Token Economics Book
This book is an introduction to the new area of token economics, otherwise called crypto-economics, which is the study and design of economic systems based on blockchain technology.
Economic forces are everywhere they shape and structure our everyday lives in how we organize people, resources, and technology to create and exchange value within society. During the modern era those forces came to be channeled and structured within a particular set of centralized bureaucratic institutions based around the nation-state and the enterprise, but today the proliferation of information networks is once again unleashing those economic forces. Ledgers as the records of all value within economy are so pervasive — and the potential applications of blockchain technology so all-encompassing — that some of the most fundamental rules governing our society are now once again open for redefinition.
As advanced economies move out of industrial production and into a new form of global services and information economy so to the economic model of the industrial age is becoming eroded. The once well establish structures to modern economies are becoming redefined as resources start to flow through our newly formed information networks. This emerging global information and services economy will be coordinated through the internet running on an updated set of protocols that provides the secure distributed infrastructure for this emerging global token economy.
This transition builds upon major trends that began in the late 20th century which are today converging in powerful new ways. Privatization and globalization, financialization and the rise of online platforms are all converging as blockchain networks merge economics and information technology to take us into a new economic paradigm. Privatization opened up more spheres of activity to markets, globalization expanded those market around the world, financialization connected up our real economy into an integrated information-based financial system, the platform economy created new forms of user-generated networks. The blockchain brings these previously latent disparate trends together in synergistic powerful new ways and a new economic system is being built on top of these previously disconnected building blocks; one that is truly global, that reflects the underlying logic of services; an economic model that is for the first time in harmony with its underlying technology of information.
These emerging token networks now offer the potential for unleashing a massive wave of creativity and innovation as the vast flows of financial capital and supply chain information start flowing along these newly built channels. Trillions of dollars of securities are migrating on to blockchain networks, equities, bonds, venture capital not to mention the world’s currencies. With trillions of dollar set to migrate to this global cloud computing infrastructure of the blockchain in the coming decades the stakes are high; as financial and economic sovereignty appear to be slipping out of the fingers of nation states the tensions are mounting. Are we moving into a lawless chaos or are we moving to a new level in the ever-evolving history of the economic organization? That will be decided by our capacity to understand this new economic paradigm coupled with our capacity to actually design and develop these token networks.
Blockchain is certainly a hugely disruptive force but disruption without redesign is a dangerous activity, particularly when applied to the most fundamental structures organizing our societies. There is a very significant need to rebuild economic structures, to realize the new possibilities now presented; really rethinking how we organize economic production and exchange is one of the major challenges and opportunities that we are now presented with.
Token economics is an opportunity to revisit the foundations of economic organization and from that to reconstruct a new form of economy, that is very different from the industrial model that we know so well. It is an exercise that is of critical importance to the development of a sustainable model to economic development in the age of information, globalization and billions of people wishing to join a formal global economic system that is already showing major signs of stress.
This is no longer about politics, policies or protesting, the technology is reaching a maturity, we now really stand at a point where we can literally design economic systems from the ground up and the success or failure of those systems does not rest with the actors in the network but squarely with the design of the system. Possibly for the first time it is the case that if we don’t like the economic system that prevails we do now have the option to design a better system, directly through information networks.
What is so powerful about this revolution is that it is not really driven by idealism or politics but rather economic incentives. The global economy will switch to being based upon distributed blockchain networks with each actor seeing it as in their economic interest to make that move. What is more, this revolution does not require large-scale political coordination, indeed it bypasses it, instead employing a highly modular and granular transition. Specific parts of existing economic institutions can be upgraded in an asynchronous fashion, indeed in many cases, they may be backwards compatible, interoperable with legacy processes and structures.
We can only begin to scratch the surface when it comes to tracing through the implications and ramifications of such a profoundly disruptive transformation; enterprises will be automated, whole industries will be upended by powerful new blockchain ecosystems, and national governments will face mounting pressures from a global information services architecture. This new economic paradigm holds out the potential to build new forms of economic organization, networks that go beyond pure economic utility and GDP to incorporate all relevant parameters and value sources; to deliver what people value. An economy that can be more open and thus inclusive, harnessing the efforts of the many instead of the few. To secure property rights, reduce trading costs and integrate people into the global economy in an effective way.
This is a book on both the study, analysis, and design of token economies. The first section deals with tokenization, asking what exactly is a token and how do they work. We firstly lay down some of the basics of distributed ledger technology and triple entry accounting before going on to talk about the process of tokenization; the conversion of any asset into a digital token. Here we will look a the two primary categories of tokens, the utility token and security token and their workings.
The second section looks at decentralized organizations and the design of incentive structures. We look at how token networks can be used to remove the centralized management structure to organizations and work to better align the incentive structures of producers and end users. We touch upon game theory and talk about mechanism design; the design of incentive structures to align the interests of the individuals with the whole organization within user-generated networks.
The third section deals with the formation of large-scale blockchain networks that span across organizations and industries to create powerful new ecosystems. Our focus here is on blockchain as a new infrastructure for a global services economy, we talk about the workings of service networks and how they can be automated through smart contracts. Finally, in this section, we look at service-oriented architecture as an important design pattern to these emerging service networks.
The last section of the book is dedicated to the growth and development of token economies. Recently we have seen the rise of initial token offerings as a new model for bootstrapping these economies, we look at the dynamics of how token networks can fund their own development and then use prediction markets and advanced analytics to guide their future development.
This book is not an introduction to blockchain, it only deals with what economics will look like once built on that technology, thus you will need to be familiar with the basics of blockchain as a technology before taking this book, if you are not already then we recommend taking our blockchain introductory book first, which provides an accessible and broad overview to the domain. Likewise, game theory is an important component of crypto economics which we will only have time to touch upon in this book, we recommend that you are either familiar with the basics of game theory or take our introduction to game theory book.
Publish Date: 3-26-2017
Length: 81 pages
Category: Design & Technology