This video includes highlights from The Future of Leadership Development Conference Series, held April 19-20 2018.
The current technology revolution is reshaping industries, making business models obsolete, growing new companies with a different set of capabilities and creating disruption and social change.
In a digital, big data, machine-learning, robotics and artificial intelligence-based world, the role of general managers is more important than ever. The competencies that they need are changing fast.
At the same time, there are some classical attributes of the general managers’ functions – providing a sense of purpose, developing a long-term perspective, and engaging people and making teams functional, among others – that are still relevant, but that may take new dimensions in this new, changing business world.
What companies, people and society in general will expect from senior managers in a few years’ time will be different from their current skills and capabilities.
At the same time, technology is disrupting companies and communities, CEOs, board members and general managers, as the ultimate stewards of a company, need to reflect on how to manage this process and help come up with constructive solutions.
The purpose of this conference was to discuss these relevant issues for leadership, governance and management with an inter-disciplinary perspective. Speakers include leading management and leadership scholars, AI experts, CEOs and senior general managers, and deans of leading international business schools.
Some of the specifics that were covered include:
What creates long term value? That would be customer-asset building and brand-asset building since, so far, computers cannot build brands.
The parts of business that will change: 1) What they make 2) How things are made, or how businesses operate 3) Who businesses will form alliances with 4) How the people work are organized and managed.
Businesses and be broken down into projects and processes.
Processes will become an algorithm
We need to teach people how to use data.
Data and AI are important to all business units.
Management needs to know the right questions to ask the technical guys.
Decisiveness wins out over building the perfect model.
The most important ingredient for success is the power of imagination, which cannot be substituted.
AI can augment human intelligence, not replace it.
Token economies can be understood as a new way of coordinating human activity in a decentralized fashion, this being done through peer-exchanges within market networks.
As Primavera De Filippi of Harvard puts it, “Today the blockchain is marking the beginning of a new digital revolution, whose focus is not just human communication but rather human interaction and cooperation. What the internet has done to achieve global interpersonal communication the blockchain could do today to achieve global and systematic collaboration.”
It is common to compare the invention of Bitcoin and the blockchain with the internet. In this respect, it is often said that the blockchain is Internet 2.0 The internet has been a powerful tool that has revolutionized the way we interact. But if anything this comparison undersells the significance of the blockchain. As the authors of a recent article on “The Blockchain Economy” suggested, a better metaphor for the blockchain is the invention of mechanical time. Before the modern mechanized measuring of time, human activity was temporally organized by natural cycles: the crow of the rooster in the morning, the gradual descent into darkness at night. The problem with this though was variability, there was simply too much variance in the measurement of time for it to function as a widespread system for synchronizing economic activities.
Mechanical time opened up entirely new categories of economic organisation that had until then been almost unimagined.
During the industrial revolution, the effect of the reduction in the variability of time measurement was felt in almost all areas. Mechanical time allowed trade and exchange to be synchronised across great distances. It allowed for production and transport to be coordinated. It allowed for the day to be structured, for work to be compensated according to the amount of time worked — and for workers to know that they were being compensated fairly. Working life became routinized around this new objective standard of time measurement.
The blockchain and token economics may well be such a systemic transformation in human coordination.
The blockchain is a new coordination technology that relies on a decentralized network of computers in order to coordinate individual actions in a decentralized manner.
We can think of token economies as a way for people to mimic the social dynamics found in certain highly social creatures like bees, ants, and termites as a way to promote and ideally achieve effective collective organization.
By recording individual actions on a distributed database the blockchain makes it possible for people to coordinate themselves indirectly and collaborate on a global scale, without any centralized authority or hierarchical structure. This is something quite new in human civilization. Until very recently the basic premise has been that order and organization are achieved by centralized authority.
Throughout history, we have achieved widespread coordination and economic organization via centralized systems that imposed common standards. The evolution of civilization can be understood as the rise and fall of ever larger more complex systems of human organization.
Economies are built around networks of trust and common protocols. Traditionally these have come from either a government institution or from some form of Church which are structured in a pyramid form.
In those power structures, you’re able to do business, you’re able to trust people who are not your immediate family because the centralized authority provides the common standards, the protocols, the regulatory and legal structures for you to trust each other and exchange; fiat currencies being one good example of that.
Although centralized systems have their advantages they also have their disadvantages and are inherently limited when it comes to the formation of very complex organizations.
ALIGNMENT OF INTERESTS
One of the primary issues with current centralized organizations is that they are not general purpose as each organization acting as an authority also has its own vested interests. This creates a misalignment of incentives between the centralized authority and users of the system. If we are lucky and we get virtuous members in the center of the organization the interests of the centralized authority may be aligned with those of the network, but equally, they may not.
As we will discuss in the coming module, there is really a misalignment of interests at the heart of centralized organizations.
We have this problem today where most of our most important economic and financial functions are provided by centralized for-profit organizations. The incentive of the organization is to create profit for its owners. The result of this can be that profit gets sucked into the center and upwards, reducing the quality of the network delivering the function and accentuation inequality.
Likewise, centralized coordination creates bottlenecks. Resources are brought into the center, processed and then pushed back out to the edges. The system always works much better close to the center and then coordination drops off the further out you go.
This is why, for example, Zimbabwe is a much better use case for cryptocurrencies than say Singapore, because Singapore is close to the center of the global financial systems while Zimbabwe is out on the edges.
Centralized systems have problems delivering structure and functionality all the way out to the edge of the network. The result is that we end up with a trickle-down economy with the edges always being dependent upon the center, but the center not being properly incentivized to deliver services all the way to the edges. Those at the center get a good service but those at the edges don’t. The billions of people who are left out of the global financial system because they are not economically worth serving is illustration of this.
Centralized systems end up forming either monopolies or a fractured overall system.
Centralized systems have a specific locus as their center and then push out until they meet another organization. The end result, is either a monopoly where one comes to dominate overall others or a fractured system, with lots of different patterns forming. The nation-state is a good example of this. Within a given jurisdiction we have a monopoly of public services but on the global level, we remain with a fractured system.
The alternative to these centralized systems is decentralized peer-to-peer networks. Without centralized authority being used to achieve coordination, this coordination is achieved via direct exchanges of information and value peer-to-peer, such as in a pure market, where the price is decided by the interaction between members.
Token economics turns these centralized institutions of the industrial age into distributed token markets. The critical change that is coming about is that we are now able to design token systems that work to incentivize people’s behavior towards coordinated outcomes, without that coordination being imposed by some centralized authority.
What is different now is that we have the technological means that we can design economies instead of just organizations. Economies that create the right incentive systems and feedback loops to coordinate the activities of the organization in a decentralized fashion.
Token economies build upon the development of peer-production, an alternative model to economic activity that has arisen with the development of the internet.
Peer-production is a process taking advantage of new collaborative possibilities afforded by the internet and has become a significant mode for the division of labor within post-industrial economies.
Free and open source software and open source hardware are two examples of peer-production.
With the development of web 2.0 technology, it became possible to coordinate a large number of people using software systems as the coordination mechanism instead of any centralized authority. This was exemplified by projects like Wikipedia.
But these networks were lacking the critical element of economic incentive. Token economics provides a new way to fund and incentivize these newly formed distributed networks.
Juan Benet, founder of Protocol Labs, describes well what is happening today, “One of the interesting properties here is the ability to create markets where there wasn’t a market before… what [blockchain] application platforms can do is suddenly cut out this huge middleman with a protocol and that is a massive cost-saving for the entire network… you can turn this into a protocol that will optimize the entire process much faster than any centralized company can do, because it turns it into a market. The moment you can take a very complicated process and translate it into a market where a whole bunch of different actors can vie for opportunities and just beat each other, you have this amazing optimization power, where it will just fit the function much better than a centralized entity could have.”
The blockchain provides the infrastructure of trust, secure record keeping and peer interaction required to create general purpose networks for the provisioning of economic and financial services via distributed markets.
The challenge of doing this though is one of designing incentive systems and this is what we will talk about in the coming module.
The blockchain originates out of the purely digital realm of Bitcoin. Thus blockchain networks themselves can only ever manage what is on the network. This is fine if the asset is simply a digital token. But going forwards we find ourselves increasingly wanting to use these networks to manage real-world assets. Thus these value networks will have to interface with the real economy and this interface between the physical and information realms creates major issues.
Economies are, at the end of the day, still very much physical systems of technology, land, natural resources, buildings etc. if we are serious about migrating our economic systems to the blockchain, major consideration has to be given to that interface to ensure that the tokens are securely and accurately connected to their underlying physical assets.
In a digital system like Bitcoin, there is always consistency. Transactions obey the rules of the software and there are no exceptions.
In the real world, there are often exceptions. Cars are stolen, houses destroyed, videos turn out not to be properly licensed, commodities fail to be delivered. Humans sometimes don’t obey the rules. Therefore the key challenge for any system that involves tokenizing real-world assets, is to ensure that the digital token stays linked to the real-world asset.
Very few people in the blockchain world have an appreciation for the complexities of the physical systems that run our economies and their regulation; such as containers passing through customs at a port.
There is a huge gap between this very light dematerialized culture of the blockchain and the very heavy culture of traditional physical assets and the national legal structures that they are embedded within.
Today this interface is secured by laws and ultimately the physical force of a government that backs those laws. If you have a legal document that says a piece of land is yours and someone comes and resides on it you can go to the government and they will physically remove that person from your property if need be.
Imagine a token that represents a fractional interest in a set of gold bars in a vault. If a gold bar is taken from the vault, how will that be reflected in the digital token? Who will make sure that the token value stays linked to the gold bars that should be in the safe? Who will bear the risk and how? If the buyer of a token can’t be sure that the token is properly linked to the real-world asset, then the value of the token will fall or even become zero if no one has faith in the correspondence between the two.
At present blockchain systems are still dependent upon traditional legal frameworks for this linkage between the digital representation of an asset and the asset itself.
Currently, arbitration is seen as one of the most effective ways of mapping between what is happening on the blockchain and what is happening with the physical asset and the legal systems it might be embedded within. Arbitration is a long since used method for creating legal agreements in international commerce where both parties agree to bind themselves into a legal contract of their making.
An arbitration award is legally binding on both sides and enforceable in the court of choice.
One way of linking legal systems to what is happening on a token network is through what is called a Ricardian Contract. A Ricardian contract places the essential elements of a legal agreement in a format that can be expressed and executed in software. The aim is to make the document both machine-readable and readable as an ordinary text document, such that lawyers and consenting parties may read the essentials of the contract conveniently.
From a legal perspective, the use of markup language embedded within a largely legal prose document leads to reduced transaction costs, faster dispute resolution, enhanced transparency and improved enforceability. From a computing perspective, the Ricardian contract is a software design pattern to digitize documents and have them executed within financial transactions, such as payments, without losing any of the richness of the contracting tradition.
It is robust through use of identification by cryptographic hash function, transparent through use of readable text for legal prose and efficient through markup language to extract essential information.
Mattereum is one such project that tries to use Ricardian contracts to create an effective linkage between records on the blockchain and the established off-chain legally binding dispute resolution of arbitration thus giving what happens on the blockchain full legal weight under natural language contract.
Mattereum is the first, what it calls “Internet of Agreements” infrastructure project for legally-enforceable smart contracts, enabling the sale and lease of physical property and other transfers of rights in assets. Mattereum is billed as a court that understands the nature of cryptocurrencies, making physical property and intellectual property transactable on a blockchain.
In a case where you might buy a physical asset using a fraction of a Bitcoin and the seller does not follow through, it is difficult to explain this to a judge in a small claims court. This is where Mattereum comes in, enabling technically competent arbitrators to make rulings in these cases instead of a judge. As the founder of the project, Vinay Gupta describes it “Mattereum.com is my bid to get the necessary legal frameworks in place to make direct control of physical property using the blockchain recognized in 150+ countries. I want to break the door open to the material world so you can change the status of a smart contract, and have a real-world court recognize that legal ownership of a fiat asset has changed hands. Fiddly, but it’s necessary infrastructure for all of our next steps together.”
The alternative to depending upon traditional centralized legal institutions is depending on technology. Code may be the law on the blockchain but outside of those networks, Big Data and IoT will be law.
Big Data is going to give us new insight into what happens when and where with high levels of statistical assurance. While at the same time IoT will put code into all of the technology around us that we are now so dependent upon and that is a new form of law enforcement. If you have the code that can stop a car or open a door lock then you control that system and can enforce whatever contract is on the blockchain.
As an illustration, we might think about a blockchain IoT securitization of gold. We create an automated warehouse, people are allocated secure sealed lots within the warehouse. We deposit a stock of gold in one area and when someone purchases a block of gold the system automatically moves it to the owner’s container and the owners gold token account is calculated by summing up the gold in their container. This is a simplified representation of a blockchain cyber-physical system where blockchain records and tokens are linked directly to the underlying asset through automated technology. By an extension of this model whole buildings, cars and other assets could be directly connected to blockchain tokens thus bridging the gap between the virtual token and the physical asset.
Scalability is a critical issue that needs to be addressed before blockchain distributed ledger technology can attain adoption by financial technology companies and compete with payment networks that process transactions many times faster.
In a blockchain, transaction validation is much slower than block construction, hence the idea of increasing the number of transaction validator nodes is a key to scalability.
Sharding is one of several technologies being explored to increase transactional throughput.
Simply stated, sharding is a way of spreading out the computational and storage workload across a peer-to-peer network so that each node isn’t responsible for processing the entire network’s transactional load. Instead, each node only maintains information related to its partition, or shard.
The data contained in a shard can still be shared among other nodes, which keeps the ledger decentralized and secure because everyone can still see all the ledger entries. However, the individual nodes do not process and store all the information.
Since sharding mechanisms are still in the development-and-testing phase, much work needs to be done to create standardized methods that address not only scalability but security. That challenge must be resolved before sharding can be considered a solution.
The first application of blockchain technology may have been in currencies, but people are becoming increasingly aware that a secure distributed ledger system of this kind could in fact potentially support all economic activity one day.
Today startups around the world are feverishly building new frameworks for migrating ever more spheres of financial and economic activity to distributed ledger technology.
Many believe that the next stage in this process is the conversion of capital markets to token networks as it is becoming increasingly apparent that the management of securities of any kind, from stocks and bonds to real estate, could be brought into the age of information through tokenization.
There is currently great interest by financial intermediaries and technologists in figuring out how to move real-world assets onto blockchains to gain the advantages of distributed ledgers, while keeping the characteristics of the asset.
The conversion of capital markets to token networks would create many efficiencies. It could take the somewhat elite world of high finance and make it accessible to any and all. Creating new opportunities for investors and new sources of equity for organizations.
Our capital markets of various kinds today hold trillions of dollars of assets that are being used far from their potential. Locked up by high transaction costs, low transparency, layers of middlemen and bureaucracy.
The tokenization of this system could radically improve the efficiency of transaction processing by removing the layers of bureaucracy created by centralization. It could unlock vast amounts of currently locked up fix capital. It could create a quantum leap in transparency, opening up capital market data to advanced analytics in unimaginable new ways. Likewise distributed ledgers are tamper-proof making them less susceptible to fraud.
Our world is full of different forms of assets: oil, basic foodstuff, stocks, carbon credits, real estate, gold, etc. Many of these assets are difficult to subdivide or physically move around. So buyers and sellers instead trade pieces of paper that represent ownership of part or all of those assets.
However this existing system composed of paper and lengthy legal agreements is cumbersome. Assets are difficult to transfer and can be hard to track.
Tokenization of securities is the process of converting rights to an asset into a digital token on a blockchain.
Any asset that is currently traded on a capital market as a security, such as commodities, shares, bonds, or various forms of derivatives, could be tokenized by linking them to a blockchain register.
Indeed any asset at all could be securitized by linking it to a digital token. This might include any form of property, such as a house. It might include loans or mortgages, all of these could be converted into security tokens and traded on markets.
The most obvious use of this system is the raising of initial funding for a new project. Already huge amounts of funds have been diverted from traditional forms of venture capital in to directly funding projects through ICOs.
Many industry observers believe that mainstream companies will one-day issue shares through ICOs, either in place of or in addition to traditional public offerings.
ICOs are a good example of where we are heading as we shift more of capital markets onto the blockchain. They illustrate the capacity to open up these markets to the many, as venture capital has gone from the domain of a few investors, to being accessible to anyone on the planet with internet connection and a few dollars.
They illustrate the direct peer-to-peer nature of token economies. But what we have seen so far is really just the tip of the iceberg as what has happened to venture capitalism could literally happen to all of capitalism. As all capital could be tokenized. A number of platforms are currently in operation or being built to do exactly this.
LAToken is one such platform. LAToken is an asset tokenization platform that allows users to convert tangible assets, such as real estate or precious artworks, into tokens, thereby making them sellable in fractions. You can tokenize your asset on their platform and sell it in fractions to investors. Investors may then sell the tokens on a secondary market and you can buy back the asset later on, or sell it on the settlement date.
Imagine an artwork by a famous artist with 100 copies. The art prints could be tokenized by having ownership held by a company that has a standing offer to the public to redeem tokens for either a single art print or a fraction of one copy. In this way, buyers could obtain an easy-to-transfer token and a secondary market could transact in fractions of the art prints.
This could potentially be a source of financing for the artist and a way for the broader public to participate in the art market that is currently inaccessible to most.
Likewise, commodities could be converted into security tokens and traded.
Imagine a group of companies that want to trade aluminum with one another. Normally they’d exchange paperwork and keep their own lists of trades. If they could move to a blockchain-based system for trading their aluminum, they could potentially reduce paperwork and have more robust record-keeping.
One of the fascinating aspects of distributed ledger networks is that they can enable people to securitize their own assets.
Tokenization is an extension of the more traditional process of securitization, which is the conversion of an illiquid asset into a record that can be traded to increase liquidity.
Whereas previously the creation of securities was the domain of large highly regulated centralized organizations, blockchain networks can automate this process and make it accessible to all. People and organizations of any kind could securitize any asset that they own. They simply lock it on the blockchain and receive liquidity in return, when the liquid capital is returned the illiquid asset is unfrozen.
Sweetbridge is one token platform that is essentially enabling people to be their own banks when it comes to loans. This is done through creating a blockchain network where people can register and lock up their own assets as collateral, against which they can borrow money at low-interest rates or even no interests rates at all.
Users are essentially lending themselves money without a credit check because they are lending it against their own assets they have locked up.
What is happening is that when you lock an asset into the network, the network grows in value and gives you the tokens equal to that growth in its value, which you can then exchange for other tokens of fiat currency. Because you are creating the currency and not renting it from somebody else you don’t need to pay much interest on it or even no interest at all.
Where this gets exciting is not in developed economies, it is in places where you have a highly ineffective and inefficient formal economic system and a high level of informality, such as the developing nations of Africa and Asia.
In these environments, interest rates tend to be very high and loans tend to be very difficult and yet these are the roots of the supply chains of the world. This is where the food is grown, where the minerals come from. In these frontier markets it can be really tough to get financing of any kind and if you do it’s very expensive. It may be 10 to 20 percent. With a security token platform like that of Sweetbridge, no credit rating would be needed. You just lock up some asset and get liquidity in return at a low-interest rate.
This can be revolutionary, making a massive difference, not just for global trade but in the lives of the most vulnerable.
Real Estate is another asset class that is set to move to token networks in the coming years.
The stock of real estate assets is enormous, it is the biggest asset class in the world, valued at well over 200 trillion dollars.
At just 1.4 trillion in transactions every year, most of this market sits stagnant and does not really trade. Real estate is a very illiquid market and one of the least transparent. Buying and selling property especially on the global market across borders is full of frictions, middlemen, and lengthy procedures.
You can hold a piece of a corporate or a government debt in a bond, but it is very difficult to hold a piece of property and there is a lot of friction to trading property. While at the same time for many assets in real estate people will pay up to 20% more for one that is liquid versus one that is not. So tokenizing these assets could release huge amounts of untapped or underused resources.
Atlant is one platform that is working to tokenize real estate. It does this by linking the property to a special purpose vehicle (SPV) which is then converted into tokens. The property is purchased and transferred to the SPV. The SPV is split into many shares that can then be traded on the platform with almost no friction. Now a person sitting in Taiwan can at the click of a button invest in the creation of a new factory in Poland or a section of an office space in Mexico City.
Likewise, through this tokenization of property, the physical asset can be split up into extremely small units of equity, that make the whole market greatly more liquid. Say for example you have a shopping center, the platform can tokenize it by dividing it into a million centimeters of floor space. People can then exchange those small units or rent the property they own out.
In all of this conversation around the tokenization of real-world assets remains one big elephant in the room, which is the question of how exactly do you put assets on the blockchain?
The linkage between the information software layer of the blockchain network and the physical real-world asset is of course of critical significance and in many cases remains an unanswered question as to how exactly that linkage is secured. So in the next module we will pick up on this very topic.
Ben Goertzel speaks at TransVision 2018 (October) in Madrid Spain. Goertzel introduces the current state of Sophia Hanson, which describes itself as an early stage transhuman robot.
TransVision 2018 explored artificial inteliligence, human enhancement and other technologies and future trends. The first TransVision conference was held during 1998 in The Netherlands.
The first keynote speaker at the event was Sophia, which is also the first humanoid robot awarded citizenship in 2017.
Transhumanism is an international philosophical movement that advocates for the transformation of the human condition by developing and making widely available sophisticated technologies to greatly enhance human intellect and physiology.
Goertzel demonstrates Sophia and describes the various AI systems currently in use.
He further discusses transhumanism as a natural evolution to become greater human beings.
Discount tokens are one of the new innovations made possible at a large scale, within a blockchain-based token economy.
In short, discount tokens are digital assets that give their holders a specific claim to receive discounts on purchases of products or services from an organization — such as an enterprise, a cooperative, or a blockchain network.
Unlike gift cards, discount tokens are not invalidated when used but remain active and in possession of the holders.
The specific size of the discount that the token delivers for its owner is designed to grow in proportion with the overall utilization of the network. The discount token itself allows the holder to access the discount.
This can be seen as a royalty model. But instead of claims to a fixed stream of revenue, it’s rights to receive a proportion of total services offered.
Given the growth in economic activity on the network, the owner may utilize more discount on the service they receive directly or sell/share the surplus.
While simple in its essence, it has profound implications. In a discount token economy, creators and users of the network are clearly aligned. While passive investors and speculators find themselves at an economic disadvantage. This is because discount tokens are more economically valuable to users than passive investors and thus work to discourage unconstructive price dynamics seen in other classes of crypto assets.
The discount is fundamentally linked to the adoption and growth of the network. The discount grows proportional to the growth in network service delivered.
The overall returns to the active token owners surpass the returns to passive token holders: the investors.
The discount token enables next generation, technology-enabled mutual companies, and cooperatives while working to reduce speculation.
While tokens themselves allow for transactions, capital formation, investment, and speculation, the discount token model is an interesting way to incentivize the growth of a crypto-powered network.
The discount token is loyalty to the growth of the network. And not just for pure speculation because it is always better to hold a discount token if you are a user of the network rather than simply a speculator.
This creates alignment between the customer and the provider that doesn’t occur with shareholders, with loans or bonds or other classical financial instruments used.
The discount token model is applicable to a broad range of business models. Businesses that most benefit from it are those that desire and expect significant long-term business from its customers through ongoing subscriptions, recurrent fees, or frequent repeat purchases.
For such dedicated customers the discount that the token offers means real money to them. But for others that have no great interest or use of the network, the token will have limited value.
The SweatBridge blockchain project is one of the strongest proponents of the model of a discount token. In their paper, they write about the reasons for using a discount token over a simple utility token. “As creators who desire to be both responsible and compliant, we find ourselves in search of a class of token economics that would (1) underlie a broad range of decentralized organizations and networks; (2) align incentives between investors (both early and late), creators, and consumers; (3) be demonstrably distinct from securities and Ponzi structures in the incentives they generate; and (4) align with existing regulatory precedent.
The discount token framework is designed to meet these requirements. While simple at its core, it has profound implications.”
Discount tokens are a good illustration of the kind of economic and financial innovation that is being unleashed with token economics.
It is not just about making things faster and more efficient, but discount tokens illustrate how we can really think about basic economic structures and incentives and then build currencies that work in totally different ways to the ones we have today. In so doing try to solve major economic issues – such as excessive financial speculation and better rewarding those that are actually interested in the development of the given economic network’s functionality.
With major technological, social and economic processes of change underway we are fast moving away from the well-established model of the Industrial Age and into a new form of digital networked economy, where the traditional well defined parameters of economics are being once again revisited as we search for a new model better suited to this new reality.
One aspect to this is a reconceptualization of the very foundations of economics, that is to say, the idea of value. With token economies, we are really re-exploring what value is and how we quantify and exchange it.
Part of this equation is the differentiation between intrinsic and extrinsic value.
The economic system that evolved over the course of the modern era has come to be based on utility as a measure of extrinsic value.
Token economics is a more generic form of economic model that lets us define not just utility but also intrinsic value. To make sense of this we need to first look at what we mean by utility and intrinsic value.
Things can have value both in and for themselves and as means to other ends. For example, a tree has some kind of value in and for its role within an ecosystem. But it also has value in use as firewood for heating.
The first form of value we can call intrinsic value and the second extrinsic value or utility. It is important to make this distinction because the two have very different properties. For example, most of us recognize that having many friends and connections has a certain value. But we also recognize that this is different from financial capital. Buying friends is not the same thing as having friends. Why is this so?
Because money is a measurement of utility while friendship and social bonds are seen to have some form of intrinsic value.
Though our traditional monetary system does not capture this form of social capital in some way token systems can. For example, likes on social media can be a form of tokens, with those tokens representing your social capital.
This subtle difference between intrinsic and extrinsic value and how we may harness and capture them through tokens is very complex and something we are just beginning to explore.
INTRINSIC AND EXTRINSIC VALUE
Our traditional financial system and the basis of neoliberal free market economics is the construct of value as utility.
Utility is the value that something gives to some person. Utility implies that it has a general and immediate usefulness that people would be prepared to pay for.
Utility is a measure of extrinsic value.
Utility is instrumental, like a tool or an instrument, we just use it for what it can achieve, we don’t care about the system itself.
Utility is always relative to what someone is prepared to pay for it.
Due to this we can measure the value of something by looking at its supply and demand curve to derive a single price, that is defined as the measure of its value.
In contrast to utility is intrinsic value. Intrinsic value is the value that something contributes to the maintenance and functionality of a whole system.
With intrinsic value, we have a unit that values the functionality of the whole network.
For example, the social capital contained in the bonds of a society that enables it to function as a community is a form of intrinsic value.
A mangrove swamp that preserves a local ecosystem and prevents coastal erosion is a form of intrinsic value. When we chop the mangrove down that may deliver something we can exchange on a market and utility, but it has lost its intrinsic value in maintaining the functional integrity of that ecosystem.
Utility is a measure of some derivative value, while intrinsic value is inherent to the network or system that delivers the value. For example we are able to quantify, buy and sell wood but not the functionality of an ecosystem.
We are able to buy care for elderly people but we are not able to buy with money a functioning community that might provide this service organically.
Intrinsic value is like a fixed asset, it is non-liquid. You can cash in the value of an ecosystem or of a community or culture, as we have done in many ways, but you lose a massive amount of the value when you do that. For example, research has shown that a mangrove swamp is worth orders of magnitude more when it is left intact than when it is cashed in.
As a metaphor, we can think of utility as the lowest denominator, being divisible into many things and easily exchanged.
Whereas intrinsic value is the highest denominator being non-divisible and non-exchangeable. Because it is intrinsic, it is inherent to the system and can’t be easily ported to other contexts.
Traditional currencies and the free market system only let us quantify and exchange utility, they do not account for the value that may be inherent to a system that is not of immediate utility to any actor. But token systems enable us to expand economic activity beyond the realm of utility.
Token economies can be understood as a natural evolution to our economic system that responds to the broader set of values that people come to hold in post-industrial economies.
The industrial age was all about the provisioning of basic tangible products, which the market system and utility captured effectively.
A post-industrial economy – which all advanced economies are today – goes beyond this basic provisioning of goods as people’s basic needs are met they move up the hierarchy of needs and start to care about and value a broader spectrum of services.
The traditional model of utility tells us about the exchange and consumption of goods. It does not tell us about the quality of the social, cultural or natural environment within which agents exist. Thus actors can end up living in a severely degraded social, cultural and natural environment – which significantly reduces their quality of life. While still, the economy is churning through vast amounts of resources so as to make up for this, and our metric of utility – in this case, GDP – would still tell us that the system is in an optimal state.
The economy is supported by a vast heritage of natural capital – such as clean water, sunlight, oxygen etc – which stays providing the conditions for the inflow of natural Resources.
Whereas in the previous industrial age these may have seen infinite, today it is becoming more apparent that they are finite and we are increasingly looking for means to quantify and integrate them into market decisions.
Likewise, an economy is embedded within, and dependent upon, a massive nexus of social and cultural institutions that are required for it to function effectively. This value that is in social bonds that enables trust and frictionless exchange is called social capital and the economy benefits all day, every day, from huge complex networks of social capital that go unaccounted for. But again we are starting to take note of the value of social and cultural capital as important to the success of enterprises and economies.
Increasingly, what people in advanced economies want from their economies is not just GDP but quality of life, which is a much more complex thing involving many different forms of value. This is why a post-industrial economy is a services economy and the best model for a services economy is a token model. Because token networks can potentially capture and incorporate all the different forms of social, cultural, natural and financial capital needed to provide quality of life.
By excluding intrinsic value we have created the notorious divide within the industrial economy between the market and the public sector.
Markets were previously limited to utility exchanges and dependent upon public institutions to regulate the supporting social and natural capital. However, this is what changes with token economies as we can now begin to quantify, account for and exchange social and natural capital.
Going forward we will be increasingly able to express social values through tokens via their programmability. Because tokens are digital they may be programmed with certain rules and when you have moved assets on to the blockchain, those programmable rules can be used to define what kinds of activities the token network supports or does not support.
For example, if our society decided tomorrow that we no longer thought the eating of meat was a good thing and wanted to move away from it, we could do that by simply no longer purchasing meat products and the entire industry would disappear quickly.
In a digital token economy, we can put our money where our mouth is, as a proof of what we value. We could create a veggie token, that could be programmed so that it could not be used to purchase meat products. Or as another example, we may have a weapons-free token, which is programmed so that it can not be used to purchase weapons. If our societies only had tokens of this kind then weapons could not be purchased and they would disappear.
We could then see how much our society value peace by looking at how closely that token traded relative to another token that was the same but could be used to purchase weapons.
If there was a big difference and the token traded at a very low price then our society obviously doesn’t want the token and is not willing to lock itself into a weapons-free world.
We can see how this integrates social values with economic value in new ways and helps us escape from a world where people and politicians say one thing and do another. In many ways, it reflects the underlying blockchain proof of work or proof of stake system.
The way that we prove that we value something is by locking ourselves into it. The way that we express our social values through an economic token is by locking ourselves into networks that express those values.
This multi-value token system enables us to recognize and mobilize existing networks in new ways. Tokens help us to expand the economic system to incorporate more value systems and thus harness people’s motivation along more dimensions, rather than simply for utility-based profit.
Tokens, because they are more generic enable us to quantify almost any form of value, both extrinsic and intrinsic.
When you hold a currency to an asset you are making an investment in that network, by are saying that it has value to you. If no one wanted to hold Dollars then the Dollar would have no value. By creating all these little economies with their own distinct currencies we are able to say exactly what it is we value and invest our resources in that ecosystem.
By holding the Liverpool pound or the Bristol pound we are saying that we value that ecosystem and will invest our resources in it. When we cash our Liverpool pound in for a British pound we are saying that we don’t really value it; we are not prepared to restrict ourselves to making purchases only in that network and support the community value that it creates.
This is why it is important to not think of tokens as being like traditional currencies because they represent the possibility for a new kind of information services economy that is fundamentally different from the one we know and is a necessary evolution in our economic structures. Just a significant as the evolution from a pre-modern feudal system to a modern industrial economy.
Likewise, it illustrates the issues we are having surrounding regulation. A token economy is a different form of economy to the industrial economy. It will not fit inside the box of the industrial model.
Because token economies expand the nature of markets to include a broader spectrum of values they can be self-regulating, which stands in contrast to our existing industrial age logic of the utility based market, which always requires external regulation and support because of their incompleteness and narrow set of values that they incorporate.
The token economy offers the possibility of creating self-sustaining economies by incorporating all relevant value systems within multi-value tokens and multi-value markets.
While in the industrial economy all forms of value could be reduced to a single metric of utility. A services economy is inherently a multi-value economy.
While extrinsic value may be reduced to a single metric, intrinsic value is many inherent forms of value each requiring their own distinct token that is irreducible.
To really understand the significance of token economies is to appreciate that society and economies evolve and change over time and part of what is happening in the world today is an evolution in what people value and that is a very profound thing that in turn really requires a new economic model to capture and develop.
Michel Bauwens of the P2P Foundation describes this well when he says “The three revolutions in human productivity: so the first invention is coercive labor that gave us civilisation, slavery, serfdom. That’s how we created castles and temples. In other words the motivation there is external negative motivation: I conquered you, I could kill you, but out of the goodness of my heart I let you live and you can work for me for the rest of your life. This is the social contract of slavery. I think capitalism introduces something new which is, well it’s not just about that, but also about self-interest. In other words positive extrinsic motivation: I’m doing something because I’m going to get something for it, which really give a boost to human science and technology, etc. I think we’re going through a third revolution now, which is about actually moving from extrinsic to intrinsic. So we are building systems — open contributory systems — like Wikipedia and others where people are actually there for variety of motivations but they are mostly intrinsic motivation: I want to create a global internet encyclopedia, I want to create this, I want to learn from it, there are various motivations.”
Token economies is a new way for us to try and represent intrinsic motives. It enables us to create economies that better reflect both peoples’ intrinsic and extrinsic motives, but that relationship between intrinsic and extrinsic motives is extremely complex and subtle. Figuring out exactly how that works is a long learning process ahead.
Jared Molko addresses the concern around AI and its impending impact and disruption of jobs.
He notes that anything that is repeatable can be automated, to illustrate the context of how AI will change employment.
He said that the longer-term impact is unknown, but that in the near-term, employment will likely be man working alongside machines for increased productivity.
Soft skills like empathy, communication and active listening will become even more important as people re-asses value.
Molko emphasizes that we will need to be perpetual learners in this new world.
We will need to develop resilience and responsiveness to manage the changes.
Having a specialist mindset has worked well when times are certain. But we now live in times of uncertainty and change.
What skills and knowledge is valuable for the 21st century?
We should be learning general, human skills, which are transferable to any type of job, particularly the 4 C’s:
We need to be generalists and specialists. But we’ve focused on specialization in the industrial age.
What is needed in this new age will be resilience, flexibility and the ability to transfer skills, perhaps many times.
In brief, to adapt to an AI world, we need to become more adaptable.
Jared Molko is an ex-Googler who has worked across Africa, Europe and the Middle East, where he had a variety of roles. During his seven-year tenure, he completed a Masters Degree in Analytical Psychology. He’s now back in South Africa and focusing his attention on the intersection between psychology and technology, with the aim of improving mass job placement and skill development for entry-level workers. This talk was given at a TEDx event using the TED conference format but independently organized by a local community.
A token is a generic quantified unit of value that is registered on a blockchain network.
Today tokens are understood to come in two kinds: utility tokens, and securities tokens.
Security tokens represent fixed assets of some kind, it may be a piece of property such as a house or a share in a company.
A utility token is a more liquid medium of exchange that gives one access to the value created by a blockchain network. Utility tokens really represent access to a service delivered by a blockchain based ecosystem.
To understand token economies it is best to think in terms of services and not products. Utility tokens represent the service delivered by a network. The utility tokens are quantified units of services that can be accessed within a given network.
Tokens are generic units of value. This means that they can represent any kind of value. Wherever there is a network delivering a service, a token can be created to define that value.
We can create a token for any different type of network and service.
For example, a community watch scheme where people look out for each other’s houses to make sure there are no trespassers or burglars. This is a community that is delivering a valued service of securing peoples houses.
We can then define an economy around that community, by creating a token that quantifies the service delivered and a blockchain system that keeps track of who is delivering the service and who is using it.
This utility token is then used as a medium for the exchange of that service. Those who consume the service have to give tokens to those the provide it. In this example, we can see how token economics works to formalize what was previously informal and merges economics and social communities in new ways.
The service can be of many kinds. Health care services, for which we might have a health coin; it could be cleaning services, a clean coin; a transport service.
For example, the DAV Token is a form of utility token. The DAV network is a blockchain platform currently under development that connects transport and logistics service providers with those who need those services – in particular, it focuses on connecting autonomous vehicles.
Members of the ecosystem can earn DAV Tokens by providing transportation services, by say, letting your self-driving car give rides to passengers when you’re not using it, or having your drone help with deliveries. While users of the service pay tokens to be transported anywhere or to send and receive packages through the network.
A utility token, such as that of the DAV Token, should then reflect the quality and quantity of the service that the network can deliver. The better the quality the more people will want it, and the greater the quantity of service delivered, the more tokens will be needed.
Some people classify digital currencies as a third type of token, but they can just as easily be understood as a utility token.
For example, we might think of Bitcoin. Ultimately, Bitcoin’s value comes from its capacity to be exchanged for some service or exchange for some other currency that can be used within a national economy, such as the Euro.
Currencies like the Dollar or RMB have value because we believe they have value. But ultimately they rest upon the fact that they are supported by the massive real economies of the US or China. Really they are utility tokens that give you access to the services delivered by those economies.
If the Japanese real economy disappeared tomorrow the currency would crash because people would stop being able to buy things with it.
Currencies are just mediums of exchange and agreements about what we value but they are supported by real economies and governments that make sure those currencies can be used to access the goods and services within their economy.
Bitcoin may not be directly linked to any one national economy, but at the end of the day, it is linked to the global economy in one’s capacity to exchange it for other fiat currencies that are linked to national economies.
Thus we can see how currencies are a form of utility token that provides access to the services created by a given economy. Whereas fiat currencies provide access to a national economy, tokens provide access to a blockchain based network economy.
Because tokens have a price, they can be issued and sold at the inception of a new network to fund its development. Similar to the way startups have used crowdfunding platforms like Kickstarter to fund product development. The money is typically received in digital currency form and goes to the founding organization that is developing the network and issuing the tokens.
In the same way that a company increasing sales is an alternative to raising money, token launches can be an alternative to traditional equity-based financing and as we will discuss in a future module, can be an effective way to fund previously unfundable shared infrastructure, like open source projects.
Utility tokens, also called app coins or user tokens, represent future access to an organization’s product or service. The defining characteristic of utility tokens is that they are not designed as investments. If properly structured, this feature exempts utility tokens from legal regulation covering traditional forms of securities.
By creating utility tokens, a startup can sell “digital coupons” for the service it is developing, much as retailers accept pre-orders for a good that may only be available weeks later.
Filecoin, for instance, raised over two hundred million by selling tokens that will provide users with access to its decentralized cloud storage platform. Thus we can see that the traditional divides that defined the industrial age financial system become blurred and redefined within the new model of token economics.
The question is though, why do we need hundreds or thousands of different types of tokens? Why can’t we just pay for everything in Dollars like we used to or even in bitcoins, wouldn’t that be simpler?
Answering that question goes to the heart of the distinction between token economics and traditional industrial age economic systems and we will talk about this in the coming module.