Tokenomics: What Tokens, ICOs, Cryptography, and the Blockchain Mean for the Future of Business
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This document discusses tokenomics and how blockchain, tokens, and ICOs could impact the future of business. It provides an overview of key concepts like cryptography, cryptocurrency, blockchain, tokens, decentralization, identity, and capital raising. While still early, the document argues that tokenomics and blockchain will fundamentally reshape society by shifting power to individuals and enabling new business models through decentralized networks and applications. Risks and regulatory challenges are also noted.
Tokenomics: What Tokens, ICOs, Cryptography, and the Blockchain Mean for the Future of Business
- 1. Tokenomics What Blockchain, Tokens and ICOs Mean For The Future of Business Photo by Ramiro Checchi on Unsplash
- 2. Stephen Peters ICO and Fintech Advisor Background in banking, payments, artificial intelligence stephen@psc.net.au https://www.linkedin.com/in/stephenjpeters @siriuscove Photo by Max Ostrozhinskiy on Unsplash
- 3. Talking Points • Tokenomics • Cryptography • Cryptocurrency • Blockchain • Tokens Photo by Taduuda on Unsplash • Fat Protocols • Decentralization • Identity • Capital Raising • Business Models
- 4. Tokenomics A token is a privately issued currency used to buy and sell operations within a network application, creates a mini economy with forces known as tokenomics Made possible with a combination of technologies, some old, some new • Cryptography • Blockchain • Solves the double spend problem • Enables pseudonymous and anonymous transactions Like all disruptive technologies this tech will create new business models, new industries, new societies, but still very early stage, about where the internet was in 1990
- 5. Four Years of ICOs ICO Space
- 6. Why is Cryptography Important? Some of you will know this Enigma machine, which was a German crypto device used in WW2 to encrypt radio transmissions. A group at Bletchley Park led by Alan Turing decrypted the enigma code, and was then able to monitor all German orders and reports. Basically, this break-through contributed significantly to the Allied victory.
- 7. Cryptography Crypto concepts are now reaching mainstream: • Hashing & Signing • Private and Public Keys • Passphrases • Cold storage • Privacy • Anonymity
- 8. • Data cannot be faked • Records can be certified as authentic • (Practically) immutable records • Signing makes impersonation impossible • Replaces security models based on access and centralized control • New thinking about networks and market models Impact of Cryptography
- 9. Cryptocurrency • Digital money • Cryptography regulates the creation of units of currency and verifies transfers • Original vision of Bitcoin was decentralized currency (not issued by a central bank) • Governments now starting to see value in a centralized crypto currency • Cheaper than cash • Increase tax revenues • Controlled supply: inflationary vs deflationary
- 10. • Bitcoin was not the first digital currency, builds on earlier work from hashcash, digicash, and others • Bitcoin is the largest cccy, about 33% of total market cap • 1500+ cryptocurrencies listed today on CoinMarketCap • Total crypto market cap is currently 500B Crypto Markets
- 11. What is a Blockchain? • A shared database, aka “distributed ledger technology” or DLT • Stores data in a cryptographically secure “block” • “Chains” these blocks together so that any tampering to the data is immediately obvious • All the computers in the network agree on the truth of the data written to the blocks, no central party required (consensus) • Various consensus models, Bitcoin uses proof-of-work which involves solving a difficult mathematical problem that requires a lot of computing power • Everyone has a copy, hence the name “distributed ledger”
- 12. Inside the Blockchain Photo by Raphael Koh on Unsplash
- 13. Characteristics of a Blockchain Photo by Raphael Koh on Unsplash • Permissionless / Permissioned Access • Public / Private Networks • Decentralized / Centralized Governance • Coin / No Coin • Immutable (Data Integrity) • Distributed Applications • Smart Contracts • Scalability • Security
- 14. Limitations of Blockchain Photo by Raphael Koh on Unsplash • Immature technology • Energy requirements for certain consensus models • Throughput for the Bitcoin and Ethereum networks is poor, approx. 7 & 15 TPS respectively, faster options exist • Limited storage on chain • Limited suitability for the enterprise • Security at the access points (wallets, exchanges)
- 15. A token is a cryptographically secure unit of value that an organization creates to self-govern its business model and resources, and empower its users to interact with its products, while facilitating the distribution and sharing of rewards and benefits to all of its stakeholders. What is a Token?
- 16. Tokens • Tokens provide a way not only to define a protocol, but to fund the operating expenses required to operate the network as a service. • Tokens provide a model for creating shared computing resources while keeping the control of those resources decentralized (and without necessarily requiring a centralized organization to maintain them). • It’s all about the network incentives
- 17. Network Effect Tokens provide incentives to reduce the bootstrapping problem
- 19. 3 main kinds • Utility token • Work token • Asset token Kinds of Tokens
- 20. Fat Protocols • The protocols on which the internet is built are stateless: TCP/IP, SMTP, HTTP, etc. • They simply process and route data according to their function. • Fast and efficient, but not smart • Creates problems in application layers
- 21. Fat Protocols • Blockchain is ushering in an age of “fat” or stateful protocols • Protocols which retain state, like identity which is a huge missing component of the internet • New applications like decentralized social media where the user is paid for their data APPLICATION LAYER IDENTITY LAYER BLOCKCHAIN LAYER DATA LAYER NETWORK LAYER
- 22. Photo by Dennis Kummer on Unsplash Centralization vs Decentralization
- 23. Centralization Centralized authorities are in place to ensure trust between parties is carried out according to a set of rules Centralized authorities dominate most aspects of modern life • Political, Banking, Asset Management, Property Titles The apps you use everyday: • Facebook, Google, Twitter Central control has not always worked out well • Leads to dictatorships, huge financial losses, data and privacy hacks
- 24. Decentralization • For the first time, blockchain gives people the technology to transact with each other in a trustworthy way without a trusted intermediary or central authority • Rules are embedded in software, smart contracts on the blockchain, executed by machine with no reliance on human intervention • The network provides incentives to govern behaviour • Upends the traditional centralized models of business and the institutions we have created to maintain order • It is a fundamental change, requires careful thinking and will challenge all your preconceived notions of society
- 25. Examples There are examples of decentralized systems used every day, and more are coming Email (1962) • Common protocol, many clients to access • No single company in control • Data can be moved but not easily Bit Torrent (2001) • Common protocol, many clients to access • No single company • Data is shared between computers, may not reside in one location Bitcoin (2009)
- 26. IdentityPhoto by Nicolas Ladino Silva on Unsplash
- 27. Digital Identity • The lack of digital identity standards and platforms is a major hindrance to the development of the next stage of growth • Personal data sovereignty is the other side of that coin • Today, your data is spread across dozens or hundreds of institutions, organizations, government departments and agencies • Centralized honey pots that attract hackers • 1B Yahoo accounts hacked, Equifax 165M and so on…
- 28. Control and Sovereignty A digital identity solution could store • Financial assets • Medical records • Personal data, profiles, and preferences • Important documents and data You could control access to external applications like Facebook and receive token rewards in exchange Share as little or as much as you like, with automated controls governed by software. Blockchain gives us the capability.
- 29. Capital Raising Tokenomics has created a new capital raising channel: ICO (Initial Coin Offering) • Extends crowd funding models like Kickstarter to projects and ventures • Work around IPO and traditional equity channels like venture capitalists • Some ICOs are good and some not • Lots of regulatory issues surrounding ICOs, are they really securities
- 30. Business Models • Made on the internet remains, witness the growth of Google, Amazon, Facebook, Apple, Alibaba, Tencent, Baidu • But these are all centralized businesses • Facebook is already facing a backlash after trolling scandals
- 31. Cryptokitties
- 32. How to Make Tokenomics Work • Critical thing is to equip your private token economy with the right incentives to create value • Prioritize decentralized solutions where possible • In some segments especially enterprise this will be a long transition and you may need to develop bridging solutions and gradually introduce decentralized functionality • Create a strong identity core to your solution
- 33. Examples
- 34. Caveat Emptor
- 35. What Could Possibly Go Wrong? Regulation • Governments will have a difficult time with cryptocurrency, so expect more regulation • But there are valid libertarian use cases Scams • There are many, many scams in the ICO and cryptoexchange space Delivery • Blockchain has been around for a few years • Few production examples, interest could wane
- 36. Who Wants To Be A Billionaire? • Decentralized Identity – a platform where your personal data is under your control • Voting – a secure and anonymous system immune to tampering, and falsification (and also faster) • Social Media – a decentralized social media network that respects your privacy and does not access your data without your permission • Decentralized Bank – a bank that just provides services but wealth is held by the individual, easy to move • Games that incentivize certain behaviours with coins
- 37. Takeaways • Tokenomics and Blockchain technology will fundamentally reshape society in the decades to come • Decentralization promises to shift the balance of power to individuals • Identity and personal data sovereignty will remain major issues • It is still very early in the space, so lots of opportunity • Go out and build something great!
- 38. Photo by Ray Hennessy on Unsplash Thank You stephen@psc.net.au https://www.linkedin.com/in/stephenjpeters @siriuscove