What Changes Will Come from Blockchain and the Token Economy?
(Summary: The token economy created by blockchain will encompass a larger domain than a sharing economy, and make the exchange of public goods such as money more flexible. In particular, the value of social capital and natural capital, hidden in the shadow of the monetary economy, has been reconsidered, and sharing (commons) via blockchain is progressing. The token economy supplements the weakening of the state and pushes the progression of small communities.)
Along with the cryptocurrency bubble, represented by the sudden Bitcoin rush and collapse in 2017, the blockchain technology that supports cryptocurrency operations is gradually becoming known. Many people have a bad impression regarding cryptocurrency, such as it being used for speculative ventures and money laundering. However, blockchain is said to be used not only for money, but also in various other areas, and it is said that it holds the potential to change society much like the internet.
1) What is Blockchain?
Blockchain is also called a “distributed ledger.” It is a technology in which ledgers are shared with a large number of participants, even if there is no intermediary to secure credit, and various commitments including money transactions are safely recorded at low cost. This means that books and databases are managed by a specific entity and arrangements are established by securing credit by a certain entity such as a country, a company, or an individual.
Based on the credibility established by a large number of participants, everyone can exchange various values easily and inexpensively. The economic change, also called the “token economy,” puts a big influence on public goods and services such as money. For example, blockchain currently has the following applications and demonstrative experiments are actively being carried out worldwide.
- Notarization:
There is a growing movement to record qualifications and grades received from nations and specific organizations via blockchain. For example, Massachusetts Institute of Technology has started issuing a digital degree using blockchain in addition to paper certificates. Fraud countermeasures have been created, such as the degree only being displayed by student registered devices with the ability to share it with a third party when applying to universities or employers. The degree confirmation process of MIT university staff is simplified because the third party in which the degree was shared can check the validity on the university’s website. The United Nations and Finland have begun to use blockchain for proof of identity and financial and social assistance for refugees that cannot secure proof of existence in any country. - Brokerage is Unnecessary:
Real estate transactions that required many intermediaries such as attorneys, land registration offices, and loan appraisers are simplified. By automatically enforcing a number of complicated arrangements that have been necessary for trade processing through blockchain (called Smart Contract), transactions can be processed quickly with high transparency. Land transactions using blockchain are already planned in Georgia and Sweden. By simplifying trading, a birth of new markets such as real estate partial purchase and time limited purchase can be expected. Likewise, complicated overseas remittances and donations will be made smarter. - Data Collaboration:
It has become possible to share data among companies, organizations, and individuals, which could not have been realized if there was a specific administrator. We are able to use data collaboration and data utilization for the purpose of streamlining the supply chain as a whole, including food traceability. For example, with the exception of personal data, useful information about patients such as surgical, treatment, and medicinal data can be shared via blockchain and can be analyzed by research centers around the world leading to further development of medical care. Shared data will also have a big impact on medical insurance and the pension system. Although various data is created by the progress of IoT (Internet of things), due to the nature of some data, there exists much data which can not be easily and casually presented to third parties, so data utilization among business people is not progressing. A mechanism that can securely and inexpensively share data will accelerate collaboration and data utilization. - Coinage:
The threshold to make banks and currencies is quite low; anyone can open and operate banks and currencies on behalf of companies and nations. Points issued by companies such as Amazon and Rakuten are already taking on the role of currency, but blockchain will accelerate this movement further. A number of different currencies are issued so that individuals, private enterprises, public entities, community groups, consortiums, fan clubs, nations, religious organizations, etc. issue points and unique economic spheres are created. This alternative currency such as points are called tokens, and the economic zones born by these exchanges are called token economies. You can have characteristics of currency and securities by issuing tokens against values that were actually worth but not reflected in the legal currency. Japanese VALU which can securitize individuals is a famous example. - Settlement:
The threshold for small payment between individuals will be lower. We have already subconsciously gotten used to using digital payment such as Apple Pay and SUICA, but this movement will further accelerate. For example, the implementation of yielding in automatic driving is being considered. Until now, yielding has been done through communication between drivers, but yielding can be done by the exchange of cryptocurrency. When entering your destination, if you input the “yield to all drivers” setting, you will receive tokens from cars to which you yielded upon reaching your destination, or send tokens to cars that yielded to you. This kind of mechanism is entirely possible. The cryptocurrency IOTA is starting an experiment in which follower cars send energy saving tokens to the front car. A mechanism that can safely and substantially share free data will accelerate collaboration between people and things. - Supply：
The act of exchanging legal currency for tokens is called an ICO (Initial Coin Offering). When compared to a public stock offering, the threshold for gathering funds is lower, and funds can be raised even if there isn’t a company, which makes it flexible for start up projects. It is similar in structure to crowd funding projects such as Ready For and Campfire, that raise funds by implementing empathy. For example, if a municipality conducts an ICO, funds are able to be procured independently in addition to local allocation tax and inhabitant tax, and public services can be developed tailored to local characteristics and challenges. In order to increase the value of municipal coins, investors that buy municipal coins will go in person to consume and advertise. Investors will start collaborating to jump start new enterprises, and an increase in the exchange population and related population is expected. An ICO can be described as an arrangement that creates incentives to raise the value and develop a business through creating associates with matching interests, similar to an equity investment. In 2017, Venezuela conducted a project like an ICO. It is a system in which not just the municipal government, but apartment complexes, and even including the state government can utilize.
If the current internet is the “Internet of Information,” where anyone can exchange information easily, almost free of charge, it is also easy for everyone to co-create blockchains to transfer values easily, almost free of charge. This so called “Internet of Value” is predicted to greatly change society, but in exactly what ways?
2) How Will Blockchain Change Society?
Due to the advancement of blockchain and the token economy, society can be expected to change in 4 major ways.
- The weakening of the state due to the decline in relative value of legal tender.
- Review of social and natural capital based on the relative decrease in economic value.
- The number options for entities that manage public goods and services increases.
- An economy that allows trial and error for the purpose of change is created.
The first change to take place is the weakening of nations due to the relative decrease in value of legal currency. As the internet became an infrastructure for everyone to transmit information, a plethora of information was created, causing the value of each bit of information to relatively decline. Blockchain is an infrastructure that allows everyone to exchange value. It is thought that many types of currency will be created, so the value of each currency will relatively decrease. For example, when various currencies are issued in countless amounts, it is likely that many companies will offer wallet services that will consolidate numerous currencies. If there is an AI function that decides from countless currencies which wallet is most reasonable to use in each transaction, we will be able to exchange value according to our own objectives and empathy without being conscious of currency or settlement. Until now, value has been exchanged with legal tender, but in a world where countless currencies exist, value will be able to be exchanged without using legal currency. The value of the legal currency will decline relatively, bringing the weakening of the country based on tax revenue. Instead, companies and organizations that can gather a lot of empathy from people and build large economic zones will become influential on the scale of small and medium sized countries, and gradually nations will be required to substitute the role that they came to fulfill. The ratio of public pensions to the shareholders of listed companies has already risen, and ESG investment (environment, sustainability, governance) is required. Private enterprises are maturing from an existence that only requires profit to exist to one where the creation of social value is required. Individuals, private businesses, and municipalities alike can acquire incentives to share personal profit and social value creation by issuing and co-creating tokens that are in line with common goals and objectives.
The second change is that the relative value of traditional economic activities will decline and social capital and natural capital will be re-examined. The fact that a large amount of money is created in the world can be considered to be a relative decrease in the value of traditional economic activity. Before the internet was introduced, information was precious. However, with the introduction of the internet, the value of information itself has decreased, and society has changed to value the platforms themselves that create information and data from information. Likewise, with the advent of blockchain, the value of economic activity itself will decline, and the products of economic activity as well as the platforms that create activity are predicted to become valuable to society. These two things are called “social capital” and “natural capital.” Looking at society in the framework called Herman Daily Pyramid in the figure below shows that economic activity is only a small part of our activities.
Economic activity is the act of creating goods and services by leveraging financial capital that is produced by natural capital. The created services and goods enrich our human relations and ultimately our social capital. We can achieve well-being (physical and mental) for the first time by accumulating social capital such as goodwill, friendship, and trust. With the maturation of society, the number of people that feel happiness only through the things that can be exchanged with money and goods are decreasing. In other words, it is no longer the era when the GDP index is directly linked to richness. By visualizing “invisible capital,” such as natural and social capital, we can make our well-being a goal rather than GDP.
Indicators of the effective utilization of natural capital and the quantity of created social capital are not reflected in financial statements, even though they are important capital for economic activities. We can treat them as a common indicator by tokenizing and visualizing them. Indicators will guide people’s behavior and will become a society where many people can approach well-being.
For example, a visualization of natural capital is the visualization of carbon dioxide emissions and the sale and purchase of emissions rights. By recording and visualizing numerical values, such as the amount of natural resources obtained from various sensors, the abundance of nature, and the degree of impact on economic activity on blockchain, the same effect as efficiency of the whole supply chain can be obtained.
A few representative examples of the visualization of social capital are reviews of auction site sellers, “likes” on Facebook, and China’s “Sesame Credit.” This can be divided into things that are linked to individuals and organizations such as reputation, medals, degrees, qualifications, and things that are between people, such as appreciation, gifts, credibility, families, and human relationships. There are many people that think that both of these things are worth more than money, so they have a large impact on economic activity. However, there is merit to the fact that many people think they would be worth nothing if these things were exchanged for money. When social capital is exchanged for money and incorporated into economic activity, it will be a tax collection or donation economic zone. An example is “Monacoin” in which donations of coins can be given to content creators.
An economy without money exchange is also called an “empathy economy” or “appreciation economy.” OK Wave, which manages a Q&A site, scores the “gratitude” from others and develops an “appreciation economy” system in which people with high scores can obtain various benefits. By issuing an appropriate amount of tokens based on trading history and feedback, it is possible to to extend relationships without prices, such as sharing shoulder massage tickets within the family, to other families.
Even in the case of exchanging social capital with money, when value exchanges, such as yielding in automatic driving, are made in milliseconds, values and attitudes towards movement are more valuable than the money exchange itself. With the increase of public services like this, times will come when the attitudes themselves toward nature and society become value.
The third change will increase the choices of entities that manage public goods and change the current state of public goods. As introduced and exemplified previously, blockchain has a big impact on money, credentials, rules and norms, social relations, and nature. Public goods refer to the goods and services that are considered necessities and are commonly available to many people. Many are currently provided by government and public entities, but some are also provided by the private sector. Education was also held in temple schools and private schools during the Edo Period, and there are many cases where temples are still running nursery schools and the like. Public services such as railroads, telecommunications, postal services, and libraries were initially provided by the government, but gradually privatized to respond to residents’ complicated needs more efficiently.
To summarize the situation, public services that existed before modern day such as education, medical care, “satoyama” (shared land), and water wells are still managed by temples and villages. Public goods that are necessary for modernization such as paved roads, railroads, and water supply, the state invests collectively, and it is privatized leaving it to market principle along with the diversification of needs. The state will continue to manage public services that need bureaucratic standards in order to protect the people such as police and national defense.
Recently, sharing economy sites such as AirBnB, Mercari, and Wikipedia are quite popular. With the development of the relatively new public service, the internet, individuals’ possessions, rooms, and knowledge have come to be considered as shared goods and services. The idea of the technical possibility of blockchain to create credit by sharing ledgers with a large number of participants is quite similar to the idea of Commons, where everyone can gain profits like the managing of “satoyama” as a common place in villages during the Edo Period. Also, since all the history is transparent, it is clear who is contributing to the common place, and it is possible to discover when someone keeps riding on the common place for free.
Before the introduction of blockchain, the only choice was to systematically divide public service management into national and personal management for the sake of convenience. By managing the current shared goods using blockchain, shared goods and public services can be updated to better respond to efficient and detailed needs like web service in a way close to the pre-modern common places. Of course, not all common goods will not be managed by blockchain. They can be divided into three categories: common services that everyone feels are it’s safer if the nation manages them centrally following bureaucratic standards, goods and services that people have more trust in if management is open on blockchain, and common goods that are managed by individuals and businesses following marketplace standards in a decentralized manner.
There are various ways of thinking about who will manage shared goods. For example, there are groups that think it is best for all national defense and security to be privatized, while other groups take a more communist stance thinking that it is optimal for national and defense to be completely controlled by the state. Where to lie between these two extremes should be decided from bottom-up rather than top-down. Each municipality or token issuing community should decide based on their own characteristics and goals. Blockchain is an intermediate between individuals and countries in terms of security of trust, so there will be more choices of public goods that can maximize individual profit and maximize social value.
In the fourth change, communities will update, and an economic zone that allows for easy trial and error in regard to environmental changes will be born. In Japan, following the Meiji Restoration, society was created in a centralized manner. 60 years ago, an efficient society was created based on a single indicator called GDP. On one hand, Japan had unprecedented economic growth, success with reconstruction, and lives became rich, but society became so uniform that it has become a hindrance. Meanwhile, technology has rapidly advanced exponentially, and various things such as regenerative medicine and automatic driving have become feasible, but it will take too much time for our uniform society to adapt to these developments? A centralized structure that allows for efficient, rational activities is suitable, if the environment stays the same and there is only one goal. In complex situations where the environment changes drastically and there are multiple goals being targeted, a distributed system that allows for trial and error is suitable.
Publishing a token in an area will make a society that matches the natural characteristics of the area. It is possible to create a society where value created by municipalities, citizens, and participating businesses is distributed fairly by setting up a special zone that allows social experiments of new technologies and issuing tokens to residents as a basic income. Without being limited by region, a social experiment can be conducted by issuing various tokens in accordance with diverse values and with the goal of each person’s well-being. Token holders can choose which technologies will be created throughout the world. When environmental changes become more intense, instead of a centralized and efficient community, communities where emergence is more likely to bottom up will survive and will affect society as a whole.
3) A Summary of the Four Changes
The illustration below shows the second change on the vertical axis and the third change on the horizontal axis. The current sharing economy refers to the sharing of vehicles, space, people, and things, and it is a movement where shared goods and services are managed mainly by individuals on a centralized platform. It is predicted that from here on even public services that are managed by the state and municipalities will become shared economies due to the increase in decentralized platform alternatives.
As stated thus far, and displayed in the previous table, using a bottom-up method, which items will be managed by the state and which items will be managed by individuals depends on the community issuing the token. Management will be conducted using blockchain. From the end of the 19th century to the middle of the 20th century, extreme capitalism diverged into two ideologies, capitalism and socialism, to match labor standards and welfare norms of the country and region. Likewise, from the beginning of the 21st century to the middle of the 21st century, some adjustments will take global capitalism too far and diverge into various forms of capitalism according to the labor and welfare norms of each community.
Public services are being developed based on blockchain in many regions worldwide, so if you choose to use these services in accordance to standards of the community, doesn’t the community itself and its autonomy become more valuable? The gradual weakening of state power can be slightly compensated by the usage of blockchain to increase the appeal of various communities.
From now on, in addition to the traditional “economy” economic zone that legal tender currencies have created, people will spend more time in the “token economy” economic zone built on blockchain. Until now, we have lived asking how to live richly in one economic sphere, in light of personal values. However, the era in which we will ask which economic sphere to chose from, and how to navigate it while matching the merits and demerits against personal values and physical characteristics.
4) How long until these changes take effect?
In the dotcom bubble at the end of the 1990s, the technology to realize the excessive expectations of web services did not keep up, and it has taken 10 years to implement. It is true that blockchain still has many technical issues to overcome to implement the currently hypothesized services. According to Gartner’s Hype Cycle, which shows trends in the world’s expectations and popularization of technology, blockchain has the highest expectation as of 2017. The expectations of blockchain are at an all-time high, but as the limits of current technology become apparent, it is suggested that disappointment will become widespread. But like the enthusiasm for other technologies and the history of their subsequent prosperity, the real change starts from that point in time. It will be overcome by the accumulation of intelligence by engineers and early adopters over time. Technology does not only make society and living convenient, but also has the power to change society and living itself. Similar to how the internet took 10 years from the Dotcom Bubble to massively change society and our lives, 10 years after the BitCoin Bubble, before 2040, blockchain will also change our society and lives in a major way.
5) Let’s make a blockchain based social OS
We are developing the OS “commons OS” to build and implement a new society with the mission of “building a system to create society.” We are implementing new social security through universal basic asset construction to update the community by making it easy to access new public services that are being developed around the world. We are searching for planners, engineers, and designers to take part in this open source movement. If you are interested, do not hesitate to contact us.
