Token Economy by Shermin Voshmgir

Token Economy by Shermin Voshmgir. This book explains cryptocurrency from the broader perspective of Web 3 applications and cryptological tokens. Web3 is the natural evolution or extension of web 1 and web 2. Web 1 was the early stage of the internet when all our online interaction was through a black terminal and had access to text based  information. Most of the early servers were in the military and in universities. With the web browser the web 2 flourished and the era of e-commerce was unleashed. Web 2 empowered people to self-publish all sorts of contents from text to audio and video. Giants like Amazon, YouTube came out of this revolution. However there is a problem. All these e-commerce services are centralized in the sense that we have to do all our activities via a few super-big companies like Amazon, eBay, etc. Web 3 proposes a decentralized plethora of online services without intermediaries which allow people and machines to interact via cryptological tokens. This is already happening with cryptocurrency which is a specialized token with an associated value and currently the most popular token of this class is bitcoin.

The necessity of tokes comes from decentralized operations among people and to remove monopolies controlling interactions online. These interactions nowaday are mostly some sort of trade like buying stuff online, but in general  we should be able to trade goods, services and contracts. Tokens are instruments of trust to verify information without the need of centralized servers.

A blockchain is a distributed ledger to store token transactions, which are recorded in batches of data called blocks. A token is an entry  in the ledger that belongs to  a blockchain address. Typically a user with the private key for that address can access the respective token. There are multiple wallets to store private keys.

Smart contracts like ETH and others alike are self-enforced agreements that can be used not only to tarde value but as general purpose contacts between different entities. This is perhaps the property that will take the internet to a next level: trade without intermediaries. The purchase of a second hand car for instance could be completely automatized by using smart contracts. Insurance plan, finances verifications of both parties, motor vehicle registration and even delivery will be done via token exchange. The cyptological  protection built-in to this technology gives trust to the  entire operation. You could lend money to a complete stranger provided this stranger deposits some form of token as collateral. Airbnb, Uber and eBays are some examples of contracts to exchange goods or services between strangers, but these require centralized entities. The goal is to facilitate decentralized contracts between strangers without any intermediaries. 

Crypto tokens like bitcoin still have many problems: extreme volatility, lack of insurance and for this particular type of coin, the Proof-Of-Work, which although clever,  favors those who have more economic resources. No wonder why most bitcoins are controlled by a few persons and/or companies. We know that because the ledger is public and thus anyone can look into the blockchain. And what happens is that one single person  can make  the price soar a lot by making a large purchase. They do this on purpose for personal benefit. Many exchanges offer corporate services (OTC) to do large purchases without disturbing the market but the whales choose not to.

And what is fascinating is that not only the ledger is public but also the orders book is available to anyone. These real time records of all limit orders show the price and volume of bids for cryptocurrencies on a global scale. Large bids displayed as tall walls in the depth chart represent buying and selling intentions, which although keep changing all the time, these variables give us a rough idea of the forces driving the market and serve as approximate boundary conditions for trading. Essentially the order book gives you a glimpse into what is in the minds of all traders on earth and what the immediate future is going to look like.

In addition to the large fluctuations caused by whales, another problem is the hacking of exchanges where many people have lost their savings. A profoundly disturbing problem is the vulnerability of crypto prices to the noise of the social networks. And on top of everything  we have the taxes and regulations. In my opinion, the crypto market  still has a lot of room for improvement. It seems we still have  a long way to go. In general, for money transfer and for processing payments, I think crypto is fine, but for long term investment I would look elsewhere for better options.

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