The Future of the Token Economy
As part of SF Blockchain Week in October 2018 (Organised by Dekrypt Capital and Noris), De/Centralize and BLOCK71 San Francisco, a Singaporean tech accelerator, jointly hosted a panel of blockchain experts to discuss the future of the internet, the promise of decentralisation, and the role that tokens play in a possible future global economy.
Qianhui Chia, Partnerships Manager for BLOCK71 San Francisco, opened the session with an introduction to BLOCK71, a collaboration between NUS Enterprise, Singtel Innov8 and SGInnovate, and major hub for start-up, tech and entrepreneurship in Singapore.
Mei Lin Fung, Co-founder of People-Centred Internet, gave the keynote. As Vice-chair of the IEEE’s Internet Inclusion Committee, one of Mei Lin’s focus areas have been on technical protocols that allow the internet to thrive. She explained that one such shift in technology is the upcoming transition from IPv4 to IPv6, a much larger addressable space of the internet, as well as blockchain technology and the decentralised web.
She framed the discussion that followed by asking how blockchain technology and the emerging decentralised web can empower and engage the next billion internet users to come online in the next few years.
Kenneth Bok, Founder of De/Centralize, a media and events platform on distributed ledger technology based in Singapore, hosted the discussion panel that included
- Ada Yeo, Business Development Executive at Earn.com, a micro-tasking platform that allows users to earn bitcoin by performing tasks on email which was recently acquired by blockchain network giant Coinbase
- Edison Lim, Application Developer at Zilliqa, a high throughput, scalable and secure blockchain protocol incubated at the National University of Singapore
- Teck Chia, Partner at Binance Labs, the venture arm of one of the largest cryptocurrency exchanges in the world.
The discussion kicked off with a question about how utility tokens function within a decentralised web, and what use cases are currently available or are being worked on.
Teck explained the initial use of tokens as a store of value, such as Bitcoin, and Ethereum, which utilise tokens to pay for network transaction fees. Since then, standards such as the ERC-20 token have emerged, along with non-fungible tokens (NFTs) that represent unique assets that can be linked to the virtual or real-world. He explained how investing in utility tokens that are tied to governance functions may sometimes give token holders rights to influence the direction of the project. Teck shared the importance of product-market fit, as well as the need for real applications of the technology for both the crypto-savvy and those unfamiliar with the technology.
Kenneth brought up the point that many blockchain projects have not been very revenue-driven or have a traditional business model, and asked Teck, from his perspective as a VC investor, if he would prefer a token or equity position in a blockchain startup. Teck replied that it depends on where the value accrues: if the software is open-source, community-driven, and incorporates a utility token, the value typically accrues to the token.
Ada explained the benefits of a cryptocurrency based platform like Earn, which reduces friction for remittance: money can be sent to ten people in Africa in ten minutes, which would otherwise be impossible with fiat and existing banking and money transfer systems today. By allowing anyone to earn cryptocurrencies by performing email-based tasks, Earn harnesses the power of micro-tasking to drive user adoption on other blockchain products and communities, including app installs. In addition, in line with Coinbase’s mission to foster an open-financial ecosystem through cryptocurrencies, Ada explained how Earn’s work-in model allows users to become participants in the token economy easily, without first needing to have fiat to convert through an exchange, or needing to set up highly technical and expensive mining computers.
Edison shared the importance of security given that blockchains represent and circulate value. He also shared an application of the technology as Lead Architect and Developer on Project Proton, a blockchain alliance group which seeks to create blockchain solutions built for the programmatic advertising industry. Edison explained how he works with Mindshare, MediaMath, Integral Ad Science, Zilliqa and Rubicon Project as partners to solve problems like advertising fraud, increased transparency in verifying viewership and reducing friction in payment between advertisers and vendors.
Ada highlighted bootstrapping utility with tokens — whereby users are incentivised to use a platform because they own tokens. She explained Coinbase’s mission to enable an open financial system and their view that ownership of cryptocurrencies is key for this to happen.
Given the volatility of cryptocurrencies, stablecoin projects are currently being built and tested as a solution, with various fiat-backed mechanisms. She added that a national cryptocurrency that is not controlled by a central entity and has a stable value would be nice to see, but doesn’t exist yet. However, she highlighted that stability is also a relative concept.
Teck added to Ada’s point of stability as relative. He explained that in Venezuela, where inflation is at a million percent inflation, compared to the US dollar which is extremely stable, Bitcoin is a better store of value than the Venezuelan bolívar. He also highlighted the efficiency of cryptocurrencies in the transmission of value, where sending money across borders is quicker than using the SWIFT/ACH network which is slow and costly. In Africa, developers are accepting bitcoin because fiat remittance fees are 15 to 20 percent of the value being transmitted. He also explained that it is currently still difficult to realise a vision where all supply chains are crypto-currency friendly or native. Stability will come when the market is more mature, when volatility is hedged by arbitrage and other market measures.
Another question from the audience about what is hindering mass adoption of cryptocurrencies elicited responses about finding a product-market fit, and creating highly tangible, non-technical value for everyday users. Ada expressed confidence in remittance as a $500 billion market, where people who are sending money home are paying up to 12 percent fees per transfer to rent-seeking middlemen like Western Union or other financial institutions. In addition, she mentioned Non-Fungible Tokens (NFTs) as good crypto-native applications for collectible markets.
Edison said that successful use cases must be able to create economies and value streams, and governments need to be receptive to cryptocurrencies and design token-friendly regulations that allow use cases to exist.
The conversation then turned to security tokens. Defined as asset-backed security tokens, Teck listed potential benefits such as liquidity and standardisation. Such tokens backed by real-world assets can be traded across many liquidity pools, where a private key could represent ownership of the assets. However, the benefits of such liquidity remains to be proven, as it is unclear if the courts would recognise holding a private key as ownership.
Edison added that an additional benefit that security tokens bring is the ability to create more liquidity just by splitting an asset into more divisible portions. However, the panel acknowledged that the wider challenges surrounding the adoption of security tokens are definitely regulatory and legal challenges. Issues such as KYC, and whether legal recourse is possible by the law across different jurisdictions are questions that have yet to be resolved.
A dialogue followed on the topic of security tokens and the immutability of the governing blockchain. Given that software updates to a blockchain need to be agreed upon by its stakeholders, a split in versions of the technology used by the community, known as a hard fork, can result in ambiguity of which tokens on either versions of the blockchain are recognised as legitimate. While the hope is that forks remain as software updates and that the versions continue to converge into one standard, concern was expressed that rollbacks to correct errors would violate the principles of immutability.
The discussion wrapped up with a review of Singapore’s place and her conditions for the growing importance of blockchain as a technology. Edison argued that for Singapore to succeed in the blockchain story, there are three important components: regulatory environment, software development and investment. He noted that Singapore’s regulations have been open to cryptocurrencies in general. He cited the positive openness of MAS as a regulatory body, devoting resources to studying and learning to regulate the technology. By leading phase three of Project Ubin, MAS is exploring the potential of blockchain in disrupting financial processes. Singapore has also been a friendly environment for ICOs.
Second, Singapore boasts many highly talented people in the industry. However, Edison suggested that there is perhaps not enough to fulfil the talent demand of the blockchain industry. The school curriculum currently does not teach students the skills that are needed to build an application on a blockchain. For Singapore to be more relevant in blockchain development, more developers need to be trained. He also highlighted the importance of retaining and drawing talented minds to Singapore. Many developers in Singapore are still not paid fairly according to their skills, and conversely, are paid better in the United States. Lastly, Edison highlighted the benefits of the high amounts of capital and investment flowing through Singapore as an important condition for growth.
With much discussion from the panel surrounding the current developments, challenges and practical requirements for blockchain to become relevant and useful, the token economy holds potential for economic inclusivity, fairer and more seamless financial transactions across borders.
A big thank you to our audience, speakers and BLOCK71 San Francisco for hosting us!
Written by: Keziah Quek and Kenneth Bok