LKS Foundation

Science & Technology

Token: how their programmability is combined with ethics

2020-03-20 13:42:54

Let's take a closer look at the token economy

The ability to differentiate various forms of capital is possible thanks to the programmability of the tokens: since they are digital assets they can be subject to particular rules and see them applied when they are exchanged, thus opening the way to limitations and possibilities. In fact, they could be programmed to be spent only in the presence of specific terms, or specify how to be exchanged. For example, a token could be programmed to not be exchanged for diamonds produced in a specific nation that uses slavery to extract them; in this sense, the token is not only useful, but also expresses social values. Similarly, a blockchain health allowance system could be created so that it provides its services only to specific people. The automation of these measures will lead to considerable reductions in bureaucracy.

This system of programmable tokens is moving our economy from a model in which value is peculiar to one in which value is multiple: multiple economies and values are created while maintaining the possibility of communication between them (e.g. exchange). Tokens can define anything that may have value for market players and the market acts as a distributed coordination mechanism to disseminate information. Closed organizations are opened to markets, there is no longer a need for small groups of alleged experts who choose for others, because practically everyone can have a say thanks to these protocols. In essence, token economy can stimulate more honesty in human behavior not only through profit-seeking, but also through a wide range of other reasons.

Let's put together what has been said so far: nowadays cloud storage is provided by a small group of companies, such as Amazon and Microsoft for example. These centralized organizations have large data centers, yet they still represent a fraction of the world's storage capacity. Most of the space is present on individuals' computers and much of it is not used. A token in this sense would create a distributed economy for storage, a decentralized network that would transform cloud storage into an algorithmically regulated market. This market would work thanks to a blockchain whose native token would be mined by miners by providing storage space for customers. Conversely, the latter would spend tokens to hire miners to store or distribute data. The sum of all these computers which are coordinated by an automatic market system on blockchain can provide a larger and more resilient system than a centralized model, also reducing redundancy and inefficiencies. Not to mention that in this way the service would spread well beyond national borders, since people would connect in a peer-to-peer network both nationally and worldwide.

Furthermore, tokens can be exchanged for other currencies or they can be accumulated, believing that the network will gain influence over time. Anyone who uses the token economy is also an investor, so it merges capital investment and liquid capital in new ways (e.g. a company's shares are not the same as what a worker is paid for his/her work). Tokens represent the value of the community and the unity of exchange in that same ecosystem. The founders of a project initially issue a certain number of tokens and sell them to those who want to use the system, and they become both investors in that project and users as they exchange tokens. So those people who create value within the ecosystem are paid with the same token, that is, workers who create value with their work also retain its ownership within that organization. In today's economic model, where fiat money rules, individuals have no ownership rights over the money they have.

The token economy effectively aligns individuals' incentives with the whole system, because the value of the tokens they earn also depends on the value of the organization. In a token economy, an individual works both for himself and for the entire network.

The token economy also solves the famous problem of who was born first between the egg or the hen regarding the networks. For example, if you were a first user of a network like Amazon, the value would be very low and it would be very difficult that it will achieve success as it would be unable to reach a critical mass. This means that a large initial investment would be needed to create a network. The Silicon Valley model worked thanks to huge initial venture capitals. But this in turn means that many other networks die almost immediately and those who achieve success become very difficult to displace in terms of competition. Needless to say, the founders become extremely wealthy at the expense of the rest of the network. The token economy, on the other hand, extends the benefits of being an early adopter of a given network to all users: with the initial issue of tokens, users have the opportunity to share the success of the project. In fact, the more it grows, the more its tokens grow in value. People are encouraged to use the token network from the outset in order to take advantage of any increase in value in the future. Technology companies no longer have to turn to traditional capital markets, but they can turn directly to common people by issuing tokens and raise funds for their project.

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