Tokens — The future of software (and work)

The Arc of software development is swinging back to its open source roots because its possible to capture value with open source code and crypto-economic incentives.

This is first of 2 post series, on why tokens will disrupt software, (and by extension work). The second post is about tokens disrupting all forms of ownership (money, assets, etc.) as we know it.

Software is eating the world. Tokens are going to eat Software.

Tokens are a radical new way to fund development and upkeep of software protocols. Like Big Bang, its starting small, with protocols that deal with transferring value.

To understand where we are heading, it often makes sense to look into the rear-view mirror. The birth of software, value creation and capture, the upkeep, funding and finally how tokenization is going to be one ring to bind it all.

Let’s begin with how software revolution started! It started with protocols.

What’s a Protocol?

Its the way machine talks.
“Oh! I didn’t know they had a language too”

See that’s how we talk! We pause, assimilate information and respond. If we were machine and these rules could be codified, this pause-assimilate-respond would be a protocol. More examples

HTTP: is the way communication happens between an user agent (like browser or touch interface) and server through a hyper linked text.

Bitcoin: is the way communication happens between two nodes maintaining record of currency, called bitcoin.

The rise of open source Protocols

The way internet came to be, free open-source protocols spread fast. Keeping it free brought wider adoption, interoperable standards and greater reputation to developers contributing to specific open source protocols.

But even with wider adoption, there was no low-friction way to help protocol devs make money. So no toll/tax was collected.

It would have been kind of lame to experience a micro-transaction pop-up every time you hit a hypertext

No wonder, majority of widely used protocols, came from last generation of developers working on research grants

  • HTTP
  • TCP/IP
  • HTML
  • RSS

The problem with protocols making money were many-fold.

  • Who will be the gate-keeper ? Standards settings committee, user-agent (browser/app), protocol developers, original content generator, distributor, user. There were just so many contenders.
  • Who will guard the gatekeepers?
  • Wouldn’t collecting toll lead to users adopting a newer economical protocol when it arrives?

Birth of Apps, Value Capture, Commerce and Software Startups

Free open source protocols enabled smart programmers/founders to enhance an existing service. These ‘better services’ brought more users on internet. This set virtuous cycle of better services - more users - better services on the internet.

Applications stitched up these open source protocols with their own proprietary code (& operations) in the stack. For e.g. in case of web app, Front-end dealt with users’ interaction with client and Backend services would update database and juggle information back & forth. Since the stack was proprietary it was possible to capture some value out of the created value. Commerce trickled in. Money didn’t find its way to underlying open source protocols (that wasn’t the point of OSS, the code is its own reward), but accrued to proprietary code & ops. And then commerce poured. Startups became corporations. They started employing army of coders working on proprietary code, which offered improved service, which led to more moneys and hence an even larger army of coders.

Big internet companies kept getting bigger. It seemed as if the fate of technology was sealed, inside private code repos of big tech companies.


But that’s not how we lived happily ever after!

Enters Satoshi Nakamoto and Bitcoin, the first of his name

Bitcoin is the first of its kind. For the first time it has become possible to create a decentralized, open and still value capturing(money making) protocol.

Web apps could make money because they keep their backend services and database interactions private and keep minting money because of improvements and network effects.

But how is it possible to keep services and database public and still be able to capture value out of the created value? Doesn’t seem plausible right! Satoshi made it possible with Blockchains.

Blockchain, immutable distributed database where new entries are added by a random honest miner, is at the heart of Bitcoin.

  • Immutability means previous records can not be changed
  • Distributed database ensures there isn’t just one gatekeeper, everyone who joins bitcoin keeps making whole system more secure by being added as one more gatekeeper.
  • New entries being added by a random honest miner ensures guards can not be corrupt (in exchange for honestly maintaining entries these guards are paid in new bitcoins programmatically created at the time of new set of entries)
  • Honesty in bitcoin isn’t the same usual BS like ‘trust me i am the central banker’. Its protected by cryptographic hash and time delays (we will talk about more maths in another article).

Miners run the open source algorithm (Bitcoin Protocol) to manage additive only database, Blockchain, which contains the balance of bitcoins against each node. For the enormous value that they create, they are rewarded with a pre-set amount of bitcoins.

The protection from forking(copying) the protocol comes from the protocol being tied to a database (and not from the private nature of repo like apps). The database is valuable because of the tied up protocol, which ensures a tamper proof history and pre-set future for all its course. This is extremely comforting for anyone who has ever owned money and has seen their trust often broken by central banks.

Blockchains, for the first time make it possible for open source protocols to capture part of the value created and share it with maintainers.

Centralization — Death by a thousand cuts?

All vehicles of value transfer be it government, software, organization or contract has traditionally been centralized since centralization was the only known effective solution to problem of commons, ensuring contract execution and value capture. Keeping our focus limited to software (Software is already eating everything else) value capture through central organization and private repositories is still very much the norm.

But not for quite long! The myth of centralization has been broken by Bitcoin. Though limited to a specific use case, bitcoin has proved that its possible to solve problem of commons, ensuring contract and value capture without centralization by using network effects, cryptography, economic incentives and game theory.

Its pertinent to point that Bitcoin is an open source protocol and already offers some additional decentralize compute functionality beyond the ability to transfer numbers (bitcoins) between two node.

Will there be more to it?

The adoption, improvement and growth of open innovation far outweighs sanctioned innovation. And it has been true about the space of Tokens too.

Since Bitcoin’s whitepaper in 2008, there’s been flurry of activity in Token space. Initial ones forked Bitcoin code or Blockchains, rather than fresh implementation from the scratch but the Bitcoin protocol isn’t general purpose enough to support an easy implementation for other kind of value transfer.

Ethereum, launched in 2014, to fulfill this exact same need of a general purpose implementable protocol & blockchain to transfer specific kinds of value. By the end of September 2017, there were more than 10K ERC Tokens. People have started to complain about too much noise, but the party has only just begun.

And then there are more fresh implementations too.

The future : De-centralize & Tokenize all forms of software

I hope we remember open source protocols lost out on developers because there was no easy way to monetize protocols. Things have changed with Tokens. First Bitcoin, then Ethereum and more!

Software startups which used to cobble together bunch of open source protocols with proprietary code & operation used to capture value.Tokens have shown that one doesn’t need proprietary code to capture value. And the adoption, improvement and growth has been breakneck.

Value will increasingly be captured by open source protocols.We are entering into a golden age of resurgence of open source protocols.

Brace yourself for the upcoming Token rush.

Every software service, ledger, asset will have an equivalent token. And then some more which never had an asset/ledger/service precedent.

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I read & write about Tokens. Let’s get in touch over Twitter(twitter.com/setusaurabh) or 21(21.co/setusaurabh)