Cryptonetworks and why tokens are fundamental

“Tokens” (also called cryptocurrencies or cryptoassets) are integral to the functioning of cryptonetworks. As we design new regulations and laws in this emerging area, we ought to keep these concepts in mind, beyond the financial factors which are now’s primary focus.

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This is a deep, and perplexing, innovation. Since John Oliver so aptly put it , it is”everything you do not know about money together with everything you do not know about computers”. Basically perfect.

At USV, we have spent the better part of the last five years researching and investing in this space, and now have approximately a dozen investments touching it in 1 way or another. As we’ve watched the technology and marketplace evolve, alongside the public discourse, we believe its important to reiterate why we believe this technology is so effective and important, and contribute to the continuing collective learning about how it functions.

While much of the focus, particularly in the context of regulations, is on the finance and financial software of cryptocurrencies, our curiosity is still about the potential for cryptonetworks to offer digital services, such as computing, document storage, social programs, and much more.

You may ask, why is it important to have another means to offer digital services? We already have a great deal of sites and programs that do that now. The reason cryptonetworks are a fascinating addition to today’s digital services is their core design of decentralization. As the first internet gave us a decentralized layer on top of the telecommuncations network, which led to untold innovation, cryptonetworks are a decentralized approach to give digital services. Chris Dixon has a excellent article researching why this is important, for instance, historical parallels to the first internet.

The decentralized architecture of cryptonetworks has the potential to address many problems in the modern technology and business landscape, such as data security, market rivalry , product creation , and equitable distribution of profits from technology.

Imagine, for example, if the users or owners of Amazon/Google/Facebook/Reddit/etc. Managed to”fork” the product and establish an identical competing copy, if they did not agree with the management of the business? And imagine if all the users of & contributors into an internet platform also had a direct, financial interest in the achievement of the platform, that reflected their own contributions as members? This is the way cryptonetworks work, as they’re basically open minded, mutually owned & managed web platforms. Each system’s cryptocurrency or”token” functions as the internal money, incentive mechanism, and”binding agent” for the other procedures that help the system function. And farther, the internal data structure of cryptonetworks, the dispersed ledger or blockchain has unique properties which could improve privacy and information security.

With that as context, it is important to walk through how cryptonetworks work, and importantly, how tokens function inside them — especially given the growing regulatory scrutiny about how tokens are created and traded.

The deck under (full size / downloadable PDF) is supposed to help clarify this. The key takeaways should be (a) cryptonetworks are a significant new innovation in how electronic services are delivered, (b) tokens are essential to their operation, and (c) as we design new regulations and laws in the area, we ought to keep (a) and (b) in mind as guiding concepts.

5 comments

  1. The need for such a system is only because folks don’t trust the centralised authority. But when the cooperative of which they are members issues its own tokens for work performed, why would we need all that over-complicated blockchain stuff? We’ll just use a ledger and trust the community.

  2. Jobs (particularly wannabe protocol jobs ) have made their end condition decentralised architectures, but there looks like a gap in their own thinking and preparation, the transition from centralised to decentralised. What is the dynamic process which attracts people away from their comfy centralised worlds for this web3 utopia?

    1. It is a fantastic question, and frankly we do not know yet. May start with things like electronic collectibles (such as cryptokitties etc), or”actual” virtual resources inside of matches or societal encounters. Or it might have to do with information integrity and security. I guess it will start with the applications which are most unique to this medium — areas where you may do matters decentralized that were not possible .

      1. There’s a enormous pull for programmers because now every walled garden (GAFA and friends) not merely extracts fees and rent from services and applications but also copies, limitations, and censors what you can build on top of those. For programmers, building on decentralized systems is potentially much more rewarding and enjoyable than the current choices.For end users, it likely won’t matter much before micro payments make it possible for programs to make money more social and embedded in everything (sort of like we are seeing WeChat in China). Otherwise they won’t understand (or care) if they are using a web2 or web3 based program. Over time though I guess we will see a good deal of individuals find crafty techniques to exploit the system and extract charges and value out of it. It’s only a thing people do, so while technology assists it does not fundamentally change human biases. With that in mind, I do not think there’ll be a web3 utopia, or any utopia for that matter, but it is still a excellent vision to work towards and provides direction for further improvement.

        1. GAFA & C0 still have a heartbeat. They don’t go gentle into that fantastic night.The current conditions of financial contrast won’t stay the same. The obvious aggressive beauty of jelqing crypto token company models might not hold quickly.

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