In 2009, Bitcoin gave us the first provably scarce digital asset for the masses. Today, we have a multitude of digital asset designs that allow society to digitize assets, programmatically pay for services, securely hold value and much more.
The prevailing business model of the internet, used by Google, Facebook and others is one of exploitation and manipulation. We need to come up with new, less intrusive business models, which don't involve selling off your customer's private data. At the center of this shift is digital assets and cryptocurrency. This section is a primer on designs achieving success in the space.
In its raw form, a digital asset is anything that exists in a binary format and comes with the right to use, however for your purposes we'll focus on a subclass of digital assets, notably coins and tokens that are programmatic, use cryptography and distributed ledgers to secure their value.
As you'll see from the next section, digital assets on the blockchain are such a novel invention because they shift our profit motive from the individual to the collective. Tokens enable us to align the interests of all participants in a network towards a common end!
From individual value creation:
- Private actors extract value from society
- Individual profit maximization
- externalization of costs where possible
- internalizing private profit
To collective value creation:
- Incentivize purpose of the network with network token
- Collective value creation instead of individual value creation
Tokens are not a new thing, you have likely handled tokens in your daily life whether it be money themed tokens like flight miles, loyalty program rewards, casino chips or computing based tokens like access rights to documents, or computing operations. Tokens are "a combination of value representation and/or access rights."
In blockchain, the term “token” is used a few different ways in relation to cryptocurrency, but in actuality, it refers to a cryptographic string of numbers and letters that contains no real data but relates back to real data. You "tokenize" data in order to encrypt it when it passes open and exposed on the internet.
A token might looks something like this:
Much of the early innovation in blockchain came from a simple idea. You can create a store of value by setting a scare number of tokenized bits in a shared, decentralized ledger. Since then, we've seen a proliferation in the types and designs of tokens, many of which are not easily classifiable as they have hybrid function. However, we can reason about the classifications of these tokens from four perspectives. Technical, Rights, Fungibility and Legal - all of which are covered in our article on design considerations for blockchain based digital assets.