Web3: Tokenology
Why Tokens Need Theory
The word “Tokenology” signifies that the concept of the token itself is a theory, although the term appears much more unfamiliar compared to commonly used terms like tokenomics or token economy. The word ‘coin’ is also widely used, leading to confusion about what a coin is and what a token is, further complicated because ‘coin’ and ‘token’ are often used interchangeably or defined according to their place within a blockchain project. For instance, it is said that if there is a mainnet, it’s a coin, and if it’s issued on Ethereum, it’s a token. The meaning mostly seems to stop at being ‘financial’.
The concept of tokens, in fact, has existed in human society for a very long time indeed, even before the emergence of blockchain and Web3. A token can be anything that exists in society which can be used to convey any sort of value (which indeed could mean almost anything at all). A token can represent commerce, trade, reciprocal exchanges, gifts or any some such transactions or interactions involving two or more humans.
The concept of a token is not limited to currency, as we may have come to believe — it’s just that we are more familiar with the concept of coins because it took root in society before the concept of tokens did.
How relevant to practical reality is the theory of Tokenology, though?. The immediate thought is that token economy is connected to an economic perspective, leading to curiosity about where Tokenology is applied. However, Tokenology is already a widely used concept. A good example are in-game items, which include basic concepts and principles that operate within a game ecosystem, such as gaming assets, characters, in-game currency etc. Tokenology can also be seen in various other facets of life; how many bonus incentives a company should provide to its employees, supermarket loyalty reward programmes, how many gold stars should be given out in a primary school class are all examples of Tokenology.
Fungible Tokens and Non-Fungible Tokens
To discuss Tokenology, first it’s essential to accurately understand the different types of tokens. The concept of ERC, the Ethereum Request for Comment, represents the standard for tokens issued on the Ethereum blockchain network, and aims to create protocols that allow applications and contracts within the Ethereum ecosystem to interact smoothly and easily. In ERC-20 fungible tokens (FTs) were defined. Non-fungible tokens (NFTs) were introduced in ERC-721. You can think of it as FTs appearing in the 20th proposal and NFTs appearing in the 721st proposal.
Tokens arise based on the concepts of From and To. The criterion that distinguishes Fungible Tokens from and Non-Fungible Tokens is whether we see the act of sending from From to To as a collective or as individual IDs. The important thing is that whether we view it as an NFT or an FT is a question unrelated to the essence of the material. We’ll take water bottles as an example. Let’s say we have ten water bottles and five are taken away, from the perspective of FT, there are 5 bottles left. From the perspective of NFT, since each of the remaining bottles is a separate object and entity, you cannot simply say there are 5 bottles left which are interchangeable. This is the viewpoint of NFT. Tokenology is about deciding whether to view an entity as an NFT or an FT when that entity exists. And this decision is made based on user convenience. Whether NFTs or FTs are more useful depends on the perspective, and this is precisely where Tokenology is needed.
Tokenology Solves the Bootstrap Problem
Tokenology in games helps understand the construction of an ideal Tokenology. When users first acquire game items, neither they nor the platform immediately think of them money. As play accumulates, the value of game items builds up, leading to the concept of earning, known as Earn. In the widely known Play-to-Earn (P2E) model, P2E is not just about emphasizing earning, but about connecting the value created by various types of tokens. It’s understood that a multitude of tokens must be exchanged for Earn to occur. Simply seeing all gaming assets as money first misses the essential nature of Tokenology.
If Tokenology is well utilized, it is entirely plausible for it to help society to operate more efficiently. For a simple example, if one cannot distinguish between a desk and a chair, it would be difficult to bring a chair when someone asks for one without a clear explanation. We say we have solved the Bootstrap problem when we can understand the object without further explanation. This means that understanding something without seeing it in person implies the ability to buy without visiting, which liberates us from spatial constraints, and being able to sell something before it is made, freeing us from temporal constraints. Through tokens, it becomes possible to evoke a concept and determine its value, enabling ‘efficiency’.
Why have people become so disillusioned with NFTs?
We’ve established that the essence of a token is to foretell the value of what that token represents. Without efforts to accurately ascertain the representation, the concept of a token, being abstract and illusory, can manifest adverse effects. The quintessential example would be selling tokens that, to anyone’s eye, are indiscernible in nature. The value of a token is unlocked the moment it is endowed with precise expressiveness. Issuing real-world assets (RWA) like real estate registration certificates as NFTs clearly benefits society, in the sense that ownership of RWAs would be publicly verifiable on the blockchain.
Can non-existent conceptable made clear through NFTs, though? It’s commendable as a concept that presents something that doesn’t exist now but will in the future. It’s also a notion that expands human perception within the NFT ecosystem. A society that materializes abstract ideas through NFTs and brings future value forward can become more prosperous as a result.
This moment is when a token can possess both utility and financial value simultaneously. In other words, the moment when what the token represents can be clearly explained is when the Bootstrapping problem is solved.
Then, the question remains about what is needed for a Tokenology that does not disappoint. Vitalik Buterin emphasizes the importance of ‘speed’, meaning that the total amount of tokens issued should be determined by the rate at which those tokens are consumed. Let’s assume there is a seller who can only sell 10 cups of coffee a day and a customer with coffee coupons uses a coupon on average once every 10 days. Then, to sell 10 cups, the seller would need to issue 100 coupons. In other words, it suggests that tokens should be issued considering the speed of coupon usage. Under this view the most important thing in Tokenology is ‘speed’.
Issuing tokens in a way that accounts for speed can be meaningful and efficient in society. It requires a lot of testing to understand the speed, and only through the effort to grasp these numerous speeds can successful Tokenology be achieved. Once this challenging task is accomplished, value will expand, and the bootstrapping problem will naturally be solved.
Tokens are a new digital primitive, analogous to the website
We’ll conclude with the words of Chris Dixon. The core of Web2 was the website — most content was contained within websites. Web3 is the era of things, and the content of Web3 goes into tokens. Tokens can contain much more information than websites. The metaverse is where various things are contained within tokens, expanding and accumulating like mirrors. Now, we need people and organizations who can properly encapsulate tokens, only then can Web3 develop. There needs to be an increase in entities pondering what to put in tokens and how to do so. AI Network is attempting to encapsulate GPUs within these tokens, as well as memberships, large models and AI agents. By encapsulating these virtual entities and tokenizing them, it will be possible to open up a new ecosystem for artificial intelligence.
AI Network is a decentralized AI development ecosystem based on blockchain technology. Within its ecosystem, resource providers can earn AIN tokens for their GPUs, developers can gain access to GPUs for open source AI programs, and creators can transform their AI creations into AINFTs. The ultimate goal of AI Network is to bring AI to Web3, where everyone can easily develop and utilize artificial intelligence.
If you want to know more about us,
- Homepage: https://www.ainetwork.ai/
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