TOKEN SERVICE NETWORKS
In just the past few decades our world has been radically changed by the development of almost invisible layers of information networks that now wrap around the planet connecting ever more people into common exchanges.
Telecommunications has connected us. Online platforms have provided the coordination mechanisms for organizing more and more spheres of our lives.
But now a new dimension is being added to this as blockchains enable us to securely record and exchange value automatically and with low friction.
It is when we put all these components together that we get the infrastructure for truly rethinking and redesigning economic and enterprise structures based upon open dynamic networks.
Information technology, telecommunication networks, online platforms and blockchains are enabling us to create ever larger systems of organization for economic production and exchange. Enabling the switch from closed organizations competing to open networks with these networks being organized via market mechanisms.
The blockchain, through smart contracts, lowers the information costs and transaction costs associated with many interorganizational contractual arrangements. And so expands the scale and scope of economic activity that can be undertaken.
It allows markets to operate where before only large firms could operate. And it allows businesses and markets to operate where before only government could operate.
Previously institutional structures and technologies worked to strengthened coordination and cooperation within organizations leading to the formation of ever larger centralized operations.
Large-scale differentiation of labor was a key innovation in the enterprise that greatly expanded during the industrial revolution. With mechanized automation individuals could focus on repeatedly performing the same operation rapidly with those diverse activities being coordinated through production processes. Meaning that it was now not any one individual that produced things, but instead the whole organization.
We saw the development of the very large enterprises of the industrial age, such as the corporations that were hired to build the American railroads, with ranks of salary middle managers expanding as fast as the tracks were being laid down.
This industrial model for the generation of value is largely a product of two factors. Firstly, the centralization of production and economies of scale that is inherent to an industrial economy.
And secondly, it is also a product of the relatively high cost of collaboration and communication.
In order to achieve the mass scale that the industrial environment selectively favored, standardization and predictability were a key component. Within this model, there is a strong divide between producers of value and consumers.
On the one side, we have formal well-bounded professional organizations. By aiming to maximize their efficiency, they include only the people who are most productive.
On the other side, we have the consumers who consume the products and services made by the professional organizations. There is a strong divide between producers and consumers, professionals and amateurs, work and play.
Today information technology is changing the very foundation of this dynamic. Blockchains radically reduce the cost of interaction and collaboration between organizations, compared to within them. Thus, the natural size of an organization can be far smaller.
So, once large enterprises have tokenized, then it will also be natural for them to split into smaller and smaller entities, and to reform as needed.
The distinction between the inside of organizations and their external market economy will become increasingly eroded as networked forms of coordination span across traditional boundaries linking inside and outside in a greatly more fluid fashion.
This will have a very profound effect on the overall structure of our economies, as they go from many closed organizations competing within markets to the emergence of large ecosystems of collaboration along whole supply chains and within the provisioning of complex service systems.
Indeed the last few decades with the emergence of the internet has already seen the formation of large business ecosystems.
Eamonn Kelly of Deloitte consulting describes this transformation well when he notes “ecosystems today are doing nothing less than redefining the shape and structure of the economy. They’re increasingly determining business success and business failure. They’re enabling massive and rapid innovation around the world and essentially they’re playing a very, very critical role in shaping the future of our society… Essentially boundaries are blurring everywhere, the boundaries between what large firms and small firms can do. The boundaries between industries and sectors. The boundaries between organizations. The boundaries between technology domains. The boundaries between producers and consumers. Where consumers used to be passive recipients now they’re active participants in the economy… We’re now living in a world where there are more nodes across more networks with more specialized capabilities and above all this extraordinary ability to connect them, to collaborate, to co-create across these systems. That’s the fundamental shift that’s restructuring economies and I think is actually going to fundamentally change our society.”
Recently an important idea has been gaining acceptance within the business community, the idea that businesses of many shapes and sizes can thrive and serve customers better as participants in ecosystems. More diverse and collaborative, more adaptive and agile than traditional industry structures and supply chains.
The term “ecosystem” is a useful metaphor that points to a deep interdependence across players as they Co-evolve and together create and share resources.
Many of these ecosystems are built on top of powerful platforms that facilitate connectivity and invite the active participation of a large number of other players.
Businesses that understand ecosystems and how they work are discovering exhilarating new opportunities to co-create new value streams with multiple players often including customers. They achieve this by harnessing the new coordinating power of advanced technologies to create scale and serve untapped markets, faster than ever before, work with others to meet important human needs and by delivering complex services in ways that would be beyond the capacities of any single organization. They attract and activate passionate communities of talented individuals and organizations and accelerate learning and innovation. To understand the potential of this idea we need just think of one relatively trivial example.
Imagine all of the drug companies having the means and incentives to collaborate on producing a single best drug instead of 90% of their resources being wasted competing while only one gets to patent a new drug.
With the shift towards token economics, our economies will evolve from the traditional model of the industrial age, based around centralized closed organizations competing, to more user-generated systems that both collaborate and compete within large open networks.
The critical change that will come about will be the move towards a service-oriented architecture to whole macro economies and indeed the global economy as a whole.
As the strength of these open trusted networks grows and connectivity proliferates the centralized organization will become unbundled along many dimensions and the product based, push model of competition of the past will evolve into a dynamic, plug and play networked model that works to aggregate modular on-demand services around the needs of end users. Over time those service-oriented blockchain based networks will become increasingly automated through the development of smart contracts.
In a recent article from the RMIT Blockchain Innovation Hub, the authors write “for many industries, the blockchain will radically redefine the boundaries of the firm, allowing individuals to trade their talents and skills in an environment devoid of big business. The eclipse of the large public firm has been predicted before, of course, but this time we believe those predictions will eventuate for many, if not most, industries.”
The organizational paradigm of the token economy will be large service networks. Digital networking technologies enable networks to overcome their historical limits. They can, at the same time, be flexible and adaptive thanks to their capacity to decentralize performance along a network of autonomous components, while still being able to coordinate all this decentralized activity towards a shared purpose.
A huge structural change that is coming about as we move into the information services economy – base on these information networks – is the shift from static structures to dynamic flows of value as the organizational model.
Unlike the industrial economy that was based on fixed structure such as the formal hierarchy or products produced, a service and token economy is one that is fundamentally based on value delivered.
The organization is not based on fixed structures, roles or boundaries, but instead is based more upon value produced and exchange, this value can be defined in terms of services. From this perspective, the organization is a network of value exchange and the members of the organization are those that provide value, the service providers.
Existing centralized companies when they design their products they have to design around the constraints of the existing fiat currency system.
Although not often noticed this, in fact, has a lot of limitations as transfer costs are high. They are slow that’s why we pay employees at the end of the month. It is for this reason that we don’t pay every person, every second. That’s a constraint of the existing financial system and we build our products around those constraints. But this is going to change with the micro-transaction capacities of the blockchain.
When economic activity is moved to a blockchain, tokenized and servitized we can then begin to actually track the real flow of value exchanges and match those with token exchanges. Instead of buying a song you stream it and pay in tokens for what you stream. Instead of paying a flat rate road tax you pay as you drive, or instead of paying a fixed insurance rate you pay your insurance as you drive, etc.
Digital communication networks are the backbone of the network society, as the electrical power networks were the infrastructure on which the industrial society was built.
Furthermore, because the network society is based on networks, and communication networks transcend boundaries, the network economy is global, it is based on global networks.
By reducing the border around centralized organizations blockchain networks morph into ever-larger systems as they provide the underlying infrastructure for the evolution of a new level of economic organization on a global level.
These token economies can be at once local, in that they enable anyone to set up their own micro exchanges of value, but also inherently global. These networks – because they’re living in this global computer network rather than inside of a specific cluster of servers somewhere – have a certain magical property, which is that they’re global by default, they’re everywhere from the day that you release them and the services are universally available. This is quite interesting because it changes delivery at the edges of the network. Currently, we are not very good at delivering services beyond the two billion richest people on earth.
The fact that these networks are inherently global, the fact that all the logic is kind of buried in the payments architecture, the fact that there’s no real recognition or international borders in these systems, because they all operate embedded in the internet, they don’t see the world as a set of countries they just see as an enormous global network, all of those things point to the possibility, currently quite far off, that we are beginning to see global service architectures that run on these systems. Not just the payments which we already have and are being used very successfully in a lot of poorer countries but also the possibility that the services which are built on top of those payments will turn out also to be global by default, which could have a huge democratizing effect on the global economy.