As you explore cryptocurrencies, you learn the industry promises to be much more than Bitcoin. While Bitcoin may be a store of value and viable investment in this potential future economy, it seems blockchain has more ambitious and far-reaching goals.
Its decentralized nature has led to what many are calling a revolution and the dawn of a so-called new Internet. Could a tokenized digital world and economy be on the horizon?
Let’s explore and discover if cryptocurrency is grounded in reality.
The asset tokenization thesis.
In theory, tokenization could encompass all assets including stocks, bonds, real estate, and more.
When tokened, the value of the physical item is registered as a digital token. Most transactions today aren’t instant. Mortgages, stocks or gold can be difficult to transfer and involve lengthy processes and sometimes paperwork. In a distributed digital ledger, these assets can be represented as tokens exchanged on the blockchain in real-time.
Rather than buying stocks at a broker, you may one day buy digital tokens that represent an underlying asset. This allows the tokens in your digital wallet to be easily swapped or exchanged for other assets as needed. It also creates a digital footprint for everything you own.
Proof of ownership.
Tokenizing assets creates their permanent and immutable record. This could scale to include assets like the title to your car or home. No person or government could overrule your ownership of the asset as the digital token would serve as proof.
Compare this to the pieces of paper and centralized records we store today and you discover it’s a far better solution. Decentralized blockchains store information worldwide across a distributed network that can’t be tampered with by anyone.
Illustrated by the NFT boom:
To expand upon this proof of ownership concept, we have recently seen the emergence of NFTs or non-fungible tokens.
These are unique digital tokens but unlike normal cryptocurrencies these are not interchangeable. Meaning, they can’t be exchanged and treated like Bitcoin where 1 BTC is equivalent to 1 BTC. Rather, each token is uniquely different.
These digital tokens can represent art, audio, videos, items in video games and many other types of creative work.
Interest in NFTs is exploding because entertainers, performers, artists and other creatives are seeing dollar signs.
This is a modern way to sell creative content with verifiable ownership. Since these tokens are non-fungible even a copy can’t be mistaken for the original.
NFTs are creating this new marketplace for collectibles and creative work outside of cryptocurrencies. This shows the use cases of crypto and the broad reach the technology will have.
Better software for finance.
This is really what is so interesting about cryptocurrency. The decentralized ledger concept of blockchains records every transaction in the network. These records are permanent once the transaction is propagated. It is fully auditable and could serve as evidence of ownership.
This allows for much better software in the world of finance.
For the first time, companies can create applications that autonomously interact with transactions and take action based on the events recorded in the blockchain. They can create powerful new tools that bring finance automation and efficiency mainstream.
Should the world adopt cryptocurrencies, it would undoubtedly revolutionize finance with incredible innovation and disruptive changes. Computer programmers would have an new financial tools and untapped potential ahead of them. However, should something stop cryptocurrencies and the market collapse, none of this innovation or progress will take place.
That is not to say the world will adopt cryptocurrencies but just that it would benefit the world if they did. For this reason, I think it’s becoming increasingly more likely that blockchain and therefore cryptocurrencies will succeed. It seems unlikely that such a powerful technology won’t prevail.
Software payment system for AI and computers.
With cryptocurrencies, there’s no waiting for money to process or clear the bank. Every transaction gets recorded and confirmed in the network once it has fully propagated.
As mentioned, this opens the door for computer programmers to efficiently interact with blockchains through code.
Previously, software developers had no automated means for handling transactions. Payments were like a black box that relied on clunky banks and APIs that were terribly inefficient. Due to the centralization of money, the entire world is held captive to this restraint. These centralized entities are slow and don’t offer code-based solutions to finance like blockchain.
With the ability to send value between parties, confirm transactions and automate processes dependent on payments, cryptocurrencies have created a monetary network for artificial intelligence.
Move value from one AI to another:
As our computers and robots evolve, they become highly efficient specialists. We may have an AI that analyzes x-rays for tumors incredibly well. There may be another that can autonomously drive cars. If we could exchange services in a trustable way, AIs could piggy-back on the progress of one another to grow faster. We can only reach the true potential of automation when we have an Internet powered monetary network that can facilitate payment.
This allows intelligent software to accomplish more by simply paying for things it needs from other artificially intelligent software. Through APIs and now cryptocurrencies, this exchange of payment for services can be made possible.
This is the promise of blockchain and with the pairing of artificial intelligence, it starts to become very apparent why it’s needed in the future. When you consider where the world is going, digital assets seem to be a major part of the equation.
Fiat currencies can’t be used in this fashion unless they are digitized. We will likely see a U.S. dollar in this tokenized space for that reason. The technology behind blockchain is so fierce and so necessary that governments are already being forced to participate.
Connecting the world.
As you can image, cross-border payments are currently very complex. The time delays and inefficiencies cause businesses an enormous amount of pain and suffering. Trying to automate payments on the old school rails of the current system is difficult.
Unsurprisingly, payments are the backbone of commerce across the globe. If we could somehow fix this system and provide a replacement that swiftly moves assets across digital networks, we could connect the world.
Tokenization is presented as the solution. It would remove the geographic barriers to exchanging value and allow new markets to emerge. It could offer a real way to connect everyone with a monetary network backed by genuine store of value assets.
Better businesses through token economics.
A tokenized economy means the businesses of tomorrow will be of greater value to users.
We see this illustrated in a company’s token economics or ‘tokenomics.’ Companies that embrace cryptocurrencies and build a token around their business are responsible for incorporating that token in a way that incentivizes positive behavior within the network.
Some of the questions a business will need to consider include:
- How does the token get distributed to users?
- Is there a perk/utility for users that own the token?
- Does the company itself need to own the token?
- How will the token governance be managed long-term?
Projects that include a token in the business model have been optimized to provide value to the community. As users acquire and hold the asset it should appreciate with the crypto market. When you consider that tokens are supply capped and often deflationary, you can start to see how powerful digital assets can be. The deflationary nature creates resiliency in the market and makes cryptocurrencies an uncorrelated asset class.
Take Celsius for instance. Their CEL token flywheel illustrates how they have carefully thought through the use of their token as a staple for the business. The token serves as a built-in incentivized need to acquire and hold:
Tokens can be structured around any business and they allow for fractional ownership, utility, rights to use and governance of the project. This helps prevent the corruption we see with centralized companies. With a tokenized business the users often hold the power and control. Governance is distributed to token holders who are granted the right to vote on changes and decisions.
A note on adoption.
While I speak very positively on Bitcoin and other cryptocurrencies – I could always be wrong.
It’s possible the tech retraces, Bitcoin fades and this wave of progress and innovation comes to halt.
I do think that seems unlikely at this point and tokenization is coming. Bitcoin is playing the game of adoption and it seems to be working. Since it was launched, it has scaled to an incredible height with a ceiling that keeps looking higher.
Here’s a quick look at an example portfolio although this is not financial advice:
Let me know if you agree in the comments and are you investing in digital assets and blockchain tech?