Blockchain and Tokenization: Beyond the Hype

The Commonization of our Digital Infrastructure

Some say the blockchain bubble has burst. We prefer to look at what has been learned and focus on the real potential. We do this by doing what we have always done: discover the future by actually building it. In collaboration with everyone who wants to be part of it.

So, what have we learned? In short, that blockchains and tokens can play a crucial role in the infrastructure layer of our digital economy. They offer an alternative to the current practice in which important parts of the information and communication infrastructure are proprietary: owned by corporates, governmental organizations, unicorns and (aspiring) startups.

It is our vision that this infrastructure works much better in our globalized, interconnected society when it is “commonized”, i.e. when it becomes part of the digital commons. This has, by the way, nothing to do with communism. Quite the contrary. A commonized infrastructure provides a completely new level playing field for creating and delivering added value and thus for private companies to compete and flourish.

We learned this by doing (#BUIDL): by co-creating ecosystems that build blockchain solutions. There are many examples from the years that we have been doing this, but two of them, both from this year, really stand out.

Last April, at our own Hackathon, jury and experts alike were baffled by the winner of the Machine2Machine Economy Track, team Kryha. They created GREX.ai, an open source, decentralized protocol for self owned, autonomous machines (drones, satellites, etc) that can work together as a swarm. Since then, numerous parties have come forward with possible use cases that promote the adoption of such a protocol. Basically, we see the rise of an ecosystem here.

Later this year, we supported the first EUBlockathon, organized by the European Commission and the European Union Intellectual Property Office (EUIPO) in Brussels. We rephrased the problem of fake goods (medicines, toys, clothes, electronics, etc), which is decentralized and interconnected in its nature, as a common challenge: Co-create the next level EU anti-counterfeiting infrastructure.

The winner, Cryptomice from Italy, was, again, a team that created an open source decentralized protocol. In this case, a protocol that allows consumers, customs, logistics operators, retailers and manufacturers to contribute to the integrity of their supply chains through a certain use of virtual twins. Interestingly, all these different parties in the supply chain can pursue their own interests and, by doing so in the most effective way possible, contribute to a solution to a shared problem.

From these examples, and many more, we drew four general lessons.

Lesson 1: Blockchain is an Ecosystem Solution

The most important distinguishing feature of a blockchain, compared to other data architectures, is that a blockchain is a ledger that is distributed across and managed by peer-to-peer networks. It can exist without a centralized entity or server managing it, and its data quality can be maintained by database replication (decentralization) and computational/ mathematical trust (cryptography). A blockchain establishes consensus about the state of a system between all participants, even when the identity of participants is unknown and participants can freely enter and exit the system, through mathematical principles. However, this is (still) a much slower and costlier way of reaching consensus than just putting one or a limited amount of parties in charge and run a single or even a shared database. Therefore, valid use cases for distributed ledger technology (blockchains) are logically limited to situations where there can not or should not be a central entity (or a trusted third party).

In public blockchains, it means that a genuine blockchain system has the characteristics of digital infrastructure. It is decentralized and interconnected at the same time. Nobody owns it and everybody can use it. This means being part of the digital commons.

If this criterion is not met, either adoption will fail (because no one wants to build his shop in someone else’s backyard), or we will end up with yet another network monopoly.

The interesting thing is that everyone working in the blockchain space knows this part more or less. But then we can ask: why is almost 99% of the current projects aimed at building private, permissioned, proprietary solutions? This may be legitimate in the phase of pioneering, experimenting and creating awareness, but we think it is time to move on now.

Lesson 2: Blockchain is a Solution to a Shared Problem

“The commons” can be global or very local. A blockchain that manages a supply chain has maybe a dozen participants; a blockchain that defines value, like Bitcoin, has potentially billions — humans, but also AI’s and algorithms. But fundamentally, all these blockchains do the same thing: they provide a shared infrastructure for a shared solution. Blockchains do not replace existing companies — they open up new markets, new possibilities. It is not a zero sum game.

For permissioned ledgers, this is little more than a rephrasing of the first lesson. For open blockchains, however, it means that blockchains must address major, widely felt needs. “Blockchains for the common good” must be the rule, not the exception. (Another reason for this is that small open blockchains are not very safe.)

Lesson 3: A Token is an Organization

A token ecosystem is more than a blockchain or “coins”. It is an information (also value) carrier. An economic structure where multiple parties, often with conflicting interests, coordinate their actions coherently — without any formal organization in the conventional sense of the word. All coordination is literally encoded in the protocol, including the governing and regulatory aspects. Compare it to traffic rules and laws.

This has given rise to a whole new area of economics: token economics; a mix of micro economics, game theory and behavioral economics. Again, the hard work has to be done before the coding starts. What are the goals of the ecosystem, what are the actors involved, what are their motives and goals and what rules and incentives do we need to align all these different actors and interests?

This is not so much about software engineering. This is about engineering complex systems. It’s about creating interconnected collaborative communities.

Once launched, a token ecosystem can be a self regulating organization. No one is in charge, and it is owned by itself. We know relatively little of the needs of this kind of organizations. Should it have a specific legal framework? It’s own regulatory framework? What kind of standards will it adopt or reject and why? How will it fund itself? How will it fund its changes? Which changes? The fact that these organizations are digital and (thus) borderless makes answering these questions even more difficult. But that doesn’t mean there is no way forward. On the contrary, there is so much of this in the making right now and we can only find out how it works by actually putting this to work.

Lesson 4: Blockchains and Tokens are Part of the Digital Commons

One of the most interesting aspects of open blockchains especially, is that something (code, data, protocols) has come into existence that is not owned by any private or public entity. It is not unique in this respect — there is a long tradition of Public Domain and Open Source software, and there is a large amount of digital content in the Creative Commons. But still, it is relatively rare that valuable resources are created, maintained and upgraded outside the scope of both the state and the private sector. It seems to defeat the economic law that is known as “the tragedy of the commons”.

The commons, of course, refers to the pre-industrial communal meadows that existed throughout Europe. But the commons never really vanished, in Europe. Many institutions, from building unions in Britain to vinicultural co-ops in France to the “waterschappen” (polder and dike authorities) in the Netherlands have strong communal characteristics. One could say that the commons are deeply rooted in European culture.

In the digital domain, the commons have been brought up as an alternative to what has been dubbed data capitalism, platform capitalism or even surveillance capitalism. Because of the strong network effects in the digital economy, markets have a tendency towards monopolies. By putting infrastructure, protocols and certain data in the commons, one can create “fat protocols” (UPDATE: These are more precisely described as Application Layer Protocols, as suggested by sebnem), so that a much larger part of the network value falls to the community — and private companies can offer their services in competition on top of that, without fear of monopolization.

To sum it all up: #commonization

… we have learned that the real value of blockchain and tokens lies in the possibility to “commonize” important parts of the digital infrastructure. At the most fundamental level, we are talking about only a handful of entities: value, identity, maybe two or three more. One level higher, we envision things like a commonized infrastructure for energy, for payment systems, for supply chains, for pension rights, for consent, and many, many more (we can build protocols on top of these protocols). Each new protocol a fresh market with opportunities for business to deliver value.

We know, by and large, what we want to build. Ecosystems. Complex systems that are antifragile because of their decentralized nature, that thrive in unpredictable conditions. We take our inspiration from nature itself.

We invite you to join us in building the digital infrastructure for the future. We can only do this together. Let’s Connect, Co-create and Commonize!