Token Economics 5: Token Service Networks

The blockchain is a new modality for organizing society and economy, as such it is often referred to as an institutional technology.

Professor Jason Potts talks about this as such, “this isn’t a story about how the economy grows because of this new technology, it’s a story about how we can now create new economies in ways that we could never create new economies. It used to be that you have to have a government and a nation-state and a money system and laws and legislation and all of these things, and you know there’s 193 economies in the world or however many nations there are. We’re about to enter a world where the number of economies in the world will change hourly, it may well be measured in the billions not the small hundreds and these things will be largely built on technologies like the blockchain. I think once you see that it’s a governance technology, an institutional technological revolution, that’s the interesting thing that I think has largely been missed.”

What is different about this institutional technology is that it is distributed by design, that means that unlike centralized systems that work to improve closed organizations, it instead improves opens systems of organization. This is a paradigm shift in that it runs very much contrary to the centralizing forces prevalent in the industrial age; it is something that we are not used to and that is why it is difficult for us to understand.

Blockchain networks are inherently designed for coordinating open systems, their innate distributed design is in fact inherently resistant to closure. Though private blockchains may deliver short-term efficiency gains for existing centralized organizations, the fact is that private blockchains remove most of the valuable benefits of using a distributed system and as soon as someone figures out how to develop a public blockchain for the same purpose it will harness more resources to grow faster and eventually replace it.

As Toni Lane Casserly, Co-Founder of Cointelegraph states it, “if you’re going to create a blockchain project, if you’re not creating a public utility you are fundamentally not creating a blockchain and you’re fundamentally not creating a new form, a new economic asset in a new series of token classes, because the entire point of blockchain technology is that we are creating new forms of economy as an open-source public utility.”

Blockchains are distributed systems with extreme network effects. They are designed to push outwards, the more people and organizations they bring into common systems of coordination the stronger they are. They are designed to network the intra-organizational space, greatly facilitating coordination within large ecosystems, across whole industries and economies. This is how they really create value and this is how they are going to disrupt existing systems.

Existing organizations won’t be disrupted by one of their competitors, they will be disrupted by protocols that network across whole industries to build ecosystems that are greater than the sum of any of their parts – just as Amazon, Uber, and YouTube did in the past, but this time these networks will be larger, distributed and increasingly automated.

Indeed the long-term vision of these token networks is as the infrastructure for a new form of global services economy. We think we know what globalization is about, we think we know what the services economy is, but the blockchain as an IT infrastructure is set to realize the convergence of these in new, unexpected and powerful ways.

In the past decades, we have wrapped layers of communication networks around our planet.

We first started communicating and exchanging media along this new infrastructure as social media went global, forming networks composed of hundreds of millions of people. We then started to build service applications on top of this shared IT infrastructure; services like car sharing, accommodation, and e-commerce, but that services layer is still quite fractured and very much dependent upon traditional centralized structures.

Blockchain provides this global communication network with the protocols to exchange units of value securely and with limited friction.

As the protocols mature and the blockchain becomes this globally distributed cloud computer that it promises to be, it will become extremely easy to build secure automated services on top of it that amass micropayments in a frictionless fashion. Those services will be borderless as they are running on a global distributed computer. Likewise, they will not be limited to just the traditional offerings of the private sector but will also now include public services.

For the first time in centuries, nation states will find that they are having to compete with global token markets when it comes to the provisioning of public services. It will be very difficult for individual organizations to compete with these global public utility networks that support whole ecosystems of users, particularly those that manage to align incentives in more productive ways and are able to harness the productive capacities of the many instead of the few along more dimensions.

Similar to the rise of Google and Facebook, these token networks will be very formidable actors in the global economy within less than just a decade.