Blockchain? What Are You Token About?
Pragmatists’ Door to Promising Blockchain Sector
We at “Programmable Legal Entities (PLE)” solve an ill-favoured problem: active businesses with real-life experience are exactly those who miss out on crypto-funding opportunities, giving way to product-less startups. This happens because real businesses are lacking:
- Assurance of no troublesome influence of token circulation on existing operations
- Seamless process of token integration into the already running business
- Empirical evidence of considerable operational upside
- A token sale scenario at a reasonable campaign cost
- Protection from association with typical ICO nonsense and fraud
Not only do we offer the solution to aforementioned issues and the path to legit funding without a worry of equity dilution; we also help modernise ahead of the competition, cut costs across several overhead segments (using new data operation methods that are substantially less susceptible to human errors and corruption), and increase traditional valuation.
The pragmatic approach to enter the promising blockchain sector is to focus on tokenisation and the new global business fabric it can create.
Illustration: Tokenised vs. Traditional
Traditional: Someone posts a tweet and its gets popular on Twitter and somehow goes viral elsewhere through screenshots, text and embedded quotes. The author gets followers via Twitter, but unlikely on other media. If you see the tweet shared for the n-th time you cannot be sure who is the true originator of this tweet and who should really get credit for it.
Tokenised: Before posting the tweet the author “embosses” it as a signed message on a newly created blockchain-based token (imagine it as an actual large metal coin). The message (photo of the token) gets distributed in traditional media e.g. Twitter through regular means and goes viral or becomes a meme. The original token still exists, someone holds it. The token can be free traded on multiple exchanges. Its eternal existence doesn’t have to be sponsored by any particular system. The token acquires some value as a collectible. The author is clearly identifiable without doubt and is thus honoured. The most shrewd holder is financially rewarded. There’s no way to distort the original quote and the attribution. This is made possible by “the other side of the coin” that few people get to see. Imagine a world where anyone can effortlessly certify for free their everyday life’s intellectual property like pictures, text, symbols, etc. and then benefit when it becomes popular.
Definition of Tokenisation
Tokenisation is the process of substituting sensitive data elements with non-sensitive equivalents that can be operated anywhere outside of original data custody domains.
What are tokens from a user’s standpoint:
- Smart digital objects that can be handed over from one user to another, carrying data, managing signal, and value. They are often considered just analogs of paid API keys, but they are much more.
- Physically, token buyers are buying private keys; users handle tokens with open software similar in maintenance to email clients of the early days. Tokens vary in their underlying blockchains and codebases but can be bridged so that users don’t need to bother.
What are tokens from a business’ standpoint:
- Tokens are the complex product of complex systems. They are possible because of many years of digital currency infrastructure. To a large extent, that infrastructure is open to use.
- Tokens are a breakthrough in open network design. Tokens bring into a sketch best architectural properties of both open and proprietary networks. Tokens can help to create new ways to incentivize participants, including users, developers, investors, and service providers. Tokens allow for generating new business models, including those of the “better-than-free” class.
- Tokens are an alternative to traditional financing (can be very creative, many approaches are non-dilutive). Importantly, in most countries, tokens can be bought by anyone, not just accredited investors. Tokens have a multiple liquidity premium compared to shares of stocks.
This New is Well-Overlooked Old
From time immemorial, it required authentic tokens to conduct business. People issued invoices, signed cheques and receipts, colour-marked pallets by destination, opened locks with keys, identified things with certificates. In our personal lives, we also use tokens on a daily basis, without even noticing: tickets, reservations, IDs, etc.
Traditional physical tokens worked directly, bridging people with people and people with objects. With the Internet, physical tokens were dismissed. People have a hard time fully understanding this. Without a central authority, no online token is possible. Man-in-the-middle is everywhere on the web. We now do business under constant surveillance, always having to obtain someone’s permission. It happens seamlessly, but make no mistake: someone is always between you and your counterparty. Don’t get us wrong: it’s not necessarily a problem, but those tethers limit the whole class of opportunities.
With the emergence of blockchain-based tokens, things can change drastically. With a fair degree of metaphor, we can say that crypto tokens can exist “on their own”, just like the physical tokens we used before, in the world that was still pretty decentralised. We can do business directly again. Just like specks in an hourglass represent moments of time, tokens can create “analog”, robust, self-sufficient, and often psychologically more preferable business calculus, signal management, store and transfer of value, incentive tools, investment assets, and much more.
In practical terms, this “stand-alone-ness” property is especially precious because it allows for seamless integration into almost any operational business that wants to avoid interferences, less so to reconsider its usage of the Internet. Tokens can become an over-layer that makes things more precise and better organised.
The pragmatic approach to enter the promising blockchain sector is to focus on tokenisation and the new global business fabric it can create. Ubiquitous tokenisation has clear prospects. Truly revolutionary business models are more likely to come following tokens’ adoption, not by direct usage of blockchains.
UBER became possible after mobile GPS was ubiquitous; Netflix — after broadband; social media — after pervasive smartphones. Amazon and Google needed most homes to be connected. No real large businesses were founded before that, except for the physical infrastructure; but that’s the part of the analogy doesn’t work — plenty of blockchains are open, free and “forkable”.
Tokenisation is an add-on to business already experiencing normal operations. Tokenising a business is generally a less risky endeavour compared to bootstrapping yet another blockchain startup that tries to replace something else.
We do not try to “sell” decentralisation, data immutability, ledger transparency and other abstract stuff that cryptocurrency folks sincerely and rightfully value, blockchain folks market (maybe, mostly cynically), and crypto assets scammers use to fool idiots with their ICOs.
Broader Industry Background
In the early days of online communication, many firms were interested in the new technology and the services they mostly bought were… well, just communication. Similarly today, although there are quite a few unusual ideas circulating — and we describe some of ours in the use cases article—so far, most clients seek in the broader blockchain space for similar, generic tools.
The market is very young, but at least three large segments are being actively explored. We support two of them and prioritize the other two that are not yet broadly exploited. After a sufficient number of iterations, our generic tools will become a self-service platform.
One deeply developed segment is essentially hooking up firms to new “supply chain operating systems”. This is the patrimony of large consultancy firms lead by IBM who promotes the Hyperledger family of software. Their approach is sterile and free of speculation incentives, with no fundraising component and no “native” coins in the platform. Some new foundations such as Sweetbridge and Zerv have a more “crypto type” (and probably more questionable) approach to fixing supply chains with blockchain, but they have nothing to support their claims yet.
Illustration: Tokenised vs. Blockchainized
IBM, Deloitte and other big firms call up: “Come join our new distributed database, your supply chains will become smoother; we can track things from one trusted zone to another better now”. “We always trusted IBM, why would they now need a database that is NOT fully theirs? To use the hype and sell upgrades to those cold cases who still use software from eighties?” — people mumble in puzzlement.
A family of smart tokens is issued for all process participants at the sea port. It is an extension for any non-fungible token to own another non-fungible token or fungible tokens. This composition creates an entire hierarchy of items. Virtual assets can own their own assets. Basic set of tokens mimic circulation of physical tokens of good ol’ days. Newer sets even improve it. Tokens are blockchain-agnostic and can work on multiple setups, seamlessly, so no platform failure is critical. To deploy themselves into the process, participants of the supply chain do not need a paid membership of any sort, they just operate the same family of tokens with wallets of their choice.
Another, smaller — but still very important — segment is distributed databases and data marketplaces, with BlockchainDB and other systems of that family being the most prominent. There are three sectors that constitute the majority of this market: data for sensors (Internet of Things), data for deep learning (AI), and personal data (advertising).
The third large segment is a generic tokenisation method when a company introduces “its own internal currency”. There are thousands of such tokens and a handful of working markets, but the approach hasn’t proven to be successful. We don’t see any signs that internal currency token creates any competitive advantages for firms nor do they add any long-term value for investors. Neither has it created any synergy in the broader industries, actually adding monetary silos to existing data silos. Overall, despite the fact that, to date, most startups in the field have chosen to go this route, we should recognize the approach as erroneous. We do not recommend it to our clients.
We offer custom-tailored tokenisation, service-generic cases of supply chains and databases, and suggest the following two tokenisation programs of our own.
1. Consumer Participation Framework
Imagine that your company has “materialized” any and all future discounts it will ever grant to its customers, in any form. Don’t also forget monetizable priorities like “gold” memberships. Issue tokens and guarantee to never issue more of the kind. Sell and otherwise distribute these tokens. Start accepting these tokens (and only these tokens) to receive access to discounts and priorities. “Accepting” may partly mean locking tokens during the time customer received priorities and partly straightforward spending. Periodically remove some spent tokens from circulation (destroy). To define a fraction to be burnt, use a clear and understandable coefficient derived from a metric that directly reflects the economic strength of your system. Do not circumvent the token-based framework whenever you deliberately grant some customers priorities; pay for their tokens yourself if you have to.
The rest of the business continues as usual.
This token is very flexible. It can mimic most incumbent loyalty programmes and consumer participation frameworks. It is applicable to almost any business with significant revenue and many paying customers. It has clear valuation model connected to cash flow metrics which is a rare case among current crypto assets. It has no monetary velocity problem, very common for tokens. It can (and should) be sold continuously and organically, without a forced sales event, and reward investors in the long term.
2. Post-sale Service Framework
Assume the product you sell has some fixed limited warranty (post-sale service period). When a consumer purchases your product, it’s an act that requires some risk tolerance (“what if it malfunctions”?). A “flat” answer to this problem (“we will replace or otherwise obey the agreed upon terms”) isn’t satisfactory. In real life, things can turn out very differently; everybody has had some negative experience. Employees responsible for post-sale service procedures have different and often complicated compensation schemes that consumers are unaware of.
Now imagine owning your product during the warranty period — as if it is owning a managed portfolio of stocks: theoretically, it can keep the risk factor as promised, but it certainly will not do exactly as promised. Special “risk tolerance” tokens are deposited for the customer at the beginning of the period, and tokens start to flow back to the company at a specific tempo — the speed corresponds to the “risk profile” of the particular product defined at the starting point. If this risk profile remains the same (as promised) during the entire period, tokens would have to travel one-by-one to the company until the last token, and then back to the consumer. In the end, there would be zero change in both balances. However, as the actual risk profile changes over time, the token flow also changes its tempo: the riskier the product behaves (a car breaks more often), the quicker the tokens are spent. In the end, the difference reflects how the reality diverged from what was expected. There are no extra fees or penalties in real money. This will ensure on the company level that everything goes as usual — tokens do not interact with the traditional infrastructure.
These tokens will have their inner market value defined purely by supply and demand. The value of tokens will fill the gap that is currently left to either dissatisfaction of consumers or underpaid post-sale service personnel. Risk-tolerance tokens are taken into account and balance off the discrepancy. This token model can be applied to almost any business with significant post-sale service expenses.
On tremendous, unforeseen power larger communities of tokens can becomemedium.com