Why Now Is The Time To Tokenize The World

Why now is the time to

As we emerge from the coronavirus-induced economic lockdown, it is vital to consider what comes next for business. In the UK, the Office for Budget Responsibility estimates that government’s life-saving interventions to prop up the country through the crisis could cost over £100bn. Meanwhile, the European Union has predicted that a recession of “historic propor ons” will happen this year. What this means is that fiat currencies linked to sovereign governments are going to become very expensive. Someone has to pay for the mountain of debt being racked up by governments, and that will potentially mean higher taxes, or higher infl a on which erodes the value of wages and savings. Larger companies may be able to raise capital through tradi onal measures, but it is going to become more expensive. And what about pubs, independent restaurants, and local football clubs? These places are o en cornerstones for communi es, and they are likely to be hammered by a recession. They cannot issue equity on the stock market -- it is prohibi vely expensive. As the economy reopens, what role could crypto play in helping these businesses access capital and get back on their feet? Perhaps now is the me to normalise a prac ce called tokenisa on. Many will already be aware of cryptocurrencies like Bitcoin and Ethereum. These digital coins are gradually becoming more accepted around the world, and the current crisis is likely to accelerate their wider adop on -- especially as many may fear physical coins and paper money could transmit the coronavirus. Poli cians from the US to China are discussing creating digital equivalents to their currencies, as they are easier and cheaper to distribute, and prevent fraud. Meanwhile, regulators are becoming more understanding and accep ng of crypto, as technology provides more robust protec on and oversight. Even leading fi nancial institutions, from Fidelity to Goldman Sachs, are taking cryptocurrency seriously. Cryptocurrencies are effectively tokens that represent a store of value and can be exchanged. But while a cryptocurrency is traded publicly, crypto tokens can be created privately, and for specifi c purposes. Tokenisa on is the process of taking an asset, and dividing ownership of the asset into several cryptographic tokens. Much like a share certificate or loan note represents that the holder owns equity in a company or a stake of a debt, so too can tokens represent frac onal ownership of an asset. The difference is that it is a much cheaper and more effi cient process than tradi onal share ownership. Selling shares in a business o en requires dealing with an investment bank and fi nancial ins tu ons, as well as paying for a registrar to handle and distribute share cer fi cates. It is a high-cost and complex process. In contrast, because crypto token exchanges are recorded onto a blockchain, it is more decentralised, democratised, and low-cost. After the Covid-19 crisis, private ins tu ons looking to liquidate their assets should consider issuing tokens as a cheaper and more direct approach to raising capital. This is not uncharted territory. The beer chain BrewDog has raised

millions of pounds by selling shares directly to customers through its “Equity for Punks” scheme, while crowdfunding websites like Crowdcube and Seedrs have transformed how businesses can raise capital from everyday investors, by largely digi sing the process of issuing shares. Tokenisa on off ers similar benefi ts, enabling that local pub or restaurant to sell token-based frac onal ownership to loyal customers. These tokens can offer other bonuses, such as a discount or a share of profits. And unlike crowdfunding-based equity, these tokens are inherently tradeable, thanks to being recorded on a blockchain; they don’t need to be listed on a stock market, the tokens are tradeable in and of themselves. Of course, if you’re a small business owner, the idea of becoming a blockchain expert in order to issue tokens will seem daun ng. But you won’t have to. In addi on to liquidity (i.e. the ability to buy and sell) being off ered via crypto-issuing pla orms, big tech is also limbering up to off er infrastructure solu ons for the rapid issuance of tokens via a recognised currency that is automa cally incorrup ble. Facebook is the leading household name here. Libra, its cryptocurrency, will enable the social media giant to connect its communica on solu ons with ecommerce, and it may eventually lead to the crea on of infrastructure for companies to issue tokens via Libra. Imagine paying for your friend’s pint with Libra coin over WhatsApp or Instagram. But Apple, Google, or even Japan’s Rakuten could also pull out in front. The la er already has “Super Points”, a cashback-based loyalty scheme that can be used to pay for goods on other ecommerce platforms, and even in branches of McDonalds. These points could be tokenised, which leads to all sorts of possibili es. For instance, if they could be exchanged with Libra, you then have a poten ally cheaper alterna ve to tradi onal forex markets and en rely new ways to generate wealth. The underlying point is that, while it is easy to fret over how businesses will cope with the economic repercussions of the pandemic, it’s also possible to be excited by the solu ons that will emerge. Now may be the time for crypto coins like Libra to become mainstream, and tokenisa on could become a crucial way for communi es to support their local businesses in the coming years.