It’s no secret that the mainstream financial system is plagued with systemic risk: when you deposit your money with the bank, the bank can take it and use it as they please, placing the global economy at risk of a 2008 repeat.
Now blockchain technology has sparked dreams of a continuation of the human story of value exchange: for the first time in human history, people can trust each other and transact peer to peer without intermediaries needed to verify transactions.
While the first era of the internet brought unprecedented wealth, it failed to bring with it a system that could redistribute the wealth created.
And although the world continues to steam ahead technologically, it remains plagued by ever steeper inequalities and their ugly offshoots of zenophobia, protectionism, elitism, poverty extremes, and classism.
Perhaps this is because the internet brought about faster connections and transactions, but it did not fundamentally change the way humans transact.
The challenges with the traditional way of transacting, says Ravikant Agrawal, Principal Consultant at Infosys Management Consulting, are its “centralized nature, security issues, inefficiencies from a settlement and operational cost perspective, and being intermediary driven most of the time.”
But what if the creators of value could be compensated proportionately? And what if the value they create would increase as the numbers of those adding value to a network increase, and this would in turn drive up the value of their work further? Sound like a catch 22? That’s because it is.
Far from solely being a trust-building machine, applications built on the blockchain enable the monetisation and democratisation of the power of influence and crowd-sourced value.
Thus, the technology becomes a game-changer for society at large, and this is the spark for much of the idealism and hope of blockchain enthusiasts.
“Token economies are based on operant learning theory, which states that rewards and punishments shape behaviour,” says Agrawal.
“A token economy rewards good behavior with tokens that can be exchanged for something desired. We should be able to connect to the token economy from our day to day experience as well, where a token can be a chip, coin, star, sticker, or something that is given for an expected behaviour or motivation and can be exchanged for what is required in the future.
“Now if we are narrowing token economies to blockchain and the cryptocurrency world, value provided by the token actually drives the level of influence within a given token network,” he says.
In this scenario, it’s not the technology itself that creates prosperity, it’s the people.
Last year, Airbnb was valued as a $31 billion corporation and Uber at roughly $50 billion, raising the question of whether the sharing economy really is a sharing economy?
But suppose the Airbnb model was rewritten by a new economic grid in which a distributed application (Dapp) on blockchain handles payments, identifies parties, and even handles reputation? And this Dapp is owned by all the people offering their room to rent?
The sharing economy disruptors could be disrupted by a blockchain based model, where the word share would also entail the spread of wealth.
Creating an ecosystem of users
A token-based business model provides an ecosystem wherein consumers can realise the true value of the network they are part of.
This platform has potential to provide transparent market value for its tokens as the underlying popularity of the programs will drive more token value. This in turn would drive stronger network effects, bringing liquidity to the platform while ramping up the token’s value.
One such example is vSport, which has launched as the world’s first
non-profit, open-source, and blockchain empowered platform dedicated to the sports industry.
vSport is building an ecosystem around sport that is decentralised, enabling all parties including fans, clubs and agencies to profit from being connected to the world of sports.
Based on the creative value evaluation system, vSport says the value framework of blockchain technology is used to create an ecological circle that benefits all parties and creates a new sports business environment. Tokens can be circulated quickly between fans and clubs and fans can be rewarded with relevant rights, services or privileges.
Sports clubs have long enjoyed significant influence through the massive followings and loyal fans they attract, and now through partaking in the tokenised ecosystem, they will be able to fully capitalise on the power of their influence.
“If the token is able to increase the list of features, build stronger governance, add more participants, grow its ecosystem and hence create the required network effort,” notes Agrawal “the power of influence for a token would be huge within and outside the network.
“This ultimately would drive demand for the token and translate into its price appreciation.”
Therefore, the strength of the incentive systems built into the token business model will be key in retaining users.
“There are many such success stories where the thoughtful token economy along with much needed value is provided by the token, leveraged to power up influence, and hence this further drives the token value, as can be seen with EOS,” says Agrawal.
The entire business landscape is set to rapidly change in coming years, as more disruptive competitors come into the market with aggressive tokenised incentive schemes.
But could this occur within the next 5-10 years, or are we looking at a gradual shift over a series of decades?
“If blockchain technology makes it through required regulatory support, coopetition (collaboration + competition) and technological maturity in the next 5 years, develops innovative blockchain enabled solutions and improves on the challenges of the current transaction processing, we could certainly see token economics becoming mainstream,” says Agrawal.
“We could see floodgates being opened for different industries’ use cases as they remodel to fit token economics or asset tokenization in their processes,” he says.
“For the end-user, it hardly matters what underlying technology a solution / application is built upon, what matters more to them is whether it makes their life more convenient, trustworthy and affordable.
Token enabled solutions could certainly provide these benefits.
“I personally feel that the timeframe for mainstream adoption may vary depending on the factors mentioned, but the wave has already started and seems inevitable.”