 75 years and came up with very specific frameworks and approaches to building and controlling them. If we use tools made for simple, linear systems instead, we cannot expect them to work for complex, non-linear cryptoeconomic systems. The application of System Science in the context of cryptoeconomic systems is very new. As an example, the first formal characterization of these networks using a “state-space representation” as known from the field of Dynamical Systems was published in 2018.

Grad Student: Thanks, definitely intriguing but still somewhat abstract. Can you talk about what Token Engineers do in a concrete engineering example?

Token Engineer: Token Engineering is very diverse and hardly any two projects are alike. But here is a quick illustration: Imagine a client thinks he/she has conceptually figured out how to “disrupt” — business people love this word — a specific industry, let’s say online cloud storage. The Token Engineer would usually first validate and document the consistency of the client’s vision via workshops and desk research, and often suggest material changes. The Token Engineer then infers system requirements across various dimensions (e.g., business, technical and ecosystem requirements), iterates these with the client and documents them mathematically.

In a next step, Token Engineers typically design a computational systems model of the envisioned cryptoeconomic system, meaning they define the actual algorithms and mechanisms using a modeling framework that supports the computer simulation of network dynamics over time. A popular such modeling framework is called cadCAD. After that, the fun part begins: simulation experiments. In this phase the Token Engineer tunes and optimizes actual system parameters.

If the Token Engineer has done his/her job well, the system is now ready for launch. But the job of the Token Engineer is normally not done yet at this point. The bleeding edge of Token Engineering is to use the validated systems models in parallel to the live system, transforming a feed of live data into actionable insights for, say, community governance processes. Does this all make sense? It’s really just a quick, illustrative workflow to give you an idea.

Grad Student: Wow, that gives me a much better picture, thanks. Hey I’m late for a research seminar and have to go, but this has caught my interest. Where can I read more about Token Engineering?

Token Engineer: Follow the Token Engineering Community for updates. scan through their fantastic resource long list, and just feel the energetic vibe in their Telegram group. I hope to see you there!

So there you have it. We have some way to go before Token Engineering will consolidate as a professional discipline. In further growing our fantastic community, using accessible language will be a major success factor. I hope this article can be a useful artifact.

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Thanks to these awesome individuals for reviewing: Dr. Michael Zargham, Dr. Trent McConaghy, Nick Hirannet, Stephen Young, Jeff Emmett, Krzysztof Paruch, Antonio Reyes, Angela Kreitenweis, Benjamin Scholtz, Sergei Chan.