Tokens — The future of Ownership
Tokens are the best kind of ownership there is, and the timing couldn’t be better!
This is second of 2 post series, on why tokens will disrupt all form of ownership (moneys, assets etc). The first post focusses on why tokens will disrupt all form of software (work ) as we know it.
Token gold rush is here, and it is proving to be a potent funding mechanism for software development.
“Ah, most of these software projects are vaporware. I won’t touch any token ever”
Nope you will! In fact, in near future all you’ll have are just tokens.
To understand where we are heading, let us rewind and relook at how it all started. The birth of money and assets, logic of violence, liquidity & cryptography and the token revolution. And then later on what does ownership mean for an individual and an organisation and where its heading to.
Money, Assets, Inventions and Institutions
Homo Sapiens were hunter gatherers. Then hundred thousand years later, they settled and started farming. From hardly owning anything, we started being defined by what we own. Land was one of the first assets. To solve the problem of exchange of produce, we invented Currency and Debt (or delayed Barter).
- Currency — I owe X one silver of wheat and I owe Y three silvers for rooster
- Debt - I owe X a bushel of wheat and I owe Y a rooster from last year
Then came Markets, Civilization, Religion, Monarchs and present Nation-States. All forged from the logic of violence. A short summary is in order (unless you plan to read the complete book — The Sovereign Individual)
Inventions and Institutions both shape each other. Born and forged in the logic of violence. Like Guns made it easy for small group to steal assets away from formidable giant kingdoms (hello Imperialism!), cryptography makes it almost impossible for mightiest nation states to steal my information.
If and when assets could be turned into information and shielded through cryptography, it would get nearly impossible for anyone else to take it away. People and organizations have been trying to create such a system since 1980s from Chaum’s DigiCash to Thiel’s Paypal. But it didn’t work, until Bitcoin. The key missing piece, decentralization, took three decades to be created and another one to become popular enough for other developers to try to create similar protocols to turn other form of assets/services/ledgers into Tokens (like Bitcoin).
There are multiple reasons why this onslaught will be unstoppable this time.
Agriculture, religion, factories, monarchs were not replaced by new institutions in a moment. But the pattern of gradual erosion is near universal. A new invention (biological, social, mathematical or geopolitical) comes up. This leads a small change against the existing Institution. Old Institution retaliates by trying harder to extract more by increasing control. But its only a matter of time before gradual improvements & adoption of new invention outweighs increasing controls of old institution. Old institutions don’t die completely, but increasingly get pushed in the background. There’s a method to this madness, and there’s a popular quote that explains this phenomenon.
First they ignore you, then they laugh at you, then they fight you and then you win!
The way it may play out in ‘Tokens space’ might be:
- Bitcoin chips away state’s ability to tax and do capital controls
- States ignore bitcoin as a small phenomenon. Developers experiment tokenizing other centralized assets/ledgers/services, inspired from Bitcoin
- Bitcoin’s adoption grows; States try to tax/ban/destroy/co-opt Bitcoin(it’s always this cycle); a small fraction declares exit in favor of Bitcoin
- States, suffering from inability to control and tax currency, increase control and tax on other centralized assets /ledgers /services that it still controls, to make up for loss
- Expect peak nationalism and identity to become costlier
- Now other tokens have started chipping away centralized assets /ledgers /services
- Some centralized services see it as a small phenomenon. But most have figured that decentralized open nature of Tokens is a massive threat. The smart ones co-opt
- Decentralized open source Protocol Tokens’ adoption keeps growing
- States and Central providers who dismissed it have either been replaced by a new decentralized and open source Protocol or have been co-opted (and eventually morphed) into decentralized and open source Protocol
- Almost all of ledgers/assets/services is Tokenized
- Tokens are all you have got. Tokens is all we create and improve. We live in a world of Token. Fin.
Ownership, Liquidity, Return, Wisdom of crowds & Open Innovation
We own things and those same things end up owning us.
For an organization it looks like
∑Assets = ∑Debt + ∑Equity
For an individual it might look like
∑Ownership = ∑Pleasures & Privileges + ∑Pursuits
Moneys and assets aren’t the only valuable ways to own something. This post here, seashells from last trip, my identity as an Indian, an unfinished code, an API call that lets me add credit, my strong belief in open blockchains don’t count for money or assets but they all are (valuable?) part of me. I own them and it would fall under my ownership but not as money or assets. Like other colloquially defined assets, they offer pleasure and privilege and pursuit to my life.
A 2*2 matrix of ownership with liquidity and return axes might look like this.
Let’s look at the first kind of ownership. Cash (and most forms of money) has high liquidity but low returns of owning it.
Land (and most forms of the assets) falls on diagonally opposite end with high returns for holding it, but low liquidity.
Identity (traditionally not an asset), usually offers low liquidity and low returns of owning it.
Tokens are a whole new class of Ownership. Tokens are digitally scarce fuel that run value transfer engine (Protocol) by game theoretically incentivizing makers and managers to work in tandem to create a market. For e.g. in Bitcoin, bitcoin (the token) is the fuel that runs the network of nodes sending and receiving bitcoins by incentivizing the Blockchain miners (Honest database operators) thereby creating a market for immutable, censorship resistant and cryptographically honest value transfer.
Looking at the liquidity of token, it’s not a leap of faith to claim that it may replace Money (like cash). Looking at the returns of token, it’s not a leap of faith that it may replace Assets (like land).
I foresee it replacing every kind of ownership. This whole new ownership class, Tokens, will balloon and eclipse every other ownership class in some time.
Why will this happen?As always, to know where we will be, understanding where we come from is important.
Valuable resources are scarce and its ownership is valuable. Left to people, it leads to chaos and overexploitation, known as ‘Tragedy of Commons’. Centralization, the only known cure, works by creating a system X to fairly distribute & reward x, the valuable resource.
For e.g. Identity and shared kinship is valuable. Jesus/Mohammed with the help of others created religion which codified “how to become a good Christian/Muslim” in the form of sermons & text.
This is the boilerplate template :
- Ownership of x is valuable. People squabble but eventually create a system X to fairly distribute & reward x.
- A religious leader, monarch, elected ruler, CEO sets the vision.
- Commanders, gurus, economists, bankers, managers and politicians work out the finer details.
- Users buy into the system X, which claims to fairly distribute & reward x.
But centralization comes with its share of issues. Corruption, greed, nepotism and the greatest of them all, sanctioned innovation.
Sanctioned innovation doesn’t work. Want to see this in action? Compare the progress that humans have made in ‘low-sanction’ fields like fiction, movies, software, maths, philosophy and physics with ‘high-sanction’ fields like real estate, mining, farming and rearing. What is the last pathbreaking innovation in real estate? Compare that with innovation in web services or movie making. Open innovations are 100x more effective.
“If you asked people in 1989 what they needed to make their life better, it was unlikely that they would have said a decentralized network of information nodes that are linked using hypertext.”
There’s something magical in the wisdom of crowd. Web, fire, wheel, written text transformed the world because they were open innovations which attracted the wisdom of crowd to come forward, imagineer and build better things.
Tokens, with their decentralized and open ethos are one of the biggest open innovations that the world has ever seen. Tokens will go through unprecedented level of tinkering and improvement cycles. And that is why Tokens will replace most forms of ownership. Older forms of ownership were born in the world of sanctioned innovation and have never been challenged by such a disrupting force.
What does the future of ownership look like
Eventually all current forms of our ownership with their varying levels of liquidity and returns will be replaced with Tokens.
Money, bank deposits, house, car, land, Amazon credits, Netflix monthly subscription, supermarket points, and all the other stuff that you own in your wallet and drawer will all be replaced by tokens.
House may get replaced with decentralized homesharing tokens, Car with ridesharing tokens. On bull days you might want to own more homesharing tokens to splurge for stay in an expensive place, on bear days you might want to sell and secure some Bitcoin through a decentralized exchange token. The way it would get bundled or unbundled is open for developers to build and for users to embrace. But the wheel of Tokenization is set in motion.
The future will be of people working on tokens, owning tokens, exchanging and consuming tokens. Tokens are the future.
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — —