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The third episode of the Untangling Web3 Podcast discusses tokens and tokenization. Tokens are closely related to the Web3 concept, and as hosts Alec Burns and Jack Davies pointed out early on, there is a lot of hype around tokens, especially NFTs.
What are tokens?
Before diving into the meat of the episode, Burns and Davies want to give listeners a broad explanation about tokens.
“Tokenization generally refers to taking some type of asset, something that has value and can be any value—physical or digital—presenting it in digital form so that it can be easily tracked, transferred, and used efficiently by whatever system you want. ,” explained Davies.
“It’s a digital representation of a type of asset,” he explains.
Burns added that this episode will focus on blockchain-based tokens in particular and said, “Blockchain-based tokens are simply representations of those assets that use blockchain technology, where the blockchain is both a medium for representing ownership and also a medium for exchanging that ownership. .”
Blockchain is “a versatile tool for the idea of tokenization in general,” Burns said.
History of tokenization
While the hype around tokens and tokenization may seem like a new trend to most, Burns points out that the concept of tokens is nothing new. In fact, these statues date back to 9000 BC in the form of clay idols representing livestock, grain and other items.
“[Tokens are] a more efficient way to represent value exchange,” Burns said.
Davies uses stock exchanges as an example of how tokens have been used over the years. Until the 70s, traders used actual certificates until they moved to digital systems.
“This is where digital tokenization first became a mainstream idea,” said Davies.
Binding the token back to Web3
Considering this is a Web3 podcast, the host wanted to tie the token back to the web3 world.
“The concept of tokens is not new. The point is to represent goods and services and maybe even access and rights in a more efficient way, also a more efficient way of exchange,” Burns said.
“Blockchain is a natural evolution because it is the most efficient way to do peer-to-peer exchange, for example, and it is the gold standard for auditability and ownership. So I think this is all related to Web3,” he added.
“Tokens on the one hand are the fundamental unit or medium of exchange for web3,” Davies chimed in.
Burns then breaks it down into two main principles for connecting tokens to Web3:
1. Ownership – the ability to prove that you own something, such as an item or a credential.
2. Peer-to-peer economy – a new exchange model for exchanging the things you own.
The real benefits of tokenization form value
Davies raises the question of where we will see the most tangible benefits from tokenization besides stock exchanges. What has the most potential for tokenization?
“I think a good concrete example is any kind of item where you care about the provenance,” Burns answered.
This could mean high-end items, such as watches that are tokenized on the blockchain as digital twins, allowing buyers to verify history with full transparency.
Plastic bottles could be tokenized so their origin could be proven to UK authorities, who would then issue a tax redemption if the bottles were made from recycled materials. Consumers can be rewarded with micropayments for recycling the plastic bottles they use.
“You can use blockchain as a means to facilitate those interactions in a trusted way,” Burns said.
Intelligent contract
“Smart contracts” is one of those buzzwords that we often hear but may not fully understand, especially when it comes to tokenized assets.
According to Burns, smart contracts can be thought of as a digital form of traditional pen and paper contracts that are stored and usually executed on a blockchain. This has the added value of immutability and transparency, he said.
“Smart contracts are a way to encode some kind of logic, business logic, or some rules related to the transfer or management of these tokenized assets,” Davies added.
By using smart contracts, we can eliminate fee-only third parties, such as Kickstarter, when it comes to funding startups. You can set up smart contracts instead.
Worth it vs. Non-fungible tokens
“Fungible” and “Non-fungible” may sound like scary terms at first, but what they mean in relation to tokens is quite simple.
“Fungibility is defined as the uniqueness or exchange of tokens of the same type with the same value and identical properties,” Burns said.
For example, think of cash—your one pound coin has the same value as mine; therefore, the one pound coin is a fungible token. Bitcoin, Ethereum, loyalty tokens—it’s all worth it.
Non-fungible tokens, or NFTs, are essentially the opposite of fungible tokens.
“Each token is so unique in some way that it can be differentiated from one another, and its value can fluctuate wildly depending on the mysterious forces of the market,” said Davies.
He explains how NFTs are partly responsible for popularizing blockchain and Web3 in the eyes of the mainstream as digital artworks are minted and sold at “eye-watering” prices. However, this is not what attracted Davies or Burns to NFTs; it’s the usefulness of NFTs that excites them.
“I find NFTs very interesting because I think they can and will be used,” Burns added.
He used gaming skins as an example of where NFTS would be especially interesting because they would add value in a social aspect, like bragging rights over shiny armor, and would also provide some kind of utility, like helping you fight better. .
“I think this idea of a social currency in the future is really important, and I think it’s going to be one of the reasons why NFTs really get big,” Burns predicted.
It’s not just about the Bored Ape, but about its uses, he said.
The pair cites crowdsourcing and royalty sharing as NFT use cases with utilities where smart contracts set the rules. You can even make illiquid assets liquid. For example, creating an NFT of your house, selling 10% of it, and releasing the equity for yourself.
Davies highlighted ticket sales as an ideal use case for NFTs and said this is a huge industry that could be disrupted by digital tokenization. He explains how vulnerable ticketing systems can be, especially if there are physical elements involved. Today, we have moved into an almost completely digital era with ticket sales, but what blockchain can add is a secondary market dimension—you can resell your tickets peer-to-peer. Forget about fraud or third parties who will take big profits.
Final thoughts
In closing, Davies mentioned the need for more regulatory clarity regarding the definition of tokenized assets, how they should be classified, etc. Burns agrees that this is a concerning issue, but wants to close the episode on a more positive note.
“The key message from this episode is that tokens in general offer many uses, and it’s all about representing value in a more fluid and efficient way, as well as exchanging that value,” he said. “Blockchain-based tokens are a natural evolution as they represent one of the most efficient ways to exchange and represent value.”
CoinGeek Conversation with James Belding: Tokenized was built with blood, sweat, and tears
New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.
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