Don Tapscott Interviews Benjamin Roberts about The Token Economy

Abridged from a conversation on June 20, 2017 in Toronto

DT
Ben, the topic is tokens. Can you stand back and give you views about what this is all about? We call blockchain the Internet of value. We’ve had the Internet of information. We never really had a native digital medium for value. How do tokens fit in for you?

BR
Yes, I think that’s right. And if you want to talk about tokens, the token is like the basic unit of the Internet of value. You could say, just like the HTTP packet is the basic unit of the World Wide Web, the token I think is the equivalent to the Internet of value.

DT
Just like a molecule is the smallest substance that you can divide something up into and still maintain the original properties of the substance.

BR
I mean, blockchains can do other things, not just tokens. But I think this is this really convenient abstraction that people have grabbed on to. Of course, tokens aren’t actually being passed between people. It’s just some ledger that’s being updated with who owns what. But the token is a great model for thinking about what’s happening.

DT
So, explore that. What is a token? How do you define a token?

BR
You can wrap up all kinds of things in the same format, like a namespace, or just an abstraction that you can put around something. You can simultaneously tokenize identity, you can tokenize value, you can tokenize information, ownership, you can tokenize property, you can tokenize real-world objects and represent them in this space.

DT
So, let’s go through those. Take a simple one like property. How does that work?

BR
In a sense, the simplest one is actually tokenization of some kind of crypto commodity or decentralized commodity because that resides only on the blockchain. When you get into tokenization of property, things outside the blockchain, then you need some kind of centralized institution or infrastructure that connects the token on the blockchain to the thing in the real world.

But if you look, for example, at the Ethereum token, or the Atom token for Cosmos you have a very simple notion of ownership of some kind of property that resides only on the blockchain, and only has utility in that place. Then you could get to tokenization of real-world objects or property, and then you’re representing something on the blockchain that exists outside.

So, as an example, what if we could buy a Jackson Pollock painting, then find someone who can archive, preserve, and authenticate it, then we tokenize it through a crowdsale, and sell it to a large number of people simultaneously.

This is something that I think blockchains will enable. This is an example of how you could tokenize physical goods and give those physical goods a lot of the same properties that tradable commodities have today.

DT
Nice. So if you tokenized a Jackson Pollock painting you would make it making it liquid, in some ways. But how about… Like, why would I want to tokenize my coffee cup, or maybe a machine or other object in supply chain?

BR
Yes. I mean, I think you can use that token as a digital representation of that physical object. And the token doesn’t necessarily have to transmit a huge amount of value. It can just represent ownership. It’s literally just a convenient way to represent that real-world object on the blockchain.

DT
So…

BR
The power of this is that you can, kind of, wrap everything up in the same way. In the same way that you treat the Jackson Pollock, you can treat the cup of coffee or abstractions, like attention or computation. They can all have the same kind of representation. And when they all have the same kind of representation, you can do the same things to them. You could pass a token into a function, and as long as that function accepts a token of that class, you could do the same thing to a cup of coffee that you can do to a Jackson Pollock painting, that you can do to attention, that you can do to identity. And I think that’s extremely powerful. And I think that’s the reason, on Ethereum, you’ve seen ERC-20 tokens emerge so quickly as the thing to do with this platform.

DT
In Blockchain Revolution, we talked about the prosperity paradox — that we have wealth creation and declining prosperity. The benefits of the digital age have been captured asymmetrically by a tiny handful of big data frackers, social media companies, banks, etc. We said, the only solution to that so far is the redistribution of wealth, arguing that maybe we could pre-distribute wealth. Maybe we could change the way that wealth gets created in the first place democratizing and distributing the creation of wealth, and by changing the way that people interact with the economy. So now this is a way to do that. I could never buy and own a Jackson Pollock before but I could own a little piece of a Jackson Pollock for say $100 now and but now I can get in on the appreciation of that value for.

BR
Yes. This the democratization of financial engineering, where financial engineering is available to everybody and the products of that financial engineering are also available to everybody. If you look at the regulatory constraints around interacting with traditional financial markets — the pattern day trader rule, the accredited investor rule — all these rules that basically say that you have to be rich if you want to have access. Especially since 2008, so much value has accrued in assets and only those people that were already wealthy got access to those assets and benefited.

I think what you’re seeing with tokens is that in a permissionless environment, everybody wants access to these things. Everyone wants to be able to do an ICO. Everyone wants to be able to buy into these. I think the reason we’re seeing this current bubble in ICOs is that there’s all this pent-up enthusiasm for participating in this stuff. Everybody wants in.

If you look at the valuations of all of these tokens right now, it’s quite funny. On one hand, you can say, this is crazy, they’re trading at 100x the equivalent VC-funded company. But then you can look and say, well, that makes sense, there’s literally 100x more people that can participate. I think a lot of what’s going on here is more people having access to participate, which everybody clearly wants, and I think is probably actually necessary – if most of the value in the economy is going to be created in these assets, everyone needs equal access to them

DT
What do make of the ICO (Initial Coin Offering) craze right now? companies raising tens of millions of dollars in hours, minutes or even seconds? Is it a bubble?

BR
I think, right now, what we’re seeing is effectively a copy paste of the model that was used in traditional financial markets. Without a whole lot of imagination, you take an IPO, you change the P to a C. The equivalent was when the Internet came along, everyone wanted to put a newspaper on the Internet. But then people realized, hey, when it’s free to transmit this information, you don’t have to do it in bulk. You don’t have to deliver 10,000 words at once like in the physical world. You can deliver 140 characters at a time.

DT
That’s interesting.

BR
You could do continuous capital raising.

DT
Real-time capital. Real time financing. Just-in-time financing for business growth.

BR
The tweet equivalent of raising capital. That’s right. Yes.

DT
Perhaps a little hair-raising? “Hey — it’s time to pay the rent so let’s raise some money!” But then again you would have confidence based on past experience, and also our conceptual understanding of these new capital markets that you can raise rent easily. Or perhaps your landlord, that is part of your ecosystem would do a real-time ICO to raise your rent for you.

BR
That’s right. Ultimately, it’s lower risk as well. It’s lower risk for the company, and it’s lower risk for the investors.

DT
This is really cool stuff. You could have multiple lives. If you weren’t off making a billion-dollar company, you could be writing cool conceptual pieces.

BR
Right. Theorizing about that stuff. I think one of the ways that an entity that is speculating these assets does well is by this low-level understanding of what’s happening, and then just extrapolating that to which assets make sense to own based on this understanding.

Benjamin Roberts is the CEO and Co-founder of CitizenHex, an Ethereum Liquidity Company, based in Toronto, Canada.

Don Tapscott is the Executive Director of the Blockchain Research Institute and co-author (with Alex Tapscott) of Blockchain Revolution.