If you’re using blockchain, then you want to profit from its strengths and create a business advantage. The most easily understandable purpose of blockchain technology is to create a distributed, tamper-proof registry for data. And the simplest way to use such a registry is to create a token as digital placeholder for something else.
As it turns out, tokens are a convenient way to turn real-life goods, services, rights and other things into digital ones. The token can have a multitude of different functions. It can act as an IOU that grants the holder of the token the right to claim the real life item, or it can act as an access-token, which gives access, for example, to data or unlocks a vault. It can be a utility token, that grants a service for a certain period or act as payment token. It can be a financial product or a fraction of a claim to a larger item. Fragmentation of items by tokenization is a use-case that is best achieved with blockchain. Tokens can also be rewards or represent a temporary voting right e.g. in a general assembly of shareholders.
It should be noted that blockchain is not the exclusive tool for every use case; in some cases you may even be better served by a centralized database and a webserver, for example. However, Blockchain has a major advantage when it comes to trust and decentralization. If a service is cheaper or more reliable without a central party that governs it, then Blockchain is ideal.
When something is NOT achievable with a centralized service, with inferior quality or at the cost of trust, but CAN be achieved with tokens, THEN we are talking about the beginning of a token economy.
A token economy needs more than one or two acting parties; it needs a multitude of actors, who issue, trade, transfer, collect or consume tokens with different purposes for different motivations. It is a true implementation of a “web of value,” for which the token stand for money, passports, personal identity, birth certificates, wedding certificates, car keys, apartment keys, or a gazillion other purposes, all active in the same economy.
A token economy has many players. It needs the interaction of many parties without actually making them aware of the interaction. This is only possible because blockchain needs no counter-party awareness, as trust is built into the protocol and mathematics instead of some third-party enforcement system
A token economy is the logical outcome of what started as an experiment with cryptocurrencies for the public. It is now finding its purpose for enterprises and governments and will sooner or later lead to an integrated web of value. It is estimated that by 2030 many processes will use tokens in one form or another, and end users will not have to bother with the details of the technology. For them it will just be a tool, which is either better, faster, cheaper, more secure – or all of the above. Once this is possible, blockchain technology will have its breakthrough and token economies on blockchain will become part of our everyday life.