LKS Foundation

Science & Technology

Blockchain: advantages of a decentralized technology

2020-03-19 15:44:30

The value exchange that led to the token economy development

The revolution in information technology has not stopped, riding the wave of human ingenuity. In the wake of this change, our economic system has been profoundly transformed by the rise of the so-called "network effect". It all started with the advent of computers, the world wide web and online platforms. The disruptive power of the network effect has influenced the social and economic organization of society, until today where this transformation process continues its climb with a new series of technologies designed to build the Web 3.0. The main component is undoubtedly the blockchain: the means to decentralize the various operations carried out by market players and connect them to a global level, on a scale never seen before. This decentralized technology allows a computer network to maintain a database of exchanges and property rights thanks to a protocol that works via the Internet.

The inclusion of data is neither closed nor controllable by a single actor, but is public and is distributed on the database accessible to everybody. All transactions are therefore listed on the blockchain, and also related informations regarding date, time, participants in the transaction and the amount. Thanks to sophisticated mathematical processes, transactions are verified by the so-called miners who are the "guardians" of the computational power necessary to support the database. Web 3.0 technology allows the birth of a decentralized economy, removing the need to resort to central authorities to manage the network and replacing it with a consensus model managed by the many.

This shared and cryptographic database allows trustless and peer-to-peer interactions through new computer protocols. People can start basing their network to coordinate and exchange value directly, with rules at the base automated in new ways.

At the heart of these new forms of organization there are blockchain technologies that through their distributed ledgers allow an exchange of value, which can take any form: money, property, 1 Kw of energy per hour, a place to park, the number of followers on a social media and even the "likes" that can be received for a shared video. These distributed ledgers provide the infrastructure to develop the so-called token economy.

token is simply the quantification of a unit of value, and they can be generic and fungible. A token is generic when it is used to define any form of value, while it is fungible when it is exchangeable with several other forms of value. For example, fiat money (i.e. the euro) is not fully fungible because it cannot be exchanged for all the other assets; in fact the appreciations and the "likes" assigned to a specific video may have a certain value, but typically they are not exchanged directly in the common currency. A token therefore differs from fiat money, because it is more generic. In fact, fiat money is more specific in this sense, because it aims more at defining the value dictated by utility and is in harmony with the logic behind an industrial economy. Tokens, on the other hand, since they are more generic, can define a large set of values: social capital, natural capital, cultural capital, etc.

For example, natural capital is the integrity of an ecosystem that allows it to function and provide services to the beings that populate it. However, according to the traditional economic model, we are only concerned with the services rendered (water, food, materials, etc.) while ignoring the integrity of the ecosystem. A generic token, on the other hand, could very well preserve that integrity.

But how is the token economy changing the face of the traditional economy? Stay tuned until tomorrow to read the second part

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