Recent innovations in the field of distributed computing, such as blockchain, are nothing short of impressive. New data operation methods are substantially less susceptible to human errors and corruption. When implemented broadly and sensibly, the new modality will cut costs across many overhead segments, improve the liquidity in global supply chains, and reduce resource underutilisation.
The pragmatic approach for investors to enter the promising crypto sector is to focus on tokenization and the new global business fabric it can create.
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Tokens are Vital
Tokenization is the process of substituting sensitive data elements with non-sensitive equivalents that can be operated anywhere outside of original data custody domains.
Each of us use tokens daily without even noticing: invoices, keys, tickets, bonds, receipts, reservations, bills, browser certificates and cookies, etc. Tokens provide access, control, and an exchange of value. They represent rights and obligations and can also be programmable physical actuators. Digital tokens generally allow for more creativity, while physical tokens can also be witty. A great example is specially colored plastic bags for waste that are sold through a county at a significant premium compared to ordinary bags. Trash in such bags can be left anywhere and the municipal services will remove it, freeing people from being tied to schedules for local garbage pickup.
All tokens have an issuer and a substrate—the carrier media. Tokens vary in technical parameters such as transferability, fungibility, supply, and flow model. They represent things and do things but they are not things in and of themselves. Tokens are not documents. Tokens are not currency.
Tokens on blockchains or other distributed digital substrates are known as crypto tokens. Crypto tokens may be very inexpensive to maintain, yet they are very secure. Soon, with the emergence of decentralised ownerless crypto exchanges, for many operations, costs may literally become zero.
Continuous and Efficient Textile of New Economic Calculus
As open token-carrying substrates become ubiquitous, anyone can maintain an unlimited number of token emissions. Soon, myriads of tokens will represent everything that can be counted in an economically meaningful way.
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For years, the country has been paying benefits to citizens in special “social tokens” to be used in state-owned services, so that everyone should have accumulated some quantity by now, without large disbalances and concentrations of token wealth. Now, the country faces some reorganisation and has to choose between two options: yes and no (think Brexit). The consequences will affect everyone. Instead of having a referendum where each person has one vote, two types of new tokens are issued and offered for sale at nominal value in social tokens. One token will pay its holder some small percent of the national GDP in ten years if the option “yes” was eventually taken, another if the option “no” wins. Two tokens are to be freely traded for exactly one year. Whichever token is less expensive at the last second of trading gets burnt and the nominal value goes back to holders. The winning token (which is the futures contract now) remains in circulation so it can be redeemed at the future GDP-based value in ten years or sold at a market price earlier. Thus, the important decision is taken in an economically responsible way. People can choose the amount of exposure to this decision, while populists and demagogues would have a hard time trying to mislead the crowd.
A man visits an asset management company. He wants to invest in high-risk instruments with high potential return. No choosing of a particular fund is going to happen now. The asset manager receives no particular instructions regarding the two digital containers—one with money to invest, another filled with so-called “risk tolerance tokens”. The money goes to work in tokenized mutual funds which absorb the capital (also tokenized); tolerance tokens start to be continuously spent as current risk projections for particular investment instruments change over time. The investment will be converted to cash as soon as tokens end. These tolerance tokens were collected by the client over the years, in a seamless way, in various institutions similar to those that now participate in giving an accredited investor status. By the way, the signature to unlock the container with tolerance tokens belongs to the man’s wife.
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Within token-enabled supply chains, every participant seamlessly contributes to the quality automated data and event flow. Most economic acts can be done through token exchange, issuance or redemption. When tokens circulate, things that you normally run accounting, operations, and procurement departments for happen “by themselves”, with much less overhead than normal. Your token portfolio changes over time, perfectly reflecting whatever is going on in the business.
In addition to providing a previously unthinkable level of automation, tokens add to the quality of data streams—many essential business parameters can be articulated with greater precision. Many human errors can be omitted. With tokens, people tend to make more reasonable data inputs. On one hand, they can be rewarded immediately in tokens. On the other hand, it always costs some amount of tokens to do something. So people either make an economically-responsible decision or do not contaminate the feed, abstaining from an involvement.
As many cross-blockchain bridges are already in their alphas, crypto tokenization promises new fecund economic scenarios when any two random crypto tokens can become mutually usable, creating an exchange pair. A frequent flyer token may find its way to major airports’ loyalty duty free tokens without any need for the CEOs of those organisations to sign a deal. Arrays of compatible tokens will take the economic calculus to a principally new level.
Today many businesses operate in a narrow scale range; many small economic acts simply do not happen, while the bigger picture is difficult to put together. A token-based economic calculus can automatically process all things, regardless of their size. Instead of smooth infinity of variants, businesses often deploy limited, discrete choices. Tokens will help to fix the discontinuous and limited textile of number series in the economic calculus.
Companies today maintain information silos and asymmetries as a competitive advantage which they use to avoid disclosing unused capacity. This prevents significant optimisation in supply chains. Soon an owner-less blockchain entity will emerge between any two competitors (who now naturally refrain from mutual frankness), ready to benefit both parties.
The complementary data generated by cryptos may someday become as valuable as centralised big data. Various enterprise resource planning frameworks will become interconnected, with very flexible, transparent settings. Eventually, most significant business data silos will end the vow of silence.
Consumers will become generally more aware of real quality reviews and marketers will lose most of the false tooling that exploits loopholes in human psychology. As consumers continue to advance the mighty tool of crowdsourcing and become paid promoters of products they buy and use, organisations can significantly reduce sales and marketing costs.
Prodigy of Self-accounting Leads to Optimised Supply Chains
At any given moment, there are trillions and trillions of dollars locked up in supply chains. That is the biggest pool of inefficiencies in the world, from which clever optimizer can still extract a large chunk of the margin. The biggest part of that inefficiency is owed to capital access. Historically, as industrial concentration and centralization occurred, capital became the most accessible in places it is now least needed and least efficient.
Centralisation of risk management—inherited from the years of the post-industrial era—slows things down even more. Crypto tokens allow for a lot of creativity in operating debt in general and in managing collaterals in particular, while public blockchain platforms can guarantee the transparency and integrity of obligations in the entire vertical of supply chains. More efficient allocation of resources becomes possible. Part of those huge savings will go into the pockets of smart tokenizers.
How to Invest
Unfortunately, despite all its bright future, investing in cryptos it is not a straightforward undertaking.
A frighteningly tiny fraction of crypto assets pass a minimum common sense test. Many tokens were configured with the primacy of the goal to circumvent securities regulations. Too many applications were designed to appeal to crypto enthusiasts as they attempt to decentralize something that really does not need to be decentralised.
New platforms and their corresponding “native coins” are being announced at an astonishing rate. There’s a serious lack of information with ideas developers have about the purposes of applications their platforms are going to host. In any case, most of today’s platform candidates will have to go away so that buying in every platform—even those with a great team and interesting concept—will create a portfolio with negative long-term expectations.
Of course, some fundamental comparison is possible, but there is no way to compare the actual performance since most of the projects are still on paper. It is not even clear whether winning platforms will still have traded native coins. Chances are, the right platform to become a standard will be one without this type of vulnerability. Or maybe some layer X on top of BTC will do; just look at how LN is progressing! Who knows what will come next. Overall, it is extremely risky to bet on platform coins just yet.
There are no indexes out there to help in the orientation. And no sane sentiment. Narratives that move prices are historically contaminated. There’s insider trading, pump-and-dump campaigns, and blatant fraud. Premature, questionable, and quite frankly goofy ideas dominate the entire asset class. The blockchain technology stack has become customarily morally abused.
Probably the safest and most efficient way of investing in crypto today is to take the following unusual, proactive approach.
We suggest not to rely on any single development team but enter alliances of tokenization projects where one can insert their own business development unit. This way we can test the framework, oversea the ongoing development from a close distance, and make sure we are on the right track.
Without a viable alliance of projects in the background, the sample token fabric won’t be created and the proof of concept won’t be achieved. A standalone project has more chances to degrade. It takes a healthy community of projects to come up with an honest investment token design which is driven by the vision of the future business process, not crowdfunding gimmicks.
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Head image by Barbara Bernat