There is a lot of talk around about “Tokens” but very little good analysis, or explanation from the people pumping this idea, laying out exactly what they are. Below is a perfect example of the sort of language being used when Token enthusiasts try and sell this illogical guff, so it is a perfect skeleton to hang an analysis on.
Once again, it doesn't matter who wrote this. All of the arguments for The “Token Frenzy” are identical across every actor trying to pump this patently puerile ponzi.
Here we go….
Tokens are the new “new” thing in the blockchain space. Just when everyone thought that blockchains were hot enough, everyone realized that tokens *are* the business model for Web 3.0.
It doesn't start off very well does it?. Whenever you encounter people making things up, they use the word “blockchain”. We now know that the “Blockchain not Bitcoin” narrative has collapsed, and outfits like R3CEV have totally abandoned the crazy idea of “Block Chains without Bitcoin”.
No Block chain because we don’t need one” this is what we have been saying all along:
Grundsaudaag. Jour de la Marmotte. Ground Hog Day_Using a hand drill to scramble an egg. It makes no sense at all._hackernoon.com
Now these same people are saying “tokens ARE the business model for web 3.0”. This is completely ridiculous. There is no such thing as a “token”. What this person is talking about is BITCOIN. But he can’t say “Bitcoin”, because his narrative is still wedded to “Blockchain not Bitcoin”. By replacing the word Bitcoin with “token” he can put Bitcoin back on to the table, without backtracking on his previous narrative; the one he used to raise millions of dollars from computer illiterates.
A decentralized system spreads control among many parties. It may or may not be tokenized. The key benefit of tokens is to align incentives among participants of the ecosystem. It’s a positive-sum game among the tribe of token holders. (And let’s not forget the windfall of a token launch, if you choose that path.)
This is noise. Whenever you hear the word “tokenized” you can replace it with “monetized”. They don’t use the word money or Bitcoin, because they know that those words come with consequences. “Bitcoin” still has some negative connotations in the minds of people who can’t understand what’s happening, and the word “money” triggers thinking about regulation, which will kill any chance of raising astronomical sums of money in a matter of hours.
If you remove the words money and Bitcoin, then KYC/AML that they have all promoted and accepted as necessary for Bitcoin is taken out of the equation. They have all conceded in private that calling Bitcoin money was a big mistake, and they’re not going to make that mistake again. Sadly, someone is going to point out that the “tokens” they are promoting are indistinguishable from Bitcoin, and unfortunately for them, the amounts of money being poured into these scams is so great, a massive collapse and slew of lawsuits is inevitable.
The other buzzword used here is “decentralized”. All of these words have precise meanings in the software context, and you can’t just throw them around like a writer at Vogue describing the new silhouette. Tokens, Bitcoin and fiat all have precise characteristics and rules that need to be understood and adhered to to make a business case. If you want to understand how tokens were used in the 1700s look no further than Selgin’s “Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775–1821”
Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775…_A fascinating story of the important yet virtually unknown episode in the history of money, this history chronicles the…_a.co
As was the case in 1750, tokens to replace money were successful, until the Royal Mint filled the market need (small change) that caused button makers to start minting private coinage. The effects in the token episode descibed in that book are going to be seen in the Internet Token Frenzy. For example, pubs taking tokens in one town wouldn't accept tokens from another town, because redeeming them meant going to the maker of those buttons who was far away. Everyone needs money, not tokens, and the rules governing good money, how it spreads and why it is acceptable in the market are absolutely immutable.
This fictional “tribe of token holders” are nothing more than dupes who don’t understand money and software, buying into a closed ecosystem at best, where there is a working software product running at scale. We see that most of these token sales are on top of products that do not exist at all, or that are in Alpha stage…if you're lucky.
So far, only startups have launched tokens. But what about enterprises? Could we tokenize Facebook? What about Amazon or IBM? How? What would be the benefit?
Enterprises, the ones that don't want to blow up like the image above, will settle on the money with the biggest network effects. They want their users to be able to use their money (what these scammers call “Tokens”) across many different sites. This is what makes a money, money.
Later on, the author talks about “democratizing” FaceBook by replacing its shares with tokens. FaceBook does not need to do this. It is a very successful, powerful and wealthy company. They don't need to “empower” their users and give them control over the company through direct democracy, voting through tokens or any other nonsense. FaceBook is a sheep pen.
Similarly, Amazon has done very well by following the vision of its owner. You will remember all the times journalists said Amazon was dead, and that they were spreading themselves thin by selling things other than books. Token pumpers are no better than tech journalists who don’t understand how anything actually works, from software to the true nature of money. IBM has no use for tokenizing for similar reasons.
In short: tokens will eat the enterprise from within, because investors will make money and the community will gain. We’ll have crypto tribes that started as companies. Repeat across many enterprises and it means goodbye to the stock market. Finally, this turns out to be a new response to the Innovator’s Dilemma — how can enterprises compete given their tendency to protect their profits (aka the status quo)?
Once again, these words have no meaning. “Eating the enterprise from within” is meaningless. If you speak the idioglossia of these types you may be able to glean some sense out of it, but this piece was presumably written for a larger audience outside their bubble. Similarly, saying “investors will make money and the community will gain” means nothing. Are not the investors the community in this model? Why are they all of a sudden separated? If they are separated, how is this in any way different from issuing common stock?
“Crypto tribes” means nothing. Call them what they are; investors or shareholders….oops, you can’t do that, or the SEC will burn you alive for offering unregulated securities and securities FRAUD. This is partially admitted to when the author claims that token sales will replace the Stock Market. What he is doing subconsciously is wishing hard for an end to the regulation of stocks and bonds…
he is a “Subconscious Libertarian”.
At leas some token pumpers are Subconscious Libertarians. They are calling stocks “tokens” to get away from the SEC. They are not calling tokens Bitcoin to get away from FinCen and KYC/AML. They know perfectly well that they are lying, and re-casting Bitcoin in a shape that they can get past the regulators, that they themselves pushed for years ago to “bring legitimacy” to Bitcoin.
Let’s explore in more detail.
There will not be more detail. That is a safe bet. These people ignore the details so they can build colossal portfolio based on lies.
Approach
Here’s the recipe, for each enterprise:
Tokenize. Shares become tokens.
Decentralize. Spread power among more people; users get tokens for past and future contributions.
Melt into the community. Over time, both value and power spreads further.
When one or a few enterprises do this, and actually make money for their shareholders in doing so, then other enterprises will follow suit. In the end, it’s all crypto tribes.
As I said, these people are trying to get around SEC regulation to offer shares by using Etherium tokens (a fork of Bitcoin) and thinking no one will notice what they are doing. You can’t wave your wand and simply say, “Shares become tokens!” and magically expect no one to know you are issuing shares. This is naked infantilism. Similarly, the use of the word “decentralize” is meaningless here. You don’t spread power by issuing shares, you gain stakeholders who have shareholder’s rights depending on the class of share they are sold. What are these “contributions” he’s talking about? At best its a simple one share one vote, and cannot be anything else.
This offers no utility greater than common shareholding, and given the Statist perspective, is fraught with danger. Scammers, liars, fraudsters are going to and already are flooding into this new scam, raising astonishing amounts of money.
“Melt into the community” is more hand waving nonsense. “Value and power spreads further”; by what means? Value of what exactly? Measured by what metric? And as for power, does he mean like shareholder power? What are these people actually talking about? No one knows; when you ask them, their eyes glaze over, they put on a wry smile to say they know something you don’t and their hands wave a little more vigorously.
“In the end, its all crypto tribes” Yes indeed; its “Turtles all the way down”.
Example: Facebook
Let’s walk through this recipe, using Facebook as a example.
Step 0. Status quo
Facebook is at odds with its users. Facebook’s founders and shareholders have made massive amounts of money. Yet its users didn’t, despite contributing the key personal information and content that is the heart of Facebook. This is a basic tension: Facebook has a bias to openness, versus users’ privacy.
With its billions of users and high engagement, Facebook has become enormously powerful. Yet it’s controlled by a small handful of people. This is dangerous for society. Especially when it’s not structured to handle such a responsibility.
FaceBook is not at odds with its users. It is very successful and profitable, and loved by a billion people. They have no need to issue tokens to their users. If they did, it would be Bitcoin, making them the biggest bank the world has ever seen.
The idea that the users of FaceBook made no money out of it is the rancid stench of Socialism. FaceBook makes an offer to its users and they receive a benefit from accepting that offer. FaceBook’s incentives are totally correct; that’s why they have one billion users. FaceBook doesn’t have “basic tension” that is pure nonsense. It is a free service you can either accept or reject and it is operating correctly. That is why its so big. Only a delusional socialist thinks FaceBook is in any way operating badly. The author saying FaceBook being run by its owners is, “Bad for Society” tells you all you need to know about him; a violent, ignorant Statist who doesn't understand the meaning of words or the mob violence he is obliquely advocating.
The token frenzy just got ten thousand times more toxic.
There have been various proposals to improve the situation. One idea is to get the courts to consider it a monopoly and break it up. This relies on slow-moving government processes.
And there you have it. Talking about “Breaking up” FaceBook is nothing less than violent theft. The word “breaking” tells you all you need to know. Violent, despicable and very evil. Government isnt quick enough when it comes to stealing companies; we need tokens to speed up the process of stealing. This is exactly what this man is saying.
Other ideas come from the blockchain world. Namely: overtake Facebook from the bottom-up, by building something decentralized, and try to get the users to come. We’ve seen many such efforts at decentralized social media. But success is limited so far. The greatest challenge is how to populate the network. It’s chicken-and-egg: people only join if their friends are there. It’s hard to crack two billion highly engaged users.
People don’t need a new FaceBook, and this man doesnt know his history. There were other social networking sites that have died; it is possible to unseat FaceBook; what you need is innovation, and you will not hear it from the likes of this author, who thinks its ethical to burn down companies you don’t like. It is no coincidence that the same people who could not spot Uber or AirBnB also are token fanatics. They have no understanding about the fundamentals of Internet economies and the economics of money.
There’s a variant: build something decentralized and tokenized. This can only help, because early token holders = your first users, and they’re incentivized to bring in their friends. HODLers gonna promote. So, tokenization increases virality. But it’s still no guarantee to overtake a network with two billion engaged users.
This is a narrative. There is no “variant” as he describes. First of all Token sales are centralized. There is a named issuer who wants to fund their project. The Brave Attention Token is an example. You know who is behind Brave and the tokens come from a central place. Compare and contrast with Bitcoin, that is owned by no one, has no central place to get the tokens.
The rest of this garblage (yes, “garblage”) is slang and noise. Saying HODLERS (which is Bitcoin slang for people who buy and hold Bitcoin) and “gonna” doesn't make the case real. Tokenization doesn't “increase virality”; what increases virality (fungibility) is the ability to spend your money anywhere, and not on a single alt-coin chain. This is utter nonsense on steroids.
These ideas assume a start at zero, and attacking from below with something faster, sleeker, more viral. And they might work; but I’ve come to realize there’s another way. Tokenize from within. Here’s how it works.
Step 1. Tokenize.
In this step, Facebook shares (ticker:FB) get converted to tokens.
There are about 3 billion shares in Facebook. So here, Facebook (the company) issues 3 billion Facebook tokens ($FB) on a blockchain.
Then, Facebook converts each of the 3 billion shares to a $FB token (share → $FB) in a contractual arrangement. Or, it simply starts using the blockchain as the registry of who owns what (share = $FB). Delaware is moving towards making the latter possible.
Either way, we end up with a blockchain holding all $FB tokens that have replaced the previous FB shares. It’s tokens as securities.
This is completely absurd. First of all, FaceBook’s owners have no incentive to give their billion stong mob any control over the platform. Imagine the author of this pice multiplied by a billion. One billion screaming, screeching idiots asking for every imaginable thing and many unimaginable things. There is no profit in that. The author is suggesting that FaceBook give the entire company away to its users for a gain of nothing.
He says, FaceBook “simply starts using the blockchain as a registry” really? Which block chain? Not the Bitcoin block chain, surely? Their own block chain then? But we know that “Private Blockchains” are junk, and not needed by any enterprise, let a lone one with a billion users worth of data. Perhaps he means they should use CORDA? No wait, they already have a block chain; its called…
MySQL.
FaceBook could simply add a single INT field to its user table called “shares”, and set it to default 1. Then all FaceBook users could trade their “tokens” by simple MySQL UPDATE statements. But but but!!!!
Step 2. Decentralize.
Up until this point, the governance of the tokens is still in the hands of Facebook (the company). And it’s still one share one token. Step 2 is where the real change occurs: spreading power, and tokens for users too.
The following need to happen simultaneously.
Spread governance. Change governance so that the community has more control; then that $FB is not controlled merely by Facebook the company. The key responsibility is setting the rules for protocol updates (API changes) and token governance (monetary policy). There are many possible governance structures, from (1) fully on-chain and automatic (still dangerous, as we’ve seen with TheDAO), to (2) using a traditional non-profit controlled by a set of 20+ caretakers, to (3) starting as a traditional non-profit then becoming automatic over time (my fav, like in IPDB).
Tokens are not power. But then again, there are people who think that Bitcoin is energy. There are a lot of very strange ideas floating around.
FaceBook doesnt need to issue tokens to raise money. They are already sucessful and very rich. Tokens are scams for people to raise money, nothing more. FaceBook has no incentive to change governance. They do not need a billion voices telling them what they want; they get what they want and need already. Thats why FaceBook is so big. 1,2 and three are nonsense. Leaving the DAO aside, which never worked, a tradition al non-profit controlled by caretakers does not require a token layer. and becoming automatic over time is meaningless hand-waving.
It is simply incredible that this man cites the DAO as a possible model, when everyone knows it not only failed, but managed to totally discredit Etherium and its creator and managers.
Make the blockchain public-facing. Anyone can read to it or write from it; and no single entity is running all the servers. This means that key protocols for Facebook functionality are open, specifically the ones where tokens are given or spent (see next two bullets). Ideally all of Facebook becomes open source. Wouldn’t that be cool? This is more than just a pipe dream, since open source would actually benefit Facebook the company in this new regime. And in blockchain-land, the value ultimately lies in the (fat) protocols, not in the implementations.
This is “Blockchain not Bitcoin” nonsense. All the problems of runnning Bitcoin are in the assumption of many entities running full nodes, whcih is what he is really saying here. And then we have the pure nonsense of “key protocols for FaceBook” being open. What does this mean exactly? Bitcoin and its derivatives all work on the same software (more or less) and so how they work is already open. FaceBook being open source is totally meaningless. Unless you control the MySQL database that holds FaceBooks treasure trove of user data, the software that accesses and displays it being available means nothing. “Wouldn't that be cool?” Are these people serious?
These people are literally talking pipe dreams. FaceBook is not a software company, it is a data company. It would not benefit at all from having its structure open source. They gain nothing, in the same way that Apple open sourcing OSX would gain them nothing. Except trouble. Remember the hackintoshes?
Once again, there is no “blockchain land” this is a fantasy. And there is no value in protocols, as you can see explained in this thread.
Tokens for past value-add. Facebook (the company) issues 3 billion more $FB tokens to the existing users of Facebook. It would reward users proportional to their degree of interaction with Facebook over its history. You get $FB for every post made, for every picture shared, for every poke. Or perhaps more in line with the status quo business model: you have a decentralized service that asks you to use your data for marketing purpose in return for other value.
Retroactive remuneration. This is ridiculous, obviously. The content people put into FaceBook through posts and other media cant be measured by a simple rule, and no, likes and pokes are not a measure, because they cost nothing to make. What is the “other value”? More nonsense dropped in the piece knowing that no one will pull him up and ask, “What on earth are you talking about?”
Tokens for future value-add. Facebook sets up rules such that value-creating actions on Facebook get $FB tokens. For example, each time I post a picture, I get $FB. There is an emerging design practice on how to do this well (e.g. avoid spam), with precedents such as Steemit, Brave’s basic attention token, and userfeeds. Furthermore, people can earn tokens for other value-adds too, such as adding features or improving performance.
“FaceBook sets up rules” is hand-waving. His example of getting tokens to post pictures is totally absurd, and betrays a deep lack of understanding of economics. Perhaps he means it COSTS money to post? If posting on FaceBook cost money, its spam problem would disappear over night. Steemit and Brave are a scam and absurd respectively, and everyone who knows anything about this knows that. During this piece, I am making many assertions. I cant repeat all my thinking here. You need to read my medium posts and twitter feed and get the background for yourself.
When this is done, it will be obvious for crypto exchanges like Kraken or Interledger to add $FB tokens. So in steps 1 and 2, FB value has been moved from the traditional exchanges (stock market) to new crypto exchanges.
As I said in a tweet storm on this subject if every media company and website started a token, there would be literally hundreds of thousands of tokens on Poloniex. This is exactly like every company issuing its own private currency usable only in its stores. Anyone who knows anything about how money works, knows this idea is completely wrong. So wrong it beggars belief that there are people “in crypto” who are able to make a case for it.
What becomes of Facebook the company? One option is to dissolve it. This is broadly ok because employees are incentivized to contribute simply because they own $FB; though I acknowledge there are messy details to sort out. Another option is for Facebook the company to simply become a service provider to the public $FB blockchain; it’s incentivized to improve the service because by doing so it earns more $FB tokens on behalf of its employees. Now note that other individuals and organizations are able to improve the service too.
Here comes the despicable and disgusting violent socialism again. “Dissolve it” by whose order? The owners of FaceBook will never want to dissolve it, because they are making a profit from it, on top of steering the thinking of a billion people. In fact, because its owners are so rich, money means little to them. They are far more interested in the real power; politics. The deatils are not just messy; they are totally absent. This is a key characteristic of the Token Frenzy. People who know their internet history know this pattern:
1. Step one 2. Step two 3. ???? 4. PROFIT!!!
This is the Token Frenzy boiled down.
In my example, I gave 50% of $FB to existing shareholders and 50% to users. It could be another ratio. But “half” is a good rule of thumb for a starting point — each side is within an order of magnitude and avoids nit-picky arguments.
This is the economics of the lunatic squad. Rules of thumb with other people’s money, splitting people’s property into arbitrary sides, and in this case, invalidating their own arguments. If 50% of FaceBook 2.0 “Token Edition” went to its founders, that would still, in the thinking of the socialist, be a massive imbalance in favor of the original owners who could swamp the voting system again and again. Even in their own twisted reality, they can keep a consistent line of drivel.
All of the examples the author gives below are the same model. This man is an anti-Capitalist violent socialist who wants to destroy businesses by handing over control to users and stealing it from the business creators and owners.
Each example is a big company of the sort he dislikes, where he feels there is an “imbalance”. Of course this is not true. Uber is a perfect example where everyone wins and no one is dissatisfied. Except the violent socialist.
More Examples
Let’s look where the biggest payoff will be. One is where enterprises are at odds with their customers or broader communities, and therefore have the most to gain by aligning incentives. Here are some:
Visa. Visa is under the interests of its shareholders and banks. It’s always been at odds with merchants with high fees; this has led to billion-dollar lawsuits. So, Visa could tokenize and include merchants. This is similar for other credit card companies too.
Uber. Let Uber shareholders, drivers and riders unite in tokens, to share in the value creation. And while we’re at it, let’s tokenize taxi commissions too and let the exchanges sort out where value should flow. But, won’t self-driving cars contradict the drivers’ interests? My answer: let the network hard-fork to both options. The section below on Innovator’s Dilemma elaborates;)
Twitter, Medium, and really all existing social media. This is just too obvious. If you feel like you’re missing something, read this. Let’s just tokenize and move on already.
Universal Music Group, Sony Music, Warner Music Group. The big three record labels often find themselves at odds with the musicians they represent, not to mention the rest of the music ecosystem. In tokenizing and decentralizing, we can start to align the interests of everyone.
Spotify, SoundCloud, Netflix, Getty, Steam, and really all media distribution and aggregation/filtering/recommendation platforms, from music and movies, to photos and video games. Spotify: ICO not IPO? SoundCloud: here’s your biz model. Netflix: get your community even more rabid. Getty: kickstart your community. Steam In Tokens = SteamIT (heh).
IBM, Microsoft, Intel, banks, etc. Dear enterprises hugging blockchain already: here’s your endgame. When shall we start?
You get the picture by now. The only thing that will bind these companies together is the new money layer of the Internet, and that is Bitcoin. Each of these companies and the hundreds of thousands of smaller ones and the billions of consumers will form a single global financial network on the reserve currency of the internet: BITCOIN. There will not be hundreds of thousands of tiny currencies or “Tokens” floating against each other, and history shows us this is true, with gold, the fiat dollar and the Euro. What this very odd argument is proposing is that there are more incompatible monies and not less. No one, not even the Keynesians, think this is a correct idea.
Conclusion
What I’ve described might sound really far out. But, we have to try to imagine. And with just a small stretch of that imagination…
You fail.
Who is the “we” who has to “try to imagine”? Socialism and its violent advocates have a new imaginary weapon in their depleted vapoourware arsenal. THE TOKEN!
One of the great advantages of experience is being able to recognise repeating trends. There is nothing new under the sun; this is almost literally true. The means of executing scams may change, but the scam urge remains the same. Anyone with a good knowledge of the early days of the internet should be able to smell the stink around these Tokens and should not only avoid them, but should be sounding a note of caution about them. They should not be waving their hands around, talking about “perspective” and pretending that its going to be different this time.
It will not be different this time.
Participants in any market should not be drinking Kool-Aid, and should be dealing only with the real meaning of words, specific technical details, actual economics and not internal organization hype or company culture idioglossia. They should be very careful to pay attention to the small voices, coming to them by chance routes saying, “you are not seeing this correctly” and who have arguments that are air tight, logically consistent and testable. You already know you’ve missed out on Unicorns. Think. Think twice.
Bitcoin’s survival is proof that what you think about all of this is very probably 100% wrong. The hysterical voices for Blockchain not Bitcoin, KYC/AML and every other nonsense have all been proven wrong. The people who had it right were right all along; it is those people (and there are many of them) who you should be listening to, not your inner circle of back slappers.