This short post explores some of the additional value that tokenised assets on blockchains can add, over and above pure financial return.
The assets in question could be shares, or bonds, or other financial securities recorded as tokens on blockchains. Some assets may not even be not regarded as financial securities, due to what they represent and what is promised to the asset holders – these have been described as “utility tokens”.
Today, people typically buy financial securities purely for their financial return. A bond, loan, or other fixed income product, will give investors some amount of yield, usually commensurate to the amount of risk the investor is taking by providing their money.
Equity may give you slightly more than just a return: perhaps a vote at an annual shareholder meeting. However, most people don’t care about these votes. They just care about the share price going up, and dividends, if any. The crypto community describes this succinctly as #NumberGoUp.
Yet increasingly, tokens are being used creatively to incentivise and delight token holders.
Last December I was approached by a publisher, Mango, who asked me if I would write a book about blockchain technology. A little nervously, I agreed, and I’m excited to announce the result of six months of effort:
The Basics of Bitcoins and Blockchains is an essential guide for anyone who needs to learn about cryptocurrencies, ICOs, and business blockchains. Written in plain English, it provides a balanced and hype-free grounding in the essential concepts behind the revolutionary technology.
I wrote The Basics for an audience of business people, students, practitioners, and those who are simply interested in this technology. I tried to make it entertaining even for those who are already working in the cryptocurrency or blockchain industry. For example, did you know:
2016 was the year of creating frameworks and filters to determine if a business problem was worthy of a blockchain-based solution. Often, the frameworks would declare inappropriate potential use cases as ripe for blockchaining, as the frameworks were often designed by blockchain vendors or consultants to let as much through as possible. However, many of the proofs of concepts built in 2016-17 have not become industrial solutions. Why?
Two main reasons are:
The technology didn’t meet the requirements of the use case
The use cases themselves were selected badly
This post discusses what went wrong with use case selection, and presents two new and better questions for use case selection.
There is a lot of misleading commentary about smart contracts, leading to confusion about what they are and what they can do. Here are three of the most common myths that I have noticed. This builds on a previous piece, a gentle introduction to smart contracts.
Myth: Smart contracts are self-executing bits of code
Distributed ledgers – databases with shared control over what and how data is added – can be seen a strategic solution to the “reconciliation” workaround that we have had to put up with until now. This strategic solution is applicable to all industries, not just financial services.
I enjoyed listening to Episode 151 of the podcast “Epicenter” (previously “Epicenter Bitcoin”) featuring Ian Grigg, inventor of Ricardian Contracts and blogger at Financial Cryptography. Here are my notes – part transcription, with some edits. This one is a goldmine and covers many topics: bonds, contracts, cash, Chaumian e-cash, DigiCash, financial cryptography, Ricardian contracts, digital signatures, smart contracts, dispute resolution, Ethereum, triple entry book-keeping, oh my!
Misunderstandings and paraphrasing errors are entirely mine.
This post tries to describe two very different uses for blockchain technology: Digital Token Ledgers that record ownership changes of digital tokens, and Activity Registers that record timestamped proofs of existence of data or agreements about data. Bitcoin is used for both.