Introduction to Token Economies

The process of remaking the technology stack of the internet building what is called web 3.0 a primary component of which is the blockchain. The defining feature of this next stage of economic development is that it decentralizes our economy and shifts operations to global information-based networks like never before.

Internet protocols require that the bookkeeping is neither closed nor controlled by one party, rather it is public and available in one digital ledger which is distributed across the network. The most mature example of this is what we call the “blockchain.” In the blockchain, all transactions are logged (including information on the date, time, participants, and amount of every single transaction).

At the heart of this system is the distributed ledger which records the exchanges of value these distributed ledgers can account for the validate the exchange of any form of value it may be a currency, it may be property, it may be kilowatt hours of energy, the usage of a parking spot, the number of followers a person has on social media. These distributed ledgers provide the infrastructure for building token economies.

A token is simply a quantified unit of value. Tokens are both generic and fungible. Generic, in that it can be used to define any form of value. It is fungible meaning it is exchangeable between different specific forms of value. Our existing currencies define a particular type of monetary value what we call utility, which is based upon the economic logic of the industrial economy. Tokens, because they are more generic can define a broader set of values – social capital, natural capital, or cultural capital.

The capacity to differentiate between different forms of value is made possible by the programmability of token units. Because tokens are digital they are also programmable which enables on to specify certain rules for that token and have those rules executed when it is exchanged thus enabling certain constraints or possibilities in its usage. For example, certain tokens can be prohibited to purchase diamonds where slavery is used to mine diamonds. In this way, it serving a monetary cause but can also help move forward a social cause.

The distributed web is the convergence of the economic market system with information technology that enables us to convert traditional organizations into distributed markets based on tokens.